Indian Real-Estate market has always been the cynosure for any NRI who wants to invest in India. No doubt the growth of this sector has a major contribution by the NRIs only. But the rules and regulations imposed on the transactions into real estate are not as simple as it is the case with any Resident Indian. The basic idea behind these restrictions/limitations or those conditions while transacting into the said sector are to ensure genuine flow of money, right tax to be paid in case of gains and avoid any illegal usage of money.
CAN NRIs BUY PROPERTIES IN INDIA?
Answer is very much Yes! A non-resident Indian can buy either a residential property or a commercial property in India. Further, there is no limit on the number of residential or commercial properties that an NRI can purchase in India. There is no RBI permission is required to buy residential or commercial property. But the point of exception is, an NRI cannot buy agricultural land, plantation land or a farm house in India. Even he cannot acquire such property as a gift. However there is no bar on inheriting such properties. Also the notable point is, a foreign national of non-Indian origin, resident outside India cannot purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. An NRI can take on lease an immovable property for a period not exceeding five years for without taking permission from the RBI.
Can NRIs take Home Loans?
Why not! An NRI can avail home loans for any property ready for possession or under construction, construction of property on an owned plot or for alterations to the existing property. Buying of a plot also qualifies for a home loan.
For loan purpose; NRI’s income, place of residence & educational qualification plays a major role. It is important to note that only graduate NRIs can avail home loans in India. But you need to recheck with the bank for any latest parameters. Normally banks allow an advance of 80-85 per cent of the value of the property, subject to the gross monthly income (GMI) of an individual. Sometimes the maximum amount of loan granted is in the range of 36-40 times GMI. Even some banks also go by the ratio of equated monthly installment to net monthly income (EMI/NMI).
For submission of document along with loan application an NRI needs to furnish copies of the passport, valid visa and work permit, contract of employment, work experience certificate, salary certificate and statements of NRE/NRO accounts. For those residing in the Middle East, a copy of the employment card is also required. The salary certificate should be attested from the embassy if the salary is not credited to a bank. There may be other requirements which defers from bank to bank.
For Repayment of Loans:
The repayment needs to be made in Indian rupees only and the repayment of these loans can only be through non-resident external (NRE) or non-resident ordinary (NRO) accounts with remittance from abroad.
In case an NRI changes his status once he returns to India permanently then he has to inform it to the banks and basis the same the existing loan conditions and clauses has to be reworked if required.
For Letting out or Renting Properties in India
The NRIs who have property acquired in the country can rent out the property without the approval of the Reserve Bank. The rent received can be credited to NRO or NRE account or remitted abroad.
The RBI has granted general permission to NRI’s and foreign citizens of Indian origin, to let out their residential properties acquired for their bona fide residential purpose but which on account of their residence abroad, are not required for their immediate residential purpose. However, there are restrictions regarding the repatriation of the rental income earned from such letting out of the property. The rental income is on a non-repatriation basis. Thus as indicated above, these rental income must be credited to the NRO Account/ Resident Accounts in India only.
Tax on Let out Properties in India: Here TDS on rental income comes under the other income category which attracts TDS at 30 per cent. The tenant is such cases are the person responsible to deduct the TDS and issue a TDS certificate. In cases where income exceeds Rupees 10 lakhs, a surcharge of 10 per cent would be applicable on the TDS. Further, an education cess of 3 per cent would apply to all TDS.
CAN NRIs SELL PROPERTIES OWNED IN INDIA?
An NRI can very well sell properties in India to a person resident India, NRI, or a PIO. Remember NRI / PIO can sell agricultural land, plantation property or farm house to a person resident in India only who is a citizen of India. But a foreign national of non-Indian origin resident outside India would need prior approval of the Reserve Bank to sell agricultural land, plantation property or farm house in India.
Even there is no restriction on gifting residential or commercial property to a person resident India, an NRI, or a PIO. But gifting of agricultural land, plantation property or farm house can be done to only to a person resident in India who is a citizen of India.
Things an NRI must remember while selling property in India
Profit Earned on Sale of Properties: Any incomes earned by way of selling of properties in Indiaby NRIs are liable to pay capital gain tax under the Income Tax Act 1961. These gains can be Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG) depending upon the period of holding of the property. If the holding period is less than three years (36 months) before selling it, then it is considered a short-term capital asset and if it is sold after three years (36 months), it is a long-term capital asset.
Tax on the Gains: Any NRI will be subject to a TDS of 20 per cent on the long term capital gains (LTCG). If an NRI sells the property within 3 years of purchase, he/she will be liable for short term capital gains (STCG) tax at your respective tax slab. Short term capital gain is calculated as the difference between the sale value and the cost of purchase (no indexation benefit is available). For NRIs STCG will be subject to a TDS of 30 per cent irrespective of their tax slab.
How to reduce the tax burdens or save taxes in such cases:
The tax saving options available to an NRI is not much different than the options available to any resident India while planning to reduce the tax liability on capital gains on properties. Following are the few best options available to any NRIs to do their tax planning while selling properties in India.
Buy another House: Under Section 54 of income tax Act, the long-term capital gains on the sale of a house you must use the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption.
Invest in 54EC Bonds: Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF) through its Karta can make investments into the bonds issued by National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC) to save tax on the long term capital gains arising from sell / transfer of Capital asset.
Capital Gains Account Scheme 1988 : Similar to any resident India, an NRI who was not able to make the necessary investments in another property u/s 54 or invest in bonds as per sec 54EC, the Income Tax Act provides that the amount can be kept in a nationalized bank under the Capital Gain Account Scheme before the due date of filing income-tax returns to avail the tax exemption in accordance with the Capital Gain Account Scheme (CGAS), 1988. The amount deposited with the scheme should only be utilized for purchase / construction of new property within a specified period.
Repatriation of Sale Proceeds:
As an NRI if you think selling of property and taking the sale proceeds outside India is just a click away, then you are wrong.
Such repatriation of funds should be reported to RBI by filling up prescribed forms. According to section 195 of the Income Tax Act, it is mandatory to deduct income tax from payments made or credit given to non-residents at the rates in force. 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.