Indian property market has always been lucrative for non-residents. However, there are certain norms and restrictions that these individuals need to follow.
Non-residents could be broadly classified into:
- Non-Resident Indian (NRI): A person who is a citizen of India and holds an Indian passport, and has temporarily moved to another country.
- Person of Indian Origin (PIO) and Overseas Citizen of India (OCI): People of Indian origin or whose ancestors were Indian nationals, and who are presently holding another countries’ citizenship or nationality, that is, they’re holding foreign passport.
Economic, financial and educational facilities are similar for NRIs and PIOs/OCIs. Previously, PIOs and OCIs held separate cards that entitled them property ownership in India. However, as per Citizenship Amendment Bill, 2015, with effect from January 9, 2015, PIO cards were withdrawn by Indian government and merged with the OCI card scheme.
NRIs, PIOs and OCIs can invest in both, residential as well as commercial properties, and there is no limitation on the number of properties that can be bought. However, they cannot buy agricultural land, adivasi plots, plantation property and farm house; such properties can be owned if they’ve been gifted or inherited.
- Recommended Read: 7 Tax Exemptions on receipt of Gifts in India
The rules and regulations for the property transactions of non-residents are routed through Reserve Bank of India (RBI) and Foreign Exchange Management Act (FEMA).
- Recommended Read: Rules for NRI Investment in Real Estate in India
Financing property investment:
Financial institutions in India facilitate non-residents’ property purchase in the country by providing them home loans easily and efficiently. As per the RBI norms, a maximum of 80% of the value of the property could be financed by a financial institution; rest amount needs to be sourced by the non-resident himself. Getting funds overseas is also an option available, and the best part is that the interest rates there are comparatively lower.
All the monetary transactions need to be in Indian rupees (INR) and should be carried out by inward remittances through normal banking channels using Non-Resident External (NRE), Non-Resident Ordinary (NRO) or Foreign Currency Non-Resident (FCNR) account.
- Recommended Read: Types of NRI Accounts in India – NRE, NRO and FCNR
An online mode of transaction can also be set up with the builder/developer, and money can be remitted through Electronic Clearance Service (ECS) from either of the aforementioned accounts.
Geographical location of the non-residents also plays a pivotal role when it comes to property transactions. A US-based non-resident and a UAE-based non-resident have transactions of completely different nature. A non-resident currently staying in US might be possessing US citizenship. These individuals have a particular upper cap. As per the accounting standards of US, an individual’s global income or global property valuation is considered as his annual audit report or annual profit and loss report or annual returns. In case of a non-resident from UAE, it’s a must that he possesses PAN number of India, as he is not entitled UAE citizenship. Hence, a non-resident based in UAE is able to transact easier than the one staying in US.
Tax benefits of Investment in Real Estate are almost similar for Indian residents as well as non-residents. Hence, a non-resident can claim a Rs 1.5 lakh deduction under section 80C. There is no upper limit for a non-resident to claim a deduction on home loan interest (section 24).
- Recommended Read: Tax Benefits of Investment in Real Estate
Vacant properties are considered as ‘self-occupied’, and hence no tax is applicable on such properties. However, if you have more than one vacant properties, only one is considered as self-occupied, whereas the rest are deemed as ‘let-out’ properties that add to your taxable income.
If the property is put on rent, the income generated from it is taxable in India and returns need to be filed here. The non-resident might have to show his income in his country of residence and even pay taxes there unless one is the resident of a country with which India has a Double Tax Avoidance Agreement (DTAA).
- Recommended Read: Income Tax on Rent earned by NRI’s in India
If a non-resident is selling a property in India, he is liable to pay 20% TDS. Also, at the time of the sale of the property, he is liable for the payment of capital gains tax as prescribed under the Income Tax Act. Exemption can be claimed by investment in another property. If one’s country of residence does not have a DTAA with India, then capital gains might also be taxable in that country.
Tips for property purchase and claim:
- It is mandatory for any property transaction that the non-resident must comply with RBI and FEMA rules and regulations.
- A thorough check of the property is a must before the purchase.
- It is advisable that the property be bought from a reputed developer, who can ensure a clear title property free from a lawsuit.
- One must ensure that the property has all the permits and approvals in place, including Commencement Certificate (CC) and Occupancy Certificate (OC).
- One must ensure that there are no outstanding water/electricity bills or any other authority dues pending with the property; a no dues certificate must be taken from the seller at the time of purchase.
- A bank release letter must be procured from the concerned bank, in case the property had been mortgaged as security in any type of loan.
- If a non-resident wishes to buy land, he must ensure that there is Title Certificate and conveyance deed of the plot.
- In case of the death of the non-resident property owner, his family member(s) can get hold of the property by the help of following documents:
- Letter of Administration: A legal document that gives the family member the right to administer the property of the deceased owner.
- Succession Certificate: A certificate issued by a civil court to the legal heirs of the deceased property owner, in case the owner dies without leaving a will.
- Will: There should be an executor of the will. An executor can be a family doctor, advocate, chartered accountant or a senior member in the family.