Acquisition and transfer of immovable property by NRIs in India?
Acquisition and transfer of immovable property by NRIs in India?
Author
Balwant Jain
Reserve Bank of India (RBI) regulates purchase and acquisition of immovable property in India by Non-residents under Foreign Exchange Management Act (FEMA). An Indian citizen,resident outside India under FEMA is an NRI (Non Resident Indian) whereas a non-Indian citizen who, or whose parents or grand-parents were born in India etc. are treated as OCI (Overseas Citizen of India). Since for the purpose of investment in real estateNRIs and OCIare generally treated at par, I will refer both as NRI for our discussion.
Type of properties which NRIs can purchase in India and mode of payment
As per RBI directions,NRIsare allowed to purchase any number of residential or commercial properties in India without specific permission.They are not even required to intimate the RBI about suchpurchases, even post conclusion of the transaction. The NRI can purchase the permitted properties from resident as well as from another NRI. An NRI is permitted to hold only one immovable jointly with his/her non NRI spouse.NRIs cannot purchase anyagriculturalland, farm houseorplantationproperty in India without specific permission from RBI.
An NRI can pay for such acquisitions, by remitting money from outside India through proper banking channel. Alternatively, and additionally he can utilize balance lying in hisNRE/NRO or FCNRaccounts.However, payment for such permitted acquisition cannot be made through traveler’s chequesorforeign currency in India. NRIsareevenallowedto avail homeloaninIndianrupeesfrom the Indian employer of the NRI or a housing finance company or a bank in India to fund such purchases.
The home loan can be serviced bydirectremittancefromabroadorfromtheNRE/NRO/FCNR account of the NRI.An NRI can also use rental of the property to service the home loan. In addition to the above sources,the home loan can also be serviced by money transferred to NRI’s account by his relative in India.
Other Permitted mode for acquisitions of immovable properties by NRI
An NRI is also allowed to inherit,either through a Will or under personal law applicable to the NRI, any property including agricultural land etc. As far as inheritance from an NRI is concerned, it allowed provided the NRI owner had acquired the same under the permitted rules.He is also allowed to receive gift of residential and commercial properties in Indiafrom any of his NRI, OCI relative or any resident Indian.
An NRI is allowed to continue to hold all immovable properties including agricultural land, farm house etc. acquired while he was a resident in India.
Transfer of immovable property by an NRI and remittance outside India
An NRI can sell or gift any immovable property owned by him in India to any resident but can only sell or gift commercial or residential property to another NRI.Direct payment from a Person resident outside India to another Person resident outside India for acquisition of property in India is not permitted.
An NRI is permitted to remit fully the amount on sale of properties in India to the extent of money remitted from outside India or utilized from NRE or FCNR account for purchase of such property.
An NRI is permitted to remit fully such money in respect of two residential properties only.Additionally, an NRI is allowed to remit upto 10 lakh USD every year out of India from realization any of his assets in India.
Taxation on sale of properties in India
Taxation rules on profits on sale of immovable properties are the same as applicable to a resident taxpayer except that in case of an NRI seller, the buyer is required to deduct tax at source at full rate applicable on the profits without any threshold limit whereas for resident seller the tax gets deducted at only 1% and that too when the sale consideration of the property exceeds 50 lakhs. The NRIs have to pay tax at flat 20% on the indexed capital gains if the property is sold after two-year else tax at applicable rate is required to be paid. An NRI can avail exemption from long term capital gains(LTCG) residential property by investing indexed LTCG in another residential property in India. For LTCG on commercial property he has to invest the sale consideration in a residential property in India. Additionally, and alternatively an NRI can claim exemption upto 50 lakhs of LTCG by investing in capital gains bonds within six months.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on twitter
