Can an NRI Purchase Property in India

NRI’s Property Buying people dwelling outside India that is Non Resident Indians (NRIs), Person of Indian Origins (PIOs) and foreign nationals have been procuring immovable properties like Bungalows, flats, luxury villas, and commercial properties in India. The other major group that invests in real estate in are non-resident Indians (NRIs). Besides high-net-worth individuals (HNIs) who reside in the country, the other major group that invests in real estate in are non-resident Indians (NRIs).

Investing in property or real estate is one of the most appealing investments for individuals seeking financial stability and security. For Non-Resident Indians (NRIs), their desire to purchase a property in their home country can be a special feeling. You will be happy to hear that NRIs are allowed to buy a property in India, but this process is under the purview of certain legalities and guidelines that NRIs must keep in mind and should adhere to.

Non-Resident Indians or NRI and their Residential Status

NRIs are persons who are of Indian origin but are presently residing outside the country. They can reside outside the country for any reason, whether for employment, education, business, or for any personal reasons. NRIs aim to maintain strong connections with India while residing abroad. The residential status of NRIs is of significant importance because it determines their tax liabilities and legal rights in India.

Residential Status Categories

The following are the residential status categories for determining the NRI Residential Status of an individual:

Resident: An individual is deemed to be a resident in India if he fulfils any of the following circumstances:

If they are present in India for a minimum period of 182 days or more during the prevailing financial year.
If they are present in India for a minimum period of 60 days during the prevailing financial year and have been present for a minimum period of 365 days during the preceding 4 financial years.

NRI (Non-Resident Indian): An individual who does not fulfil the criteria mentioned above is considered an NRI.

The following are the terms are generally associated with the NRI’s:

PIO (Person of Indian Origin): PIO is an individual with Indian ancestry. PIO may or may not have acquired the citizenship of another country. The PIO status in NRI status has merged with the OCI (Overseas Citizen of India) status of the individual.
OCI (Overseas Citizen of India): OCI or Overseas Citizen of India is a long-term visa that grants individuals of Indian origin certain rights, including the ability to own property in India.

RNOR (Resident but Not Ordinarily Resident): This status is for individuals who have come back to India after residing abroad for a certain period. An individual is eligible to qualify as an RNOR if the following criteria are fulfilled:

If they reside in India for less than 182 days during the prevailing financial year.
Or if they have been non-resident in India for at least 9 out of 10 financial years preceding the relevant financial year.

Things NRIs Should Consider Before Investing in Real Estate in India

Nature of Property: A real estate investment is an immovable property. While NRIs have every right to own an immovable property – be it residential or commercial – there are certain restrictions regarding the type or nature of the property. NRIs are eligible to buy both residential and commercial properties in India. Agricultural land, farmhouses, and plantation properties, however, are not allowed to be purchased by NRIs.
Taxation and Tax Benefits: Like an average citizen of the country, an NRI is liable to pay taxes on the income they earn from an immovable property, be it rental income or short-term or long-term capital gains. However, a key benefit they enjoy is the Double Taxation Avoidance Agreement (DTAA), which India has signed with more than 85 countries. If an NRI holds a property for 2 years or more, it is considered a long-term capital gain, and the same will be taxed at 20.6%. An NRI can be exempted from wealth tax on the first property if it is empty and declared to be for own use. They can apply for a refund of the TDS or tax exemption under sections 54, 54 EC, and 54 F.
Home Loan: Like any Indian resident, NRIs are eligible to get a home loan of up to 80% of the value of the property. It is mandatory that the loan sanctioned is disbursed, and later repaid by the borrower, in Indian currency. When they take a home loan, the amount is not directly transferred to their account. Instead, the loan amount is credited to the developer’s account. Repayment can be done through various methods such as inward remittance, rental income, or crediting the money to a close relative’s account.
Power of Attorney (PoA): The power of attorney is a powerful legal tool that authorizes another person, usually a trusted individual, to act on the owner’s behalf. As an NRI, when you buy an under-construction property in India, giving a power of attorney to a trusted individual will make the entire process of owning the property smooth and hassle-free. NRIs can appoint a trusted representative in India through a Power of Attorney (PoA) to complete property transactions on their behalf.
Repatriation of Funds Back to the Foreign Country: The term ‘repatriation’ refers to the transfer of funds across countries. For an NRI, repatriation means transferring funds from their bank account in India to the account in their country of residence. As an NRI, when you repatriate your money obtained from the sale of an immovable property in the country, it needs to be done in adherence to certain conditions. The property must have been purchased as per FEMA directives. The amount repatriated should not exceed the amount used to purchase the property, if the purchase is made using money remitted through banks or funds in FCNR account. An NRI can repatriate USD 1 million in a financial year, based on certain conditions.
FEMA Rules Regulated by the Reserve Bank of India (RBI): The RBI has eased the Foreign Exchange Management Act (FEMA) to make it easier for NRIs to own residential as well as commercial properties in India. With a valid passport, they can own property, except the types of property mentioned above. If you are an NRI planning to buy a property in the country, being familiar with the latest FEMA directives will help you greatly.
Modes of Payment: NRIs are eligible to get up to 80% of the value of the property they intend to purchase. Just like the loan is disbursed in Indian currency, the repayment should also be made in the same. However, you can overcome such possible financial mishaps by opting to pay the EMI using your rental income from the property. NRIs can make payments through normal banking channels using funds remitted from abroad through regular banking channels or from NRE/NRO/FCNR accounts.
Documents Required:Valid passportPIO/OCI card, if applicablePAN cardAddress proofPassport-sized photographsSale agreementTitle deedNOC from the builder/societyBank statements
Legal Requirements:NRIs need to have a valid Indian passport.They should also possess the Overseas Citizen of India (OCI) card or Person of Indian Origin (PIO) card, if applicable.
Tax Implications: NRIs are subject to certain tax implications in India, such as property tax and capital gains tax. They should also be aware of the tax implications in their country of residence.
Tips for a Smooth Purchase:Conduct thorough research on the property market and legal requirements.Hire a reliable real estate agent or lawyer to assist with the purchase process.Ensure all transactions are done through legal channels and all necessary documents are in order.

Understanding FEMA and Its Implications

The property acquisition by NRIs in India is governed by a statute known as the Foreign Exchange Management Act, of 1999 (FEMA). According to FEMA, NRIs can be classified into two, one is an individual who has an Indian passport or a foreign passport with Indian origins. In this, those individuals are also included who are of Indian origin and who have lived abroad for a specified period.

The (FEMA) came into the picture in 1999, to consolidate and amend the laws governing foreign exchange transactions and external trade in India. The Foreign Exchange Regulation Act (FERA) was replaced by FEMA to liberalize the foreign exchange regime while making sure that compliance is fulfilled along with international standards.

One of the most important aspects of FEMA concerning NRIs is property acquisition. The FEMA handles the purchase, sale, and ownership of immovable property, including residential and commercial real estate. It also governs transactions between NRIs and Persons of Indian Origin (PIOs) as a result of which it can offer a clear framework for their property-related activities in India.

Procedure for NRI to buy property in India

Property Search: First of all you need to begin by identifying and selecting the property you wish to purchase. You can also engage a real estate agent or a legal advisor for this and to evaluate the properties.
Legal Due Diligence: You must conduct thorough legal due diligence on the property to make sure that the property you wish to purchase has a clear title and is free from any encumbrances or legal disputes.
Agreement to Sell: Once you have done all this, then you must execute an ‘Agreement to Sell’ between the buyer (you) and the seller. This agreement briefly describes the terms and conditions of the sale.
Registration of Property: The sale of your property is finalized with the execution of a Sale Deed. A Sale Deed is a legal document that transfers the ownership of the property. It is pertinent to note that the Sale Deed must be registered at the local sub-registrar office.

FAQs

Types of properties NRIs can purchase in India?

Residential Properties: NRIs have the permission to invest in residential properties such as apartments, villas, and independent houses, for personal use or for acquiring rental income. There is no limitation on the number of residential properties that can be owned by NRIs. Also, it is provided that the properties must be acquired through legal channels and they must be in conformity with the Foreign Exchange Management Act (FEMA) guidelines.
Commercial Properties: NRIs can also purchase various kinds of commercial properties for example office spaces, retail outlets, and warehouses. Purchasing a commercial property can be a very good option as they often provide higher rental returns as compared to residential properties in India. NRIs can lease out the purchased commercial property to any business and earn a steady flow of income.
Agricultural Land: Commonly NRIs are not allowed to purchase agricultural land in India; on the other hand, NRIs can inherit agricultural land from their ancestors. In case an NRI inherits agricultural land, they can sustain and cultivate its land, they are also subject to specific state laws and regulations.
Plantation and Farmhouses: NRIs are allowed to purchase plantation properties and farmhouses; however, it is provided they are not agricultural land. These properties may have a geographical location in scenic or rural areas and this property can be used as vacation homes or for agricultural activities other than using it as cultivation of crops.
Residential Plots: NRIs are allowed to purchase residential plots or land to construct a house shortly. This makes him eligible to have a property in India that conforms to their preferences and requirements. However, NRIs cannot use this land for commercial or agricultural purposes.

Essential documents required for NRI buying property in India?

Passport and Visa: A valid passport acts as a primary identification document and is required for property purchase. NRIs should also have a valid visa as proof of their status as non-resident Indians.
PAN Card: The Permanent Account Number (PAN) card is essential for financial transactions in India, including property purchases or any financial transaction for that matter. NRIs can apply for a PAN card online or Offline in case they don’t have one.
OCI/PIO Card: NRI holding an Overseas Citizen of India (OCI) or a Person of Indian Origin (PIO) card serves as additional proof of the relation of NRI with India. This assists in making property transactions smoother.
Power of Attorney (PoA): NRIs must appoint a trusted person in India as their power of attorney holder to enhance or assist in property transactions on their behalf. The PoA document should be properly notarized and must be submitted along with its consular-attested version.
Address Proof: Documents such as bills, driving licenses, or bank statements act as address proof for NRIs.
Foreign Exchange Remittance Certificate (FERA): This certificate was issued by the bank in the case of an NRI who holds an NRE/NRO account. This certificate confirms the remittance of funds to India. It is one of the most crucial documents to validate the source of funds for property purchase.
No Objection Certificate (NOC): NRIs are under obligation to obtain a No Objection Certificate from the local municipal office to verify that there are no pending dues associated with the property.
Bank Statements: Bank statements from NRE/NRO accounts are useful instruments to verify the source from which the funds are yielded for the Can an NRI Purchase Property in India? property purchase.
Encumbrance Certificate: This certificate certifies that the property concerned does not have any legal or monetary liabilities such as mortgages or pending loans.

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