Recently, the real estate sector in India is becoming an attractive investment ground for the diasporas who have evinced a keen interest in owning residential and commercial properties in India. Ganesh is a non resident Indian residing in London, UK. He wants to buy property in India and seeks advice on the regulatory framework for investing in real estate in India.
Non Resident Indians and foreign citizens who are Persons of Indian Origin (PIO) are allowed to purchase immoveable property in India. PIO means an individual who at any time held an Indian passport or who or whose parents or grand-parents were citizens of India at any point in time.
However citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan are not eligible to be called PIOs even if they satisfy the above conditions.
No permission from government authority required
If Ganesh wishes to purchase a property in India, he simply needs to choose the property and does not require any permission from the Reserve Bank of India or any government authority.
Ganesh can purchase both commercial and residential properties in India, but cannot purchase agricultural land, plantation or farm house in India. Acquisition of agricultural land, plantation and farmhouse properties by by way of purchase or gift by NRIs is prohibited except being permitted by way of inheritance.
There is no restriction on the number of properties that can be purchased. Immovable property includes residential property, commercial and industrial property as well as land for construction of any of the aforementioned properties.
The property can be acquired other than by buying i.e. gift, inheritance or partition of family property.
Property can be jointly held by NRI’s
Although the Foreign Exchange Management Act, 1999 (FEMA) does not specify any regulations in this regard, property can be jointly held by NRI’s. Similar is the position with regard to property jointly held with residents of India.
The very first step is identifying the property and verifying that the seller has the right to sell the property i.e. a clear marketable title. This assumes importance for NRI’s as they typically rely on the newspaper advertisements and brochures issued by property builders and developers for making the investment decision.
It is important to verify that the builders have the requisite permissions from the regulatory authorities, funds to construct, approved plans as well as a marketable title to the property.
The documents of title should be carefully perused to verify these points. The terms of payment and the date of handover of physical possession should also be noted carefully.
NRI’s are eligible for housing finance
The purchase can be funded from the fresh remittance through normal banking channels or from payment from original non-resident account or from Non-resident (External) Accounts.
Loan may also be availed from financial institutions..Non-resident Indians who are citizens of India (Indian Passport holders) are eligible for housing finance for the acquisition of an immovable property or construction of a new house, or a flat.
Ganesh wonders if he needs to make several trips to India to complete the process of acquiring a property. This can be avoided by executing a valid Power of Attorney favouring any relative or trusted person in India for negotiating, signing the agreements and taking possession.
The power of attorney authorizing the person in India should be duly notarized and consularised before it comes to India (in case it is executed by the non-resident Indian outside India) and thereafter stamped and registered upon its arrival in India.
Properties purchased can be rented out
It is advisable that the payment of the consideration as well as execution /signing of the agreements/ sale deed happens simultaneously. Stamp duty, registration fee and other expenses for the transfer would be borne by Ganesh.
Properties so purchased can be rented out and rent can be credited to the Non-resident Ordinary (NRO) account and even remitted out of India.
The rental income is taxable in India as it arises in India and is subject to tax deduction at source at the prescribed rate in case the same exceeds INR 180000 per annum ( w e f from July 1, 2010). There is no income tax or other direct tax when a property is purchased.
Tax liability
Wealth Tax is levied on the market value of taxable assets in India, being immovable properties, jewellery, vehicles and cash in excess of Rs.50,000/-, if the total market value of such taxable wealth exceeds Rs. 30 lakhs subject to an exemption for total value of any one house property .(after deducting liabilities , if any , in this regards).
Presently rate of Wealth Tax is 1 % and the same is payable every year on the net wealth as on 31st March. Gift Tax has been abolished in India. However amounts of gifts exceeding Rs. 50,000 received from persons who are not covered by the definition of ‘close relative ‘ are taxable in the hands of the donee.
Estate duty has again been abolished in India and therefore there is no tax on inheritance of property.
Ganesh is concerned about the fact of whether or not he would be able to transfer the property purchased and easily liquidate his investment.
Free to sell property without govt permission
NRI’s /PIO’s can freely sell the property without taking the permission of any government authority or the Reserve Bank of India.
Other than selling the property for consideration, the same can also be transferred by way of exchange, gift or relinquishment of interest in property.
Indian citizens residing abroad can sell or transfer any immovable property other than agricultural land, plantation, farmhouse property) to a resident or a person resident in India, or an overseas Indian being an Indian citizen or a foreign citizen of Indian origin.
As regards sale of agricultural land, plantation or farm house properties, a general permission is given to transfer by way of sale, gift or part with in other way such property provided the purchaser or donee is resident in India.
NRI’s are allowed to repatriate sale proceeds
An NRI being an Indian citizen or a foreign citizen of Indian origin, is allowed to repatriate the sale proceeds of an immovable property subject to prescribed conditions as per FEMA.
Further, the gains received from the sale are taxable ie if the property is a long term capital asset i.e. asset which has been held for three or more years by the NRI, capital gains are chargeable at the rate of 20%.
If the property has been held for a period of less than 3 years, capital gains are included in the income of the NRI and charged at the usual slab rates.
DEAR SIR,
IN THE ABOVE NEWS LETTER. YOU HAVE NOT FURNISHED DETAILS ABOUT REPATRIATION. HOW A NRI CAN AWAIL.
THANKS