Buying a property undeniably ranks as one of the biggest dreams. So it does not matter which part of the world you reside in; a home in India is simply a must.
Property Investment by NRI is the most discussed but least known topic.
The reason being, it is considered to be too complicated. The rules and regulations ruling NRI Investment in property are different.
There are two main reasons for NRI Property Investment:
1. NRI’s would like to live in India after retirement, and
2. They feel safe investing their hard-earned money in India compared to their home country.
To know how can an NRI buy property in India, an NRI should be aware of certain NRI legal provisions about purchasing a property in India under the Foreign Exchange Management Act (FEMA). Non-resident Indians (NRIs) and persons of Indian origin (PIOs) are treated at par for real estate investment.
Properties that NRI can buy
The Reserve Bank of India (RBI) generally permits NRIs/PIOs with a valid Indian passport to buy residential/commercial properties in India. The investor need not obtain RBI’s special permission for this purpose and is also not required to notify the RBI about buying residential/commercial property in India.
An NRI can purchase any number of these two properties as per RBI regulations and income tax laws. Suppose the NRI investing in a commercial/residential property in India cannot come to the country. In that case, the purchase can be executed by giving a legally binding power of attorney to another person.
However, RBI’s general permission does not permit an NRI to invest/buy an agricultural land/plantation in India. This means that NRIs cannot buy/invest in farmhouses without obtaining special permission from India’s Reserve bank.
The RBI would review such applications on a case-to-case basis only. Under the RBI’s general permission, an NRI can invest/buy a property, either individually or jointly with another NRI.
However, an Indian resident or person who is not allowed to buy properties in India cannot become joint investors in such properties, irrespective of the second holder’s contribution to the purchase.
If a person who owns immovable property in India becomes an NRI, then he/she can continue holding the property. NRIs are also allowed to own a farmhouse, agricultural land, or plantation before becoming an NRI. They can also let out their property.
Tax as applicable in India should be paid on such receipts. NRIs can gift or sell immovable properties to any Indian resident.
They are also allowed to transfer or gift any property, other than the farmhouse, agricultural land, or plantation property, to another NRI.
Many times, when NRIs purchase properties, developers demand a PoA in their favor. You may choose not to provide this PoA, but it would lead to delays since all documents would have to be sent to your foreign address. Giving a specific PoA would be a better option and will save time.
Funds for property
When buying/investing in India’s property, NRIs are required to do all transactions in Indian currency and through local banks. This means NRIs willing to buy/invest in a property in India should have an NRI account in one of the authorized Indian banks.
NRIs can easily get funds for buying properties if their paperwork is in order. Many financial institutions offer various NRI home loan schemes.
However, they are required to make sure that they are in a position to invest at least 20% of the property value from their sources. This means that they can obtain funding for up to 80% of the property’s value.
As NRI investors must do all their transactions through Indian banks, they must make sure that they use their NRO/NRE accounts for all inward money remittances.
NRIs are also allowed to give post-dated cheques or go for Electronic Clearance Service (ECS) from their NRO, NRE, or Foreign Currency Non-Resident (FCNR) accounts.
Before visiting a bank for funds, NRIs should get all their documents verified by a lawyer to ensure they are in order. Also, they should acquire a certificate from the seller stating that there is no lien attached to the property that is being purchased.
If the property is jointly owned or inherited by the seller, it is important to ensure that the title deed is cleared. Further, NRIs must ensure that no bills or other dues of the property are to be cleared with any authorities.
Documents Required from an NRI for Buying Property in India
Below is the list of documents an NRI needs during property buying in India:
NRI requires an Indian passport to invest/buy property in India. They would require a PIO card if he/she is an individual who is not a citizen of Pakistan, Nepal, Sri Lanka, Bangladesh, China, Afghanistan, Iran, and Bhutan but had owned the Indian passport.
They require a PIO card if they are a foreign citizen whose father or grandfather was India’s citizen. In simple words, if they hold the passport of a foreign country, they require a PIO card.
NRIs need a PAN card because they have to file income tax returns if they have rented out the property. Besides, if the property is sold in the future, the capital gains resulting from the sales would be subject to capital gains tax.
While capital gains being taxed, they would be included in the total income. (The tax that is payable on the gains depends on its nature; whether it’s a short term or a long term capital gain)
Registered Power of Attorney
NRI who don’t visit India frequently, it is a good option to get the execution of the sale, registration, possession, and other processes done by someone (Friend/Relative) in that city.
NRIs can give PoA to their friends or relatives to complete the property purchase process in India. The PoA can be general/specific about the rights a representative can exercise.
Proof of Address
If you an NRI, you need to submit the address proof of your current residence attested by the Indian Embassy in your country of residence.
About the author: Ahlawat & Associates is a full-service law firm in Delhi, India that offers comprehensive counsel on a range of legal services (globally). With an aim to provide valued, practical, and strategic legal solutions to help clients achieve their goals, A&A combines the highest global standards with local expertise.