With the rupee falling, real estate has been one lucrative investment option for non-residential Indians (NRIs). Also, whether the market is hot or not, many NRIs like to have a place back here in India. The RBI's regulations on it are fairly easy as well and you do not have to take any prior permission from the authorities. The rules for any such property transaction fall under the Foreign Exchange Management Act (FEMA).
An NRI or Person of Indian Origin (PIO) can own both residential as well as commercial properties in India and there is no restriction on the number of properties you can buy. However, you cannot purchase any agricultural land, farm house and plantation property. You can have ownership of such property only if they've been gifted or inherited.
Also, the monetary transaction must be in Indian rupees (INR) and through normal banking channels using an NRI account.
Is rent received by NRIs taxable in India ?
The rent received is income generated by virtue of work done in India. Thus, if an NRI receives rent from a property in India, the rent is taxable in India. If the rent received and other income of the NRI is above the stipulated limits, the NRI has to file income tax returns in India. Additionally, depending on the country of residence, the NRI may have to pay tax in his / her resident country too, unless India has a Double Tax Avoidance Agreement with that country.
How can an NRI / PIO pay for purchase of property in India ?
An NRI / PIO can make payments for purchase of residential or commercial property in India only from:
(a) funds remitted to India through normal banking channels or
(b) funds held in NRE / FCNR (B) / NRO account maintained in India
No payment can be made either by traveller’s cheque or by foreign currency notes or by other mode.
NRIs and PIOs not required to report property transactions in India: RBI
The Reserve Bank of India (RBI) has clarified that Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) are not required to report the details of transactions while purchasing immovable property in India.
Foreigners have to report a transaction to RBI in a prescribed IPI form within 90 days from the date of acquisition.
How many properties can an NRI buy ?
There are no restrictions on the number of residential / commercial properties that can be purchased by an NRI.
In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Funding the Purchase:
Lenders will be more than happy to fund your purchase provided you are eligible and the property papers are clean. It will be wise to get the papers verified by a lawyer before going ahead. Make sure to check the title papers of the property, especially if it is inherited or jointly held, and take a bank release in case it was at any point of time under mortgage. Also, take a no dues certificate from the seller at the time of purchase to ensure there is no water, electricity or any other pending bills with the authorities. For new constructions, land title should be clear and the builder should have taken all approvals and permits from the civic authorities in terms of construction. Also, education qualification and profession play a role in deciding your loan eligibility. Like, only graduate NRIs can avail home loans in India.
According to RBI norms, a maximum of 80% of the value of property can be funded by a financial institution. Rest has to come from the NRI’s personal resources. Indian financial institutions give rupee loans and so the same needs to be repaid in rupees only. “Another option NRIs can use is to get funding overseas where interest rates are lower and is a good idea especially if you are still overseas and have income accruing there,
Since all transactions must happen through the banking channel, repayment has to be done by inward remittances. You can directly get the money remitted from NRO/NRE account in India or issue post-dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO or Foreign Currency Non Resident (FCNR) account.
In case you let out the property you can use the rent to repay the loan as well. Cheques issued from a relative’s local account can also be used to make the loan payments.
Passing the POA:
If you are buying an under-construction property, your developer may ask for a power of attorney (POA) favouring them. This is not unusual and would make documentation work slightly easier and quicker.
A POA can be given to execute any contracts, deeds as well as mortgage, lease or even sell. So make sure the kind of authority you are giving to the person through the POA. Just get it worded properly by a professional lawyer you trust.
Also, if and when you want to dispose the property, it is a good idea to have a POA to be a resident India who may be able to act on your behalf to complete formalities such as registration, possession, execution of agreement of sale, etc.
Regulations on Sale of Property by NRIs:
Under the FEMA rules, if you are an NRI, you can sell any residential or commercial property you have bought or inherited to anyone you want. If you have any inherited agricultural property, plantation or farm house, you have to search for a resident Indian to buy it. However, you are allowed to gift them to another NRI or the person of Indian origin. There are some specific RBI guidelines on the repatriation of sale proceeds which need to be adhered to.
You need to decide on whether you want money as repatriateble or not. “If you want to repatriate, it needs to come in foreign currency from an overseas account, NRE or FCNR account. One can repatriate up to the amount invested in the property.
“The other condition is that repatriation cannot exceed the foreign exchange amount paid for purchase of property through banking channels. Refund of application money, bayana, advance on cancellation has no limitations,”
Documents required for loan:
The documentation required to be submitted by the NRIs are different from the Resident Indians as they are required to submit additional documents, like a copy of the passport, a copy of the works contract, etc. And of course NRIs have to follow certain eligibility criteria in order to get Home Loans in India.
Another vital document required while processing an NRI home loan is the power of attorney (POA). The POA is important because, since the borrower is not based in India; the HFC would need a ‘representative’ ‘in lieu of’ the NRI to deal with and if needed. Although not obligatory, the POA is usually drawn on the NRI’s parents/wife/children.
a)The documents needed for obtaining NRI home loans are:
▪ Passport and Visa
▪ A copy of the appointment letter and contract from the company employing the applicant
▪ The labor card/identity card (translated in English and countersigned by the consulate)
▪ if the person is employed in the Middle East Salary certificate (in English)
specifying name, date of joining, designation and salary details
▪ Bank Statements for the last six months
b)List of Classified documents for Salaried and Self Employed NRI Applicants:
1)Salaried NRI Applicants:
▪ Copy of valid passport showing VISA stamps
▪ Copy of valid visa / work permit / equivalent document supporting the NRI status of the proposed account holder
▪ Overseas Bank A/C for the last 3 months showing salary credits.
▪ Latest contract copy evidencing Salary / Salary Certificate / Wage Slips
2)Self-Employed NRI Applicants:
▪ Passport copy with valid visa stamp
▪ Brief profile of the applicant and business/ Trade license or equivalent document
▪ 6 months overseas bank account statement and NRE/ NRO account
▪Computation of income, P&L account and B/Sheet for last 3 years certified by the C.A. / CPA or any other relevant authority as the case may be (or equivalent company accounts)
c) Property Documents:
▪ Original title deeds tracing the title of the property for a minimum period of the last 13 years
▪ Encumbrance Certificate for the last 13 years
▪ Agreement of sale /construction, if any
▪ Receipts for payments made for purchase of the dwelling unit
▪ Approved plan / license
▪ ULC clearance /conversion order etc
▪ Receipts for having invested the margin money through normal banking channels from the Non-Resident (External) account in India and / or the Non-Resident (Ordinary) account in India
▪ Latest tax paid receipt
▪ Allotment letter from the co-operative society / association of apartment owners
▪ Agreement for sale / sale deed /detailed cost estimate from Architect / Engineer for property to be purchased / constructed /extended / improved
▪ Copy of approved drawings of proposed construction/purchase/extension
PHOTOCOPY OF PIO CARD:
If the PIO card is not available, photocopies of any of the following documents:
▪ The current passport, with birthplace as ‘INDIA’
▪ The Indian passport, if held by the individual earlier
▪ Parents/grandparents Indian passport/birth certificate/marriage certificate substantiating the individuals claim as a person of Indian origin
A property is also a good tax saving tool for both residents and non-residents. The benefits for a non-residential Indian (NRI) are very similar to the tax benefits of a resident Indian. An NRI is entitled to all tax benefits related to purchase of property that a resident Indian is. So, you can claim a Rs 1 lakh deduction under 80C.