Who is a Non Resident Indian (NRI)?
NRI means a person who is a citizen of India and has not been residing in India for more than 182 days during preceding financial year, or has gone out of India for the purpose of employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration.
Who is a Person of Indian Origin (PIO)?
A person of Indian origin means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who has:
- Held an Indian Passport at any time, or
- Who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955
Who is an Overseas Citizen of India (OCI)?
Any person of full age and capacity:
- 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
- Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution, or
- Who is a citizen of another country, but belongs to a territory that became part of India after the 15th of August, 1947.
- Who is a child of such a citizen, or
- A person, who is minor child of a person mentioned in clause (1)
- 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.
Can an NRI/PIO purchase immovable property in India?
Yes, NRIs/PIOs can acquire immoveable property in India other than agricultural land/farm house/plantation property i.e. residential and commercial property.
How can payments be made?
Payments can be made in Indian Rupees from funds held in non-resident accounts maintained by the NRI/PIO by any of these methods:
- Pay Order
- Banker’s Cheque
- Wire Transfer
Can NRIs/PIOs acquire or dispose residential property by way of gift?
Yes, the Reserve Bank has granted general permission to NRIs/PIOs to acquire or dispose of commercial or residential properties by way of gift from or to a person resident in India or NRI or PIO. However, agricultural land / plantation property / farm house in India cannot be acquired by way of gift.
Further, NRI / PIO can gift an agricultural land / a plantation property / a farm house in India only to a person resident in India who is a citizen of India.
Can NRIs/PIOs obtain loans for acquisition of a house/flat for residential purpose from financial institutions providing housing finance?
The Reserve Bank has granted general permission to certain financial institutions and authorized dealers for providing housing finance to NRIs/PIOs for acquisition of a house/flat subject to certain conditions. The criteria regarding quantum of loan, margin money and period of repayment will be at par with those applicable to resident Indians.
What details do NRIs/PIOs have to furnish and why?
Documents with the following details need to be furnished:
- Whether NRI or PIO (Person of Indian Origin)
- Residential status
- Passport details
- Complete postal & permanent address (local or overseas, as applicable)
- Name, address & account no. of customer’s bank
These details need to be produced because this is a directive by the Government of India to all builders as a mandatory requirement. Failure to furnish the details called for is an offence punishable under the Foreign Exchange Management Act, 2000.
Does Homes For NRI help customers with home loans?
Yes, definitely. Homes For NRI can help you with the correct documentation and help you reach banks in India. Some banks in other countries also give advisory services for buying real estate in India. We help you reach out to them as well.
What is Saleable Area?
It is the sum of the Built-Up Area (Carpet Area + Wall Area) and the Common Area.
What is the difference between GPA and POA (specific)?
General Power of Attorney (GPA) is an authorization given by the customer to a person if he is, owing to his professional commitments, unable to personally attend to the purchase, negotiations, registration and completion of other formalities pertaining to the apartment that he has bought. He will appoint and constitute one person known to him as agent and attorney in his name. And on his behalf, this one person will do any of the following acts deeds and things; this is given in general to do all the activities on his behalf. Power of attorney given to a person only for a specific purpose, for example, possession or registration purposes is called Specific Power of Attorney.
What is the difference between Agreement to Sell and Sale Deed?
Agreement to sell is a legal document which is executed between the builder and the customer, after the customer has paid 20% of the agreement value of the apartment. This document will have the terms and conditions of the seller and the buyer after the purchase of the property. This is a basic document on which bank or any financial institution will lend money to the customer. But this is not considered as the final document when it comes to the title of the property. Sale deed is the final and very important document which authenticates that the title of the property is conveyed to the buyer.
What is e-stamping/Franking/Notarising?
Any legal document which is not executed on a stamp paper has to be registered with the Government by paying the necessary judicial charges. This is called e-stamping/franking. Though printed on the stamp paper, some documents need to be authenticated by a legal person or an advocate who is called a notary and the process is called notarizing. Documents such Power of Attorney, Affidavit, etc. need to be notarized.
How is the Stamp Duty payable on purchase / sale of any Immovable Property determined?
Stamp Duty is payable on ‘Government Market Value’ of property or the consideration agreed to be paid for purchase of the same, whichever is higher. In areas within the limits of the Municipal Corporation, the rate of Stamp Duty payable is 6% whereas for areas outside the Corporation Limits, the rate is 5%.
When does the unit agreed to be purchased becomes his / her property?
A duly registered Agreement for Sale coupled with possession effectively completes the de-facto title of such a purchaser to the unit agreed to be purchased by him / her. However, in case of a co-operative housing society being formed by all the purchasers in the project, the land and all the buildings thereon are conveyed to the co-operative housing society. The purchaser of every unit in the project will be admitted as a member of the society and share certificate of five shares will be allotted to each purchaser. In the event a Condominium of Apartment Owners of all the units in a project is to be formed, a Deed of Apartment will be executed in favour of the purchasers of each unit, thereby conveying the unit together with a pro-rata undivided share in the land covered by the project and in the common areas and facilities thereof.
What is the definition of ‘carpet area’ of a flat?
‘Carpet area’ is the entire area measured from wall-to-wall excluding the thickness of all walls.
What is the definition of ‘carpet area’ of the terraces?
‘Carpet area’ of a terrace is the entire area thereof measured from wall-to-wall excluding the thickness of all walls.
What is Capital Gain?
Capital Gain will accrue from the date of Sale Deed or possession or whichever is earlier and if the property is sold within 3 years of the above date, the same will be treated as Short Term Capital Gain if this period is more than 3 years from the above, the same will be treated as Long Term Capital Gain.
Are there any formalities required to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission?
They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration alongwith a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.
Can sale proceeds of such property if and when sold be remitted out of India?
In respect of residential properties purchased on or after 26th May 1993, Reserve Bank considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property.
What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI / PIO as prescribed by the Reserve Bank of India?
If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE / FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:
- In foreign exchange received through normal banking channel or
- 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 out of 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.
If the property was acquired out of Rupee sources, NRI / PIO may remit an amount of 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.
Is the rental income from property repatriable and what are the RBI rules?
The rental income, being a current account transaction, is repatriable, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.
Do NRIs / PIOs / OCIs have to file returns in India for their property rental income and Capital Gains Tax?
The Government of India has granted general permission to NRI / PIO / OCI to buy property in India and they do not have to pay any taxes even while acquiring the property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file a return of the income if they have rented this property. On sale of the property, the profit on sale shall be subject to capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income and will be taxed in the normal bracket. However, if the property has been held for more than 3 years, then the resulting gain would be labeled as long term capital gains subject to 20% tax and some additional levy (cess).
Are there any exceptions?
Yes, there are two exceptions:
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 return.
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 INR.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.
How does the Double Taxation Avoidance Agreement (DTAA) work in the context of tax on income and Capital Gains tax paid in India by NRI?
India has DTAAs with several countries which give a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is located. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is in India.
Does Capital Gains Tax (CGT) apply to NRI / PIO / OCI?
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.
How is rate of CGT computed?
Type of asset: Assets like house property, land and building, jewelry, 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 on 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 the 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, or the proportionate gain is exempted.