NRI Corner for Investment in Real Estate

Terms and Definitions

Indian citizens, who hold a valid passport of the Union of India, but live outside of this Union for an indefinite period of time, the duration of which is not less than six months. Are granted the status of Non Resident Indian (NRI) or Pravasi Bharatiya by the Indian Government.

 An NRI may remain absent from the country citing reasons of work, pleasure and foreign residency among others. Employees of the United Nations and internationally stationed diplomats are treated on par with NRIs.

 A Person of Indian Origin is one who was born, or whose father or paternal grandfather was born in India. PIOs are not, however, citizens of the Union of India. Those who have previously held Indian passports but have since taken up citizenship in other countries also qualify as Persons of Indian Origin.

 Citizens of Bangladesh, Afghanistan, Pakistan, Sri Lanka, Iran, Bhutan, China and Nepal are not eligible to be designated as PIOs.

(a) A person who is of the prime age and capacity:

(i) Who is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution, or

(ii) Who is a citizen of another country, but was qualified to become a citizen of India at the time of the commencement of the constitution, or

(iii) Who is currently a citizen of another country, but hails from a region that became part of India after the 15th Day of August 1947.

(iv) Who is a child of such a citizen, or

(b) A person, who is minor child of a person mentioned in clause (a) 

Provided that no person, who is or had been a citizen of Pakistan, Bangladesh shall be eligible for registration as an Overseas Citizen of India.

Regulations & Eligibility

Yes, NRIs and PIOs are free to maintain bank accounts, invest in domestic corporations and immovable properties on producing valid documents (PIO card) that is issued by appropriate Embassies and Consulates.

Yes, within the following caveats:

o Property bought in foreign exchange may not be sold for three years of purchasing it. Only two such properties maybe transacted simultaneously while funds for the same maybe transferred overseas.

o In case of commercial realty, any number of properties can be sold, the entire proceeds remaining transferable. 

o Proceeds from sale of property originally bought in Indian rupees must remain in India and cannot be transferred overseas.

o An NRI may sell to an Indian resident, another NRI or a PIO.

o A PIO may sell to an Indian resident, an NRI, or to another PIO ( Reserve bank of India approval required).

o All proceeds gained from the sale of immovable property are liable to capital gains tax.

Current regulations permit NRIs and PIOs to purchase any number of residential and or commercial properties.

Yes. Reserve Bank of India regulations permits NRIs and PIOs to gift their properties to proven relatives. Beneficiaries may be resident Indians or other NRIs/ PIOs. If property is being transferred as a gift to a foreign national, RBI approval is mandatory.

Payments can be made through staple banking channels that include:

o Foreign Currency Non Resident Accounts

o Non Resident (External) Rupee Accounts

o Non Resident (Ordinary) Rupee Accounts

o Remittance from abroad through applicable methods of fund transfer

The following categories of individuals can freely purchase immovable property in India under current RBI guidelines:

(a) Non-Resident Indian (NRI)

(b) Person of Indian Origin (PIO) 

RBI permission does not extend to agricultural land/ plantation property or farm house in India.

To acquire agricultural land/plantation property/ farm houses within India, prior approval from the Reserve Bank of India, in consultation with the Government of India is mandatory.

Buyer Agreement & Documentation

• Pan card (Permanent account number)

• OCI/PIO card (In case of OCI/PIO)

• Passport (If the person is a NRI)

• Passport size photographs

• Address proof

Taxations

The basic procurement of property does not warrant income tax. However, any income accruing from the ownership of it, in the form of rent (annual value of the house) (if it is not let out and it is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is liable to be taxed in the hands of the owner.

The Government of India has granted general permission to NRI/PIO/OCI to purchase property in India, without levying any taxes while acquiring property in India. Although, taxes will be levied, if they sell this property. Any form of Rental income earned is taxable by law within India, hence will have to obtain a PAN and file return of income if they have rented this property. When the property is sold, the profit earned on sale shall be subject to capital gains. If the property was held for less than or equal to 3 years after acquiring possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more then 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.

India DTAA’s with a number of countries provides a favorable tax treatment in respect of certain brackets of income. However, in the case of selling immovable property, the DTAA with most countries provide that the capital gains will be inclusive of taxation in the country where the immovable property is located. Hence, a non-resident will have to incur taxation in India on the capital gains which come up upon the sale of immovable property in India. Letting of immovable property in India would be taxed under most tax treaties in light of the fact that the property is located in India.

Yes. Long and short-term capital gains are taxable for non-residents.

Type of asset: Assets such as house property, land and building, jewellery, development rights etc. 

Rate of tax deduction at source (TDS) 

Long term - 20.6%

Short term - 30.9% 

Exemption available (only for long term capital gains) 

The long term capital gains arising out of sale of a residential house can be invested in buying/constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.

In case a non-resident pays tax on capital gains existing in India, they may obtain tax credit in relation to the taxes paid in India in the home country, because income in India would also be included in the country of tax residence. The amount of tax credit is also the basis of computing tax credit that can be claimed are specified in the respective country’s DTAA, also relies on laws of the home country where the tax payer is a tax 

Repatriation of funds

(a) If the property was acquired by means of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount meant to be repatriated should not exceed the amount paid for the original property:

(i) In foreign exchange procured via a normal banking channel or 

(ii) By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.

Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s from foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account up to USD one million, per financial year, as discussed below.

(b) If the property was acquired out of a Rupee origin, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance. The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.

Being a current account transaction, the rental agreement is repatriable, in accordance to appropriate deduction of tax and certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to specific conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.

Financial & Loans

Yes. Certain financial institutions and authorised dealers in India have been licensed by the Reserve Bank to grant housing loans to NRIs. While the criteria regarding purpose, marginal money and the quantum of the loan are the same as those applicable to resident nationals, certain other conditions apply to NRIs:

o Loan is required to be repaid within a period of fifteen years.

o Method of repayment used must be:

o Inward remittance through banking channels; or

o Payments from the purchaser’s FCNR/ NRE/ NRO accounts.

In some instances, lenders may insist that the purchaser provides the reference of a resident national who holds a power of attorney on the purchaser’s behalf.

Yes, with the following restrictions:

o Proceeds garnered by all leave and license agreements are taxable.

o Proceeds cannot be transferred overseas for a period of three years.

Income Tax

An NRI/OCI/PIO, would have to file income tax returns if either of the following conditions are fulfilled:

(a) Taxable income in India during the year was above the basic exemption limit of ` 1.6 lakh OR 

(b) Earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit. 

Note: The enhanced exemption limit for senior citizens and women is applicable only to residents and not to non-residents. 

Yes, there are two exceptions: 

(a) If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.

(b) If you earned long-term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return 

Tip: You may also file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below ` 1.6 lakh but the bank deducted tax at source on your interest amount, you can claim a refund by filing your tax return. 

Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return. 

Traditionally, you could file your return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file returns on your behalf. 

Though as easy method for NRIs to file their tax returns in India is online. There are several options to file online, on the appropriate government sanctioned website.

Updated as on July, 2015

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