There is a lot of ambiguity in the procedure involved for NRIs looking to purchase a property in India. Recent price corrections in India’s real estate sector and currency rates have made purchasing property in India a more attractive option for NRIs.
The Indian law to purchase a property in India has been fairly simplified over the years. Such transactions are governed by RBI and covered under the provisions of the Foreign Exchange Management Act (FEMA).
What kind of property can an NRI purchase in India?
An NRI or Overseas Citizen of India Cardholder (OCC) can buy either a residential property or a commercial property in India. There is no limit to the number of properties that an NRI can purchase in India. However, an NRI cannot buy agricultural land, plantation land, or a farmhouse in India, even accepting such property as a gift is not permitted. NRIs and OCCs can, however, inherit any immovable property as such farmhouses and agricultural land in India.
For property registration by an NRI, the below documents are required:
A copy of either the passport, Aadhar, driving license, election commission card, etc. or any other identity proof issued by the State or the Central Government.
PAN Card copy of each owner
A copy of the certificate of possession
Two passport size photographs of each owner
Overseas Citizenship of India Card, which is issued by the Indian Consulate of the country in which the NRI resides.
Payment when Purchasing a Property in India
The payment for purchase of a permitted property can be made via remittance through banking from abroad or from funds available in their respective NRE / NRO or FCNR account. The money for purchasing has to be routed only through banking channels. Hence, the payment cannot be tendered in the form of traveler’s cheques or foreign currency.
NRIs can avail home loan to finance the purchase of the property in Indian Rupee. The NRI buyer can take a loan with the help of the Indian employer for the purpose of financing. The RBI has granted permission to banks and housing finance corporations registered with the National Housing Bank to provide loans to NRIs for purchasing a property in India. If the loan has been sanctioned in Indian currency, it has to be repaid in the same currency. According to the rules laid down, the loan amount cannot be directly credited to the bank account of an NRI. It has to be disbursed to either seller’s or the developer’s account. EMI payments can be done via direct remittance from banking channels abroad, or from the NRE / NRO / FCNR account of the NRI purchaser.
NRIs or OCCs may need to remit either the rental income or the sale proceeds from a property to the country of residence. A non-resident can remit income like rent from a non-resident ordinary (NRO) or from a non-resident external (NRE) account in India. If the tenant is directly remitting rent to the non-resident, it would be subjected to the limits prescribed under the Liberalised Remittance Scheme (LRS), which is a maximum of $250,000 every financial year.
Typically, there is a cap of $1 million a year on repatriation. In case NRIs or OCCs want to repatriate the sale proceeds to their country of residence, they can only do up to the prescribed limit. But they can repatriate a higher amount, after RBI approval, in case the property sold meets the following three criteria.
Who can be named as a joint owner?
The property can be purchased in a single name or jointly with any other NRI. It has to be noted that a resident Indian or any other person who is not allowed to invest in the property in India cannot be made as a joint owner in the property even though he / she is not contributing any money towards the property.
Who can be PoA?
If the NRI purchasing the property is not able to be present at the time of purchase, the buyer has an option to give PoA (Power of Attorney) to his / her friends or relatives to complete the property purchase in India. The NRI buyer can give general or specific PoA to authorize a person to sell the property on his / her behalf. However, the PoA must be registered in India after the stamp duty payment.
Income taxes applicable to house properties in India
Prior to Budget 2019, for an assessee with more than one residential property, only one was considered to be self occupied and the rest were considered to be deemed let out. But post Budget 2019, an assessee is allowed to own two houses as self occupied houses and more than two houses will be considered as deemed let out.
An NRI can claim a standard deduction of 30%, deduct property taxes, and avail interest deduction in case of a home loan. The NRI can also claim the principal repayment deduction under Sec 80C. Under the same section, deduction on stamp duty and registration charges paid on the purchase of a property can also be claimed. Income from house property is taxed at slab rates as applicable.
GKM provides professional tax advice for both resident and non-resident taxpayers. Get in touch with our professional team to discuss capital gains tax implications and tax planning on purchasing or selling a property in India.