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Rules regarding property ownership by NRIs in India

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Rules regarding property ownership by NRIs in India

Last updated: November 6 2012
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  • Rules regarding property ownership by NRIs in India

    The other day Tamanna, my schoolmate who migrated to Austria after her marriage, asked me if she is entitled to buy property in India. She wasn't too sure if she could buy property here, now that her husband had acquired an Austrian citizenship.

    When she heard that the answer is a big 'Yes' , she was thrilled and is now immersed in online property research. The Foreign Exchange Management Act (Fema) rules welcome investment in property in India by NRIs (non-resident Indians), PIO (person of Indian origin), and in some cases, foreign nationals residing in India.

    Asha Nayar-Basu , a partner in S Jalan & Co, Attorneys, India, says: "Fema regulations permit a NRI or a PIO to acquire immovable property in India, other than agricultural land or, plantation property or farm house. Further, foreign companies which have permission to open a branch or project office in India are also allowed to acquire immovable property in India, which is necessary carrying on their business.

    "NRIs or PIOs are allowed to repatriate an amount up to one million dollars, per financial year (April-March ), out of the balances held in the Non-Resident (Ordinary ) Rupee (NRO) account, subject to compliance with applicable tax requirements . This amount includes sale proceeds of assets acquired by way of inheritance or settlement."

    A person resident outside India is categorized as non-resident Indian (NRI) or a foreign national of Indian origin (PIO) or a foreign national of non-Indian origin. Section 2 (v) and Section 2 (w) of Fema, 1999, defines 'person resident in India' and a 'person resident outside India' , respectively .

    What about say a British national, posted in India for work - if he wants to buy property in India - does our law permit him to invest? The answer is yes, but only after the appropriate approvals are in place. Asha says: "A foreign national who is a 'person resident in India' within the meaning of Section 2 (v) of Fema, 1999, can purchase immovable property in India , but the person concerned would have to obtain the approvals and fulfil the requirements , if any, prescribed by other authorities, like the state government concerned , etc. However, a foreign national resident in India who is a citizen of Pakistan , Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank of India."

    Taking the same example; the British national staying in UK cannot invest. According to the Indian law, a foreign national resident outside India cannot buy immovable property in India.

    The Indian law does not permit a foreign national of non-Indian origin, resident outside India to purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. However, he or she can acquire or transfer immovable property in India, on lease, not exceeding five years. In such cases, there is no requirement of taking any permission of, or reporting to the Reserve Bank.

    What are the documents to be filed with the Reserve Bank after the purchase? An NRI or PIO who has purchased residential or commercial property under general permission is not required to file any document or report with the Reserve Bank.

    Also, there are no restrictions on the number of residential and commercial properties that can be purchased. A significant market for many developers like DLF, Unitech, Raheja, Omaxe, Parsvnath, etc, is the NRI investor.

    Typically, the main criterion for investment by an NRI investor is a reputed builder, good location and an attractive layout. Some of the projects which have found favour with the NRI community in the recent past include luxury properties in Gurgaon like villas by Emaar MGF, Belvedere of Central Park, Aralias and Magnolia by the DLF group, Tata Primanti , IREO and M3M, etc.

    It is estimated that of particular interest is the population of NRIs and PIOs in California , which is over 4 lakh, and vastly spread in bay area and LA. There is specific interest in the Silicon Valley too, which is predominantly populated by techies who work and live in and around the area, like Sunnyvale, Santa Clara, Milpitas , Fremont, etc.

    Commercial property investment is the latest trend with NRIs. Investment in residential property, a home away from home, was the norm for NRIs, so far. But in the recent past, in a bid to multiply money, they are gravitating towards investment in commercial property. Many NRIs prefer commercial properties as they come with greater clarity on tenancy rights and it's easier to evict tenants from these buildings.

    A spokesperson from Omaxe says: "We have launched a new exciting scheme of assured return on a commercial property ready for possession. This scheme is of specific interest to NRI investors as it gives the highest return and is being offered by a credible developer with a proven track record."

    Vigneshwara Developers have a significant market in New York, New Jersey, Chicago, Massachusetts, and Washington. Divyanshu Sharma, general manager (marketing and sales) at Vigneshwara Developers , says: "The trends in the recent past show that most NRI investments have come to commercial property rather than residential, as it's considered a safer deal.

    The NRI community is largely interested in investments which reap timely returns and lead to augmentation in property prices. The Delhi NCR attracts investors from across the world but the major focus is on Gurgaon, as this area has the maximum number of MNC's and major IT-ITeS centres, with excellent connectivity like proximity to the international airport and the forthcoming express highway."


    Rules regarding property ownership by NRIs in India - The Economic Times

    __________________________________________________ __________
    It is better to be blind than to see things from only one point of view
  • #2

    #2

    Re : Rules regarding property ownership by NRIs in India

    Without going to few pages instruction, summary is.

    1. NRI, PIO, OCI can buy ANY RE similar to any resident Indians, EXCEPT Agricultural lands.

    2. No foreigners are allowed to buy any kinds of land in India, however, enforcement for small transactions are not up to the mark to control all these. Examples are all border states.

    3. Like resident Indians, NRI, PIO, OCI need not report to RBI or any other authority.

    4. Technically, NRI, PIO, OCI needs to pay from their overseas source/funds .. however, not many banks or builders are aware of this and hence enforcement is questionable.

    5. The main issue most of the nava nava NRIs failed to understand is the complexity of repatriate the sale proceeds, when they sale their RE Investment. On paper, there are few options but in practice, it is not that encouraging.

    Thats all.

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    • #3

      #3

      Re : Rules regarding property ownership by NRIs in India

      Originally posted by gharondabhai View Post
      The main issue most of the nava nava NRIs failed to understand is the complexity of repatriate the sale proceeds, when they sale their RE Investment. On paper, there are few options but in practice, it is not that encouraging.
      Yes it seems like if the NRI takes a loan from a bank in India, the repatriation can take as long as 10 years

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      • #4

        #4

        Re : Rules regarding property ownership by NRIs in India

        Things an NRI must remember while selling property in India

        The real estate market in India is growing and non-resident Indians (NRIs) are playing a key role in it. Here, we look at basic rules and regulations governing sale of property by NRIs in India.

        Income-tax on sale:

        Profits earned by selling property in India will be liable to capital gains tax under the Income-Tax Act, 1961. Capital gain is the difference between the sale value of the property and its cost of purchase. Capital gains can be classified as short term (up to 36 months) or long term (more than 36 months), depending on the period for which the property is held. Short-term capital gain will be taxed at normal slab rates and long-term gain will be taxed at 20%, subject to certain conditions.

        How to reduce tax liability:

        Investing the sale proceeds in purchase/construction of another house property: If a residential property is sold after being held for more than three years and the proceeds are reinvested for purchase of a new residential property, then the capital gains will be exempt to the extent of the amount reinvested. The exemption is subject to the new property being purchased within a year before or two years from the date of sale, or if new property is being constructed within three years from the date of sale.

        Investment in Capital Gain Account Scheme:

        If an NRI was not able to make the necessary investments, the Act provides that the amount can be kept in a nationalised bank under the Capital Gain Account Scheme before the due date of filing income-tax returns to avail the tax exemption. This amount is required to be utilised for purchase/construction of new property within a specified period.

        Sale proceeds invested in certain bonds: NRIs can also claim exemption by investing the amount of capital gains in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC). Investment in the specified bonds is to be made within six months of such sale and there is a lock-in period of three years for such bonds.

        Properties that can be sold:

        An NRI can sell any immovable property in India other than agricultural land/plantation property/farm house to an NRI, a Person of Indian Origin or a person resident in India under the Fema provisions. If an NRI has acquired an agricultural or a plantation land or a farm house by way of inheritance, it can be sold only to Indian citizens who qualify as residents of India.

        Repatriation of money:

        An NRI who has sold a house property can repatriate the sale proceeds up to $1 million per financial year, provided all the taxes have been paid and a certificate to that effect has been obtained from a chartered accountant, subject to certain conditions.

        The author is a director in KPMG. The views expressed are personal

        Things an NRI must remember while selling property in India - Indian Express
        __________________________________________________ __________
        It is better to be blind than to see things from only one point of view

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