Non-resident Indians often feel perplexed as to how to go about investing in property in India. They are unsure about the rules and the methodology of making investments and hence are apprehensive about the outcome from such investments. This article attempts to dispel the doubts in the minds of such prospective NRI investors by addressing key issues pertaining to property dealings in India.
NRI, PIO and OCI explained
Let us first look at what the term NRI actually connotes. NRIs’ or non-resident Indians are individuals who hold an Indian passport and are currently residing or has resided in another country for a consecutive 180 days or above during the said financial year.
In addition to NRIs’ there are two categories of individuals who can buy property in India. They are the PIOs’ (Person of Indian Origin) and the OCIs’ (Overseas Citizen of India). The PIO status used to be a 15 year visa for non-Indian citizens. However this has been discontinued from 9th January 2015. Presently all PIO card holders have been automatically been categorized as OCIs’.
As of now applicants may apply for OCI card only, since PIO card scheme is no longer in existence. It is not mandatory to transfer the PIO Card to OCI card.If required, one may apply for OCI card in lieu of a valid PIO card free of any charges.
Type of Property that can be / cannot be bought by NRIs
Funding the Purchase by NRIs
NRIs’ holding non-resident external (NRE) or Non Resident Ordinary (NRO) rupee accounts in India are eligible to buy property by issuing cheques from such accounts. NRIs’ holding deposits in Foreign Currency Non-resident (FCNR) accounts can also make purchase using funds from such accounts. Besides this, overseas currency can also be brought to India through legitimate banking channels.
Power of Attorney (POA) by NRIs and its adjudication
It is often that NRIs’ are not willing to travel to India for registering the property in their name. In such cases and situations it is within their rights to issue POA in favour of a close relative residing in India. The relative can then sign on the purchase contract on his behalf and also register the same in his or her name. The POA, per se, must be signed by the NRI in the presence of a notary or consulate officer in the country of his residence.
Once the POA is sent to India, the POA holder will have to sign and adjudicate it within three months from the date of assigning the power, at the registrar’s office in India. After this procedure is completed, it can be said that the POA has been legally given.
Repatriation of funds and tax implications for NRIs
When a sale of property takes place and the amount so received as sale proceeds is sent abroad to the country of the NRI’s residence, it is called repatriation of funds. The process involves conversion of Indian rupee to foreign currency.
As per the Indian tax laws, if an NRI holds a property in India, he or she is not liable to pay tax unless there is a rental income accruing from it. However, if the property is sold, then capital gains tax – short term or long term, as the case may be, is applicable.
Taxability of rental Income for NRIs
If the property held by the NRI is let out on rent then such rental income is taxable. Due taxes have to be paid on such income and proper income tax returns need to be filed under relevant PAN.
If the NRI has two or more properties in India then only one can be treated as self-occupied and ‘deemed rent’ has to be declared for the other properties and tax has to be paid on them. However, as per the rules applicable to resident Indians, NRIs’ too have the choice of showing 30% of such deemed rental income as maintenance cost and get tax benefit against the same.
No tax is payable on deemed income in the country of the NRI’s residence, however it is advisable to declare the same there as it could otherwise cause problems during repatriation of funds from India.
Loan availability and tax benefits on home loans for NRIs
NRI, PIO and OCI all have access to home loans in India. Multinational banks have different schemes in place for providing home loans subject to country related restrictions. Banks seek POA for extending home loans to NRIs’.
As per the tenets of the Income Tax act of India (section 24), interest on a home loan is deductible from the income gained from house property to the extent of Rs.2 lakh per annum for self-occupied property. Other than self-occupied property, actual interest paid can be claimed as a benefit. Over and above this, up to Rs.1.5 lakhs is deductible on account of principal repayment under the overall limit available as per section 80C.
A good decision is based on the knowledge. The above details can help you on better understanding of NRI property dealings and in turn will help you take the right property decision.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at firstname.lastname@example.org