Can NRIs buy real estate in India? Most people ask this question, and the answer to this question is yes. The RBI's circular now allows Non-Resident Indians to purchase certain types of property. However, other types of property can also be purchased after it is approved by obtaining special permits.
NRIs buying real estate in India should understand the legal requirements for owning real estate within the country. According to the Foreign Exchange Management Act's (FEMA) provisions, Person of Indian Origin (PIO) and NRIs are treated the same when investing in real estate in India.
Types of properties where NRIs can invest
NRI investors do not need to request special permission from RBI, nor do they need to send communications or intimations regarding the RBI. The RBI, through a circular, has granted general permission to NRIs for acquiring any number of residential or commercial properties. The income tax law also allows NRIs to own any amount of residential or commercial real estate.
NRIs can act as the sole owner or jointly purchase real estate with other NRIs. However, Indian residents or other persons who are prohibited from investing in real estate in India cannot become the co-owners of the property, regardless of the co-owner's contribution to the purchase.
Property ownership after becoming NRI
What if someone who owns a property in India later becomes an NRI? Such a person can still own that property in India even after residing outside India. NRIs are also allowed to continue to hold any agricultural land, plantation property, or farmhouse they owned when they become an NRI, which they are not allowed to purchase otherwise after becoming an NRI. It depends on when you bought it. The rent received from such property can be remitted after appropriate Indian taxes have been paid on such rent. Similarly, any NRI real estate can be sold or let out to anyone living in India. You can also gift or transfer any property other than agricultural land, farmhouse or plantation property to any NRI.
Characteristics of NRI Investment in India
- NRI cannot purchase agricultural land or plantation property in India. However, they can buy residential and commercial properties. If there is a reason behind scouting for agricultural land, the Reserve Bank of India (RBI) will review such interest on a case-to-case basis.
- There's no limitation to the amount of home loan one may take to buy a property in India. If an NRI wants an agent to conduct transactions on your behalf, such as registering property, they must provide the agent with a Power of Attorney (PoA). The PoA holder represents the NRI by submitting a copy of the PoA to the relevant authority to sign.
- Like any other real estate purchase in India, NRI is responsible for paying the necessary taxes: stamp duty, registration fee, annual property tax after purchase, and even goods and services tax on property construction.
- NRIs can also invest in real estate in India to earn rental income. They would be taxed at 30% via tax deducted at source (TDS), and the balance can be remitted to the country under FEMA regulations.
- In the case of proceeds earned through the sales of immovable properties, it can be repatriated after a reduction of between 20% and 30% TDS, depending on whether it is long-term or short-term capital gains.
- For various reasons, NRIs purchase property in India as a long-term investment, as a place to stay during their visits home, because they are emotionally connected to India, or for their families back in India. Once an NRI embarks on the process, they will realize that buying real estate in India requires them to complete a few formalities and documentation.
What documents are needed before buying a property?
Passport or OCI card: An NRI must show their Indian passport. If they hold a foreign passport, they can purchase a property in India provided they have either of the cards, i.e., a PIO card or an OCI card.
PAN Card: It is always mandatory for property-related transactions.
Power of attorney: NRIs must give a power of attorney if they're outside India for executing the purchase transaction. It must be noted that the NRIs will need a special power of attorney registered and notarized and not a general power of attorney to execute a property transaction. Also, the POA must be signed by the NRI in the presence of a consulate officer or notary in their country of residence and also have to be attested by them.
Which property documents are required?
For a smooth purchase transaction and hassle-free ownership of a property, it is necessary to verify all the essential papers like:
- Title deed (in the seller's name). Some states have specific paperwork that the NRIs need to be aware of. For example, if they plan to buy property in Mumbai, they must check for e-Khata (in the seller's name) for property taxes.
- Approved plan
- Building permit
- Occupation certificate (if it is a ready building)
- Older title deeds(optional)
- Encumbrance certificate (updated)
- Share certificate (if it is a cooperative housing society)
- NOC from the society
- RERA registration (if applicable)
If these documents are in order, an NRI can prepare the sale agreement for purchasing the property.
What are the documents required for registration?
Except for the IDs (like passport or PAN card), an NRI will need to submit their recent address proof documents (like utility bills) and passport size photographs for the sale deed registration.
Funding and Financial Transactions
When buying a property in India, NRIs must carry out all transactions in Indian currency and through local banks. It means NRIs that want to invest in a property in India must have an NRI account in one of the authorized Indian banks.
NRIs can smoothly obtain funds for buying properties if the paperwork is as required. Many financial institutions offer various NRI home loan schemes. However, first, they need to make sure that they can invest at least 20 per cent of the property value from their sources. It means that they can get funding for up to 80 per cent of the property's value.
As NRI investors are required to route all their transactions through Indian banks, they must ensure they use their NRO/NRE accounts for all inward money remittances. They can also submit post-dated cheques or opt for Electronic Clearance Service (ECS) from their NRO, NRE, or Foreign Currency Non-Resident (FCNR) accounts.
Before approaching a bank for funds, NRIs must get all their documents verified by a competent lawyer to ensure they are in order. In addition, they should obtain a certificate from the seller stating that the property that is being purchased has is no lien attached to it. If it is joint property or inherited by the seller, it is necessary to ensure that the title deed is cleared. Lastly, NRIs must ensure that no bills or other dues with any authorities are to be cleared.
What documents are needed for getting a home loan?
NRIs must furnish the following documents:
- Copy of Indian passport and visa
- In case an Indian passport is unavailable
(PIO Card if they hold a foreign passport, OCI card if their parents are Indian citizens)
- Work permit/employment contract/appointment letter of the country where they reside.
- Recent salary certificate / Payslips for the past six months
- Recent income tax returns
- Bank statements of NRE and NRO account for the last year
- Bureau report of the country of residence
- Power of attorney in the format as given by the bank (in case they are out of India for executing the purchase transaction)
NRIs are eligible for a major part of the tax benefits available to resident Indian buyers. If they sell the property they bought within three years; the earnings will then be taxed as it is deemed to be short-term capital gains. However, if the property is sold after three years, they can exercise the option of cutting down the long-term capital gains tax payable by buying another property.
Except for agricultural land, farms and plantations, NRI has no restrictions on purchasing commercial or residential properties in India. NRI has different rules and regulations for investing in Indian real estate; however, this is not as difficult as people think. As a result, the availability of necessary documents simplifies and speeds up property purchases.