Hurdles for Property Purchase in India by NRIs

For many globetrotting Indians, owning property in India may be a
cherished dream. For others who have set up permanent homes abroad,
selling whatever property they own here might be more meaningful. Few
others may have been born under a lucky star to be gifted property;
still others may inherit property and may want to pass it on to their
grandchildren. This is a familiar situation in this property quadrangle,
reading through the myriad rules and regulations governing acquisition
and transfer of property can be mind-boggling. All this was discussed
at a recent NRI investor’s seminar held in New Delhi. Mr. Tejinder Singh
educated the gathering about some do’s and don’ts of NRI investing.
Some briefs of the seminar are enumerated below.

It’s FEMA that matters

Living outside India, you first need to be aware of the Foreign Exchange
Management Act (FEMA) and its applicability to forex transactions in
India. The acquisition and transfer of immovable property too has financial
implications and falls within the ambit of FEMA. Hence, the place to
get first hand information on this is the RBI notification under FEMA.
These guidelines permit both Non-Resident Indians (NRIs) and Foreign
Nationals of India Origin (PIOs) to enter into property transactions.

That takes us to the next question: Who is an NRI or a PIO? Had you
been a student of income-tax law, you might recall the ‘182 days in
India’ rule for determination of residential status and may even furiously
start your calculations. But, wait… you are governed by FEMA here,
as well as the Income-Tax Act; and they don’t see eye to eye in this
case!

Under FEMA, a person becomes a non-resident simply by leaving India
for employment or for any other purpose that would indicate his intention
to stay abroad for an indefinite period. It defines a PIO as an individual
who, at any time, has held an Indian passport or who, or either his
father or grandfather, was a citizen of India by virtue of the Constitution
or Citizenship Act, 1955.

Once you have passed this first test and determined your eligibility,
you can move on to taking a look at the law.

Property Acquisition

As an NRI or a PIO, you are free to acquire any number of properties
(residential/commercial) in India, under the general permission granted
by the RBI. No documents to be filed; no forms to be filled. Believe
it or not, it is as simple as that.

Like a purchase, a gift from anyone, be it a resident Indian, another
NRI or a PIO, is perfectly acceptable. After all, would anyone (law-makers
included) want to say ‘no’ to such a fortune?

But the law treats inheritance with more caution. As history proves,
that’s where most disputes arise, isn’t it? Let’s take the case of Anshul,
who migrated to the US in the 1990s and has since been an NRI. His parents,
on the other hand, have not moved out of Hyderabad all their lives.
His parents being resident Indians, Anshul can freely inherit the ancestral
house in Hyderabad.

What if Anshul’s father migrated to the US in the 1960s? By law, his
father may be an NRI (if he still holds his Indian passport) or a PIO
(if he is now a US citizen but at one time held an Indian passport).
If they have still retained their ancestral house, Anshul cannot freely
inherit the house from his father, as in the first case.
Inheritance of a property in India from a person resident outside India
needs specific approval from the RBI and will be permitted only if the
bequeather had acquired such property in accordance with the provisions
of foreign exchange law at the time of acquisition, or under FEMA regulations.

Transfer of Property

An NRI or a PIO is free to transfer his property by way of sale or by
way of gift. But the catch lies here. In case of a gift, the property
can be gifted to any person, whether he is a resident, non-resident
or a PIO. But, in case of a sale, a PIO alone needs prior approval of
the RBI to sell it to another NRI or PIO.
If he sells it to a resident Indian, the need for prior approval does
not arise. An NRI need not get prior approval even if he is selling
the property to another NRI or a PIO.

Agricultural Land

While you can freely acquire residential or commercial property, you
need to remember that, as a rule, agricultural land, plantation property
and farmhouse in India can neither be purchased nor be obtained by way
of gift by an NRI or a PIO.

It can only be inherited. On the other hand, you can freely sell or
gift these properties, but only to someone who is a citizen of India
and who stays in India.

Payment, Repatriation and Remittance

An NRI / PIO may purchase property in India by remitting funds into
India from his bank account abroad or from funds held in his NRE / FCNR
(B) / NRO account held with a local bank. Suppose you don’t have enough
money, nothing prevents you from taking a home loan readily offered
by various banks in India.
Similarly, in case of a sale, the amount may first be credited into
any of your accounts in India and the proceeds may later be repatriated
abroad.

Repatriation may be by way of inward remittance or by debit to NRE/FCNR
(B) account. But there is a cap on how much you can send back. If you
had purchased the property for, say, $1,25,000 (Rs 50 lakh, approximately)
through a dollar remittance or through your FCNR(B)/NRE account, you
can repatriate only so much, although you might have sold the property
for Rs 75 lakh.

You could have also credited the sales proceeds to your NRO account.
If so, the amount to be taken overseas cannot exceed $1 million per
calendar year. (Normally, the balance in NRO account is not repatriable.
Repatriation of sales proceeds of immovable property is allowed on an
ad hoc basis). The remittance from the NRO account was previously subject
to a lock in period of 10 years. The RBI has now removed this restriction.

The proceeds of property received by way of gift can be credited only
to the NRO account. Hence, repatriation of the same will come under
the $1-million limit.

Subject to the production of documentary evidence in support of inheritance
and tax clearance certificate/no objection certificate from the Income-Tax
authority, sales proceeds (up to a maximum of $1 million per calendar
year) of property acquired by way of inheritance can be taken overseas.
In case this property has been inherited from an NRI or a PIO, along
with documentary evidence and no objection certificate, prior approval
of the RBI may be necessary.

Taxman Watching

As the cliché goes, wherever we go, two things are certain
in life – death and taxes. As per the income-tax law, when you become
a non-resident, income received, accruing or arising or deemed to be
received or accruing or arising in India will be taxed in your hands.
Let us assume you have invested in an apartment in India.
If you have let out the flat, the rent you receive is an income arising
in India from a property situated in India. Hence, it is chargeable
to tax under the head ‘Income from House Property’. In case you’ve taken
a home loan, any interest on that loan is available as a deduction from
your income.

If you sell your Indian property too, the taxman will come knocking
at your door. This time, to claim a part of the tidy sum you made, under
the head ‘capital gains’. Tax planning on this front as specified in
Sections 54 or 54EC or 54F of the Income-Tax Act will help you shield
a substantial portion of that sum from taxes.

Photo: Kolkata Howrah Bridge IMG 20181215 094934 by Amol.Gaitonde, licensed under CC BY-SA 4.0, via Wikimedia Commons.