Clearing your confusion regarding Can an NRI Purchase Property in India?

Investing in property or real estate is one of the most appealing investments for individuals seeking financial stability and security. For Non-Resident Indians (NRIs), their desire to purchase a property in their home country can be a special feeling. You will be happy to hear that NRIs are allowed to buy a property in India, but this process is under the purview of certain legalities and guidelines that NRIs must keep in mind and should adhere to. In this article, we will try to answer the question Can an NRI Purchase Property in India?

However, before we move on to discuss about NRI buying property in India. Let us first move on to discuss about NRIs and their residential status.

Understanding Non-Resident Indians or NRI and their Residential Status

NRIs are persons who are of Indian origin but are presently residing outside the country. They can reside outside the country for any reason, whether for employment, education, business, or for any personal reasons. NRIs aim to maintain strong connections with India while residing abroad. The residential status of NRIs is of significant importance because it determines their tax liabilities and legal rights in India.

Residential Status Categories

The following are the residential status categories for determining the NRI Residential Status of an individual:

Resident: An individual is deemed to be a resident in India if he fulfils any of the following circumstances:

• If they are present in India for a minimum period of 182 days or more during the prevailing financial year.
• If they are present in India for a minimum period of 60 days during the prevailing financial year and have been present for a minimum period of 365 days during the preceding 4 financial years.

NRI (Non-Resident Indian): An individual who does not fulfil the criteria mentioned above is considered an NRI.

The following are the terms are generally associated with the NRI’s:

• PIO (Person of Indian Origin): PIO is an individual with Indian ancestry. PIO may or may not have acquired the citizenship of another country. The PIO status in NRI status has merged with the OCI (Overseas Citizen of India) status of the individual.
• OCI (Overseas Citizen of India): OCI or Overseas Citizen of India is a long-term visa that grants individuals of Indian origin certain rights, including the ability to own property in India.

RNOR (Resident but Not Ordinarily Resident): This status is for individuals who have come back to India after residing abroad for a certain period. An individual is eligible to qualify as an RNOR if the following criteria are fulfilled:

• If they reside in India for less than 182 days during the prevailing financial year.
• Or if they have been non-resident in India for at least 9 out of 10 financial years preceding the relevant financial year.

Understanding FEMA and Its Implications

The property acquisition by NRIs in India is governed by a statute known as the Foreign Exchange Management Act, of 1999 (FEMA). According to FEMA, NRIs can be classified into two, one is an individual who has an Indian passport or a foreign passport with Indian origins. In this, those individuals are also included who are of Indian origin and who have lived abroad for a specified period.

The (FEMA) came into the picture in 1999, to consolidate and amend the laws governing foreign exchange transactions and external trade in India. The Foreign Exchange Regulation Act (FERA) was replaced by FEMA to liberalize the foreign exchange regime while making sure that compliance is fulfilled along with international standards.

One of the most important aspects of FEMA concerning NRIs is property acquisition. The FEMA handles the purchase, sale, and ownership of immovable property, including residential and commercial real estate. It also governs transactions between NRIs and Persons of Indian Origin (PIOs) as a result of which it can offer a clear framework for their property-related activities in India.

Can an NRI Purchase Property in India?

Yes, NRIs are allowed to purchase property in India as per FEMA rules and regulations; however, this is subject to certain conditions and restrictions. As per FEMA regulations, NRIs are eligible to purchase residential as well as commercial properties in India. They are also allowed to inherit property from a person who is a resident of India or another NRI. However, there are a few key points to consider before NRI is buying a property in India:

• Types of Properties: NRIs have the permission to purchase residential and commercial properties in India without any issues or restrictions. NRIs are also entitled to acquire agricultural land, plantation property, and farmhouses, under certain conditions.
• Financing the Purchase: When NRI are purchasing property, they can use funds available from their Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. However, NRIs are not allowed to utilize funds from their foreign currency accounts in India.
• Repatriation: NRIs have the permission to repatriate the funds from the sale of property (up to two residential properties) to their currently residing country within specified limits. However, the repatriation should not exceed the limit of the amount initially used to purchase the property. Further, it is also subject to taxes and other regulations.
• Tax Implications: NRIs are under taxation in India as well as in their country of residence. It is advisable to NRIs that they must be aware of the tax implications of purchasing and selling property in India, and any sum derived from capital gains tax and TDS (Tax Deducted at Source).
• Documentation: NRIs should complete the filing process of documentation process as resident Indians when purchasing a property. NRI is obliged to submit the documents including identity proofs, address proofs, and other necessary documents. The documents filed by NRI should comply with the requirements of the Reserve Bank of India (RBI).
• Loan Facility: NRIs are also allowed to take home loans in India. Many financial institutions such as banks etc., offer NRI home loans. However, the terms and conditions applied on an NRI for a Home Loan may vary as compared to loans for Indian residents.

Types of properties NRIs can purchase in India

For many years the Government of India has relaxed regulations and compliances regarding NRI property ownership. The government of India is also making it easier for NRIs to invest in various types of properties in the country.

The following kinds of Properties can be purchased by NRIs in India:

• Residential Properties: NRIs have the permission to invest in residential properties such as apartments, villas, and independent houses, for personal use or for acquiring rental income. There is no limitation on the number of residential properties that can be owned by NRIs. Also, it is provided that the properties must be acquired through legal channels and they must be in conformity with the Foreign Exchange Management Act (FEMA) guidelines.
• Commercial Properties: NRIs can also purchase various kinds of commercial properties for example office spaces, retail outlets, and warehouses. Purchasing a commercial property can be a very good option as they often provide higher rental returns as compared to residential properties in India. NRIs can lease out the purchased commercial property to any business and earn a steady flow of income.
• Agricultural Land: Commonly NRIs are not allowed to purchase agricultural land in India; on the other hand, NRIs can inherit agricultural land from their ancestors. In case an NRI inherits agricultural land, they can sustain and cultivate its land, they are also subject to specific state laws and regulations.
• Plantation and Farmhouses: NRIs are allowed to purchase plantation properties and farmhouses; however, it is provided they are not agricultural land. These properties may have a geographical location in scenic or rural areas and this property can be used as vacation homes or for agricultural activities other than using it as cultivation of crops.
• Residential Plots: NRIs are allowed to purchase residential plots or land to construct a house shortly. This makes him eligible to have a property in India that conforms to their preferences and requirements. However, NRIs cannot use this land for commercial or agricultural purposes.

Essential documents required for NRI buying property in India

The following is the list of documents that NRI must keep handy while purchasing property in India:

• Passport and Visa: A valid passport acts as a primary identification document and is required for property purchase. NRIs should also have a valid visa as proof of their status as non-resident Indians.
• PAN Card: The Permanent Account Number (PAN) card is essential for financial transactions in India, including property purchases or any financial transaction for that matter. NRIs can apply for a PAN card online or Offline in case they don’t have one.
• OCI/PIO Card: NRI holding an Overseas Citizen of India (OCI) or a Person of Indian Origin (PIO) card serves as additional proof of the relation of NRI with India. This assists in making property transactions smoother.
• Power of Attorney (PoA): NRIs must appoint a trusted person in India as their power of attorney holder to enhance or assist in property transactions on their behalf. The PoA document should be properly notarized and must be submitted along with its consular-attested version.
• Address Proof: Documents such as bills, driving licenses, or bank statements act as address proof for NRIs.
• Foreign Exchange Remittance Certificate (FERA): This certificate was issued by the bank in the case of an NRI who holds an NRE/NRO account. This certificate confirms the remittance of funds to India. It is one of the most crucial documents to validate the source of funds for property purchase.
• No Objection Certificate (NOC): NRIs are under obligation to obtain a No Objection Certificate from the local municipal office to verify that there are no pending dues associated with the property.
• Bank Statements: Bank statements from NRE/NRO accounts are useful instruments to verify the source from which the funds are yielded for the Can an NRI Purchase Property in India? property purchase.
• Encumbrance Certificate: This certificate certifies that the property concerned does not have any legal or monetary liabilities such as mortgages or pending loans.

Procedure for NRI to buy property in India

The following is the procedure for NRI to buy property in India:

• Property Search: First of all you need to begin by identifying and selecting the property you wish to purchase. You can also engage a real estate agent or a legal advisor for this and to evaluate the properties.
• Legal Due Diligence: You must conduct thorough legal due diligence on the property to make sure that the property you wish to purchase has a clear title and is free from any encumbrances or legal disputes.
• Agreement to Sell: Once you have done all this, then you must execute an ‘Agreement to Sell’ between the buyer (you) and the seller. This agreement briefly describes the terms and conditions of the sale.
• Registration of Property: The sale of your property is finalized with the execution of a Sale Deed. A Sale Deed is a legal document that transfers the ownership of the property. It is pertinent to note that the Sale Deed must be registered at the local sub-registrar office.

The procedure for NRI to buy property in India is approximately the same as that of buying property by any Indian Citizen. However, the only different factor is that of Power of Attorney (PoA), NRIs must appoint a trusted person of their choice in India as their power of attorney holder to assist them in property transactions on their behalf.

Can an NRI Purchase Property in India and how the funding of the Purchase takes place?

As we have discussed earlier NRI can purchase property in India. Also, NRI buying a property in India may collect finances through various sources some of them are:

• Self-Financing: NRIs can utilize their funds, including income earned from abroad and funds available in Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts for purchasing property in India.
• Home Loans: NRIs are eligible to take home loans from Indian banks and other financial institutions to purchase property. These loans are mostly available for the purchase of residential, commercial, and even agricultural property. The loan amount, interest rates, and tenure will depend on the individual’s profile, income, and creditworthiness who are taking the loan.
• Joint Financing: NRIs can also enter into a joint financing arrangements mechanism with any of the resident Indians or other NRIs. This approach is very beneficial in terms of sharing the financial burden and also in diversifying the investment.
• Loan against Property (LAP): NRIs who own property in India can apply for loans against their existing property in India to fund new purchases. The eligibility criteria for LAP are examined based on the property’s value and the applicant’s repayment capacity.
• External Commercial Borrowings (ECBs): NRIs can also use the option of availing External Commercial Borrowings to fund their property purchases. This option is more frequently used for commercial property acquisitions.

NRI buying a property in India must adhere to some Regulations and Legalities enacted by the RBI and FEMA to avoid any penal action.

• Regulations and Legalities

The following are some Regulations and Legalities that NRIs buying property in India must keep in mind Also, NRIs are under obligation to adhere to specific regulations and guidelines enacted by the Reserve Bank of India (RBI) while funding property purchases:

• RBI Approval: NRIs can purchase residential and commercial property in India without prior approval from the RBI. On the other hand, in the case of agricultural land, plantation property, and farmhouse purchases NRI requires special permissions.
• Source of Funding: Funds for property purchases must derive their source through NRE/NRO accounts or remittances from abroad. NRIs for this purpose are prohibited from using funds from their foreign currency accounts held in India.
• Loan Repatriation: The Repatriation of funds is allowed for up to two residential properties for both the invested amount and any rental income. However, the sale proceeds of the property can only be repatriated to the limit of the amount that is originally invested; it is also subject to certain conditions.

Repatriation Rules for Property Purchase

The repatriation of funds that are related to property transactions is under the purview of certain conditions and limits set by the RBI. These rules have evolved to facilitate smoother property investments for NRIs:

• Sale of Property: NRIs can easily repatriate the funds from the sale of immovable property in India. It is provided the property was initially acquired either by way of foreign exchange remittance or the NRI’s NRE/FCNR (Non-Resident External/Foreign Currency Non-Resident) account.
• Taxes and Certificates: NRIs need to make sure that all taxes that are about the property transaction have been duly paid, and they also need to obtain a certificate from a chartered accountant that confirms compliance with the applicable tax laws.
• Timeframe: NRI cannot repatriate the funds from the sale of a property as there is a lock-in period of three years. This is done to discourage short-term speculative investments.
• Banking Channels: Repatriation must take place with the help of authorized banking channels, and the NRI must adhere to the suggested procedures by the RBI and the bank.

Tax Implications for NRIs Purchasing Property

The tax implications for NRIs purchasing property in India are very complex. NRIS must understand these tax implications to make informed decisions while planning to purchase a property in India.

• Income Tax on Rental Income: In case an NRI is willing to lease out the property, then they are under obligation to pay income tax on the rental income from the property. NRIs must obtain a Permanent Account Number (PAN) and they should file an income tax return in India.

Also read our Article on: Everything you need to know about NRI Income Tax Return

• Capital Gains Tax: NRIs are also subject to capital gains tax if they are willing to sell their property. The taxation depends on the holding of property whether it is held for the short term or long term. Short-term capital gains are when the property is held for less than two years and this is subject to normal tax rates, while long-term capital gains are when if held for more than two years and are taxed at a special rate along with indexation benefits.
• TDS (Tax Deducted at Source): When NRIs sell property; buyers are under obligation to deduct TDS on the sale proceeds before they remit the amount to the NRI seller. The TDS rate is usually higher for NRIs and is calculated based on total sale consideration.
• Wealth Tax: Wealth tax is no longer prevailing in India, However, NRIs should also be aware of any local taxes or regulations that may be applicable in their state of property ownership.

Double Taxation Avoidance Agreements (DTAA)

NRIs usually face the possibility that they may taxed on the same income in both their country of residence and India. To tackle this issue, India has a policy and entered into Double Taxation Avoidance Agreements (DTAAs) with various countries. These agreements make sure that NRIs do not pay double taxes on the same income in both of the concerned countries. NRIs can also avail of benefits such as tax credits or tax exemptions under these agreements, reducing their overall tax obligation.

Conclusion

Non-resident Indians have now more opportunities to invest in various types of properties in India; this is due to the government’s liberalized policies. However, it is important to understand the legalities, documentation, tax implications, and funding options before moving towards Can an NRI Purchase Property in India?

It is good to take guidance from legal and financial experts as they can help you with a smooth and compliant investment process, as well as allow NRIs to utilize most of their property in India. You can also connect with our financial experts at Legal Window in case you need any assistance and to file an NRI Income Tax Return.