Legal provisions – purchasing property by NRIs in India

If you are a Non-Resident Indian and not aware about the legalities of owning or purchasing real estate in India, you would like to read on to enlighten yourself on the legal provisions set by the competent authorities pertaining to the purchase or owning of an immovable property in India under the Foreign Exchange Management Act (FEMA). As per the act, NRIs and persons of Indian origin (PIOs) are treated at par for the purpose of investment in real estate in the country.

With regards to the Types of properties, where NRIs or PIOs can invest, The Reserve Bank of India gives general permission to NRIs to purchase any residential or commercial property in India. As per the guidelines, the investor is neither required to seek any specific permission nor send any communication or intimation in this regard to the RBI. Under the existing general permissions as well as the Income Tax laws, an NRI is permitted to purchase any number of residential or commercial properties in India.

However, under the same general permissions, an NRI is not allowed to purchase any agricultural land or plantation property like farmhouses in the country. Nonetheless, if an NRI wishes to buy a farmhouse or plantations, he will be required to approach the RBI for a specific permission which will be considered on a case-to-case basis.

With regards to joint ownership in real estate, An NRI can purchase the property either as a single owner or jointly with any other NRI. However, a resident Indian or a person who is otherwise not eligible to invest in a property in India cannot become a joint holder irrespective of the second holder’s contribution towards the purchase.

Further, in case a person who already owns a property in India becomes an NRI later, he can continue to hold the property in his name in India even if it is an agricultural land, plantation property, or farmhouse that he owned when he became an NRI. NRIs are permitted to lease out the property irrespective of when it was acquired and the rent received from such property can also be remitted, but only after appropriate Indian taxes have been paid on such receivables.

With respect to sale or transfer of property owned by a Non-Resident Indian, he is allowed to sell or gift an immovable asset to any person resident in India as well as another NRI. However in case of   transfer, sale or gift to an NRI, the property cannot be an agricultural land, a farmhouse or plantation territory.

FATCA

Same as bank accounts and mutual funds, its not easy task for the Indian government to identify the property of NRIs and their earnings from them. There are many US based NRIs, who are planning to sell their property in India and for that they are ready to offer big discounts and the reason behind that is the implementation of FATCA (US Foreign Account Tax Compliance Act).

Recently, US and India have signed a new information sharing protocol which will bring the properties, assets, bank accounts, capital market investments and mutual funds under investments in India under the scan of US tax authorities. Now US if going to implement US Foreign Account Tax Compliance Act (FATCA), which aims to ensure that wealthy NRIs are paying tax on the income generated from overseas investments and properties. Due to FATCA, US have to share information about citizen’s assets in every other country. Now NRIs have to share details of their assets with US authorities.

According to BigDeals.in, a Gurgaon-based online property portal, “We have received several enquiries from NRI clients, which are from US in last two months. According to Ashwin Chawwla, CEO of BigDeals.in, “Some of these people are asking about more clarity on the issue as they are little confused about what’s happening and how they have to deal with this issue”. The more he added that while others are asking him to dispose their property in India in very short duration, and they are ready to offer big discounts, as law FATCA is not clear. It is well known fact that in past two decades many NRIs have invested in the real estate sector in India and now property market is on its peak, especially in the regions such as; Gurgaon and NCR. I bought a bungalow in Surat before three years ago for long term investment, but now am planning to sale it, as per the statement of Jignesh Shah, an engineer who works in Silicon Valley. Apart from that on the other side some of the US based NRIs are transferring their property to relatives instead of selling them.

According to one of the tax adviser, who help NRIs with property in India, “If property is first transferred and then sold, so the acquaintance or relative can emit back the money to the US citizen, as currently they are allowed to send $ 2,500,000 or Rs 16.6 crore per annum. And if the property is not transferred, so they can keep the cash in the separate account or tax paid on the amount received through the cheque. In present, there are two different schemes which are operational in US for NRIs with an aim to declare their wealth back home in India. First; there is no penalty for those, who will declare their liability, tax and income generated over the past three years from overseas properties. However; in other scheme; NRIs can pay tax of last eight years with interest and the penalty of 27.5 percent with an aim to compensate it.

According to one of the real estate experts, NRIs are not only selling their property in India, but at this point of time they are avoiding any kind of investment in India as this can lead them towards tax complications in the future. The more he added that Indian banks are reluctant to open accounts, which will help the US based NRIs to invest in India through different accounts because it can increase their reporting obligations.