Queries NRIs have before they buy Indian property

New Delhi: Non-resident Indians (NRIs) are often seen as keen on buying a property in India—whether it’s for family living back home or because they want a getaway in India every time they return, or simply because they would like to come back and settle in India later in their lives.

However, buying a property in India can be a complicated affair for NRIs. Typically, they rely on their relatives to help them abide by multiple regulations. If you are an NRI looking for a property in India or someone who has a non-resident relative relying on you to understand Indian regulations, we have got answers to the most common questions that can confuse you.

Can all non-residents buy property in India?

Typically, a person living abroad would either continue to have an Indian passport and permanent residency of another country or be a foreign national with the passport of another country.

The term NRI is used loosely to denote a person with Indian roots living abroad. However, according to regulations, the term is applicable only to certain individuals. The Foreign Exchange Management Act (FEMA) defines those who hold an Indian passport and those who don’t. “There was a concept called People of Indian origin (PIO) for a foreign passport holder. There was also an Overseas Citizen of India (OCI) card that provides several travel and investment privileges. In 2015, the government amended the Citizenship Act and merged PIO with OCI,” said Mukesh Jain, founder, Mukesh Jain and Associates, a law firm.

The Reserve Bank of India (RBI) recognizes NRIs and Overseas Citizen of India Cardholders (OCC) to be on the same footing with effect from March 2018.

Answer: If you have a foreign passport, you can buy property in India provided you get an OCI card.

What kind of property can NRIs buy?

NRIs and OCCs are permitted to acquire immovable property in India other than an agricultural property, farmhouse or plantation. However, the money used for buying property should be received by way of inward remittances or held in a non-resident account. “Foreign nationals who are married to NRIs or OCCs can acquire one immovable property jointly with their spouse,” said Atul Pandey, partner, Khaitan & Co., a law firm.

But citizens of 11 countries—Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea (DPRK)—cannot acquire or transfer immovable property in India, irrespective of their residential status, without prior permission from RBI.

Answer: Non-residents can buy residential as well as commercial real estate. They are not permitted to purchase agricultural land or farmland.

Can NRIs inherit or gift property?

NRIs or OCCs can inherit any immovable property in India. Also, the law permits them to inherit agricultural land and farmhouses, which they are otherwise not entitled to purchase.

There is also no restriction on persons from whom a non-resident can inherit property. NRIs and OCCs can even inherit a property in India from other NRIs or OCCs.

Similarly, a non-resident can freely bequeath or gift property located in India to residents, NRIs or OCCs, except for nationals of the 11 countries mentioned earlier.

NRIs and OCCs can also receive a property as a gift. “If the property is from a close relative as defined in the Income-tax Act, 1961—mother, father, children, brother and so on—then there will be no tax implication. But if it is not from a close relative, it would be taxable in the hands of the receiver based on either the sale price or stamp duty value. Tax will be paid on the higher of the two values,” said Suresh Surana, founder, RSM Astute Consulting Group, a chartered accountancy firm.

Answer: Non-residents can inherit or gift any property, including agricultural land or farmland.

Can NRIs buy property through companies?

Foreign firms that have an office in India have restrictions on property purchase. A company that has established an office in accordance with FEMA can purchase real estate that is necessary or incidental to carrying on its business.

On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of RBI. “But, if a foreign company has established a liaison office, it cannot acquire immovable property in India. In such cases, the liaison offices can only take property on lease for up to five years,” said Jain.

Answer: Non-residents cannot buy real estate through companies for a personal purpose.

What kind of PoA do NRIs need to issue?

There was a time when many non-residents gave a general power of attorney (PoA) to relatives or property agents to manage day-to-day affairs. There have been several cases where such relatives or agents sold the property without informing the owners. Now the Supreme Court (SC) has held that their properties cannot be transferred based on a general PoA. In a general PoA, the owner of the property (the principal) can authorize another person (the agent or relative) to act on his or her behalf.

Answer: NRIs can use a specific PoA if they want to authorize a person to sell on their behalf. But the PoA must be registered in India after the payment of stamp duty.

How much can NRIs remit?

NRIs or OCCs may need to remit either the rental income or the sale proceeds from a property to the country of residence. “A non-resident can remit income like rent from a non-resident ordinary (NRO) or from a non-resident external (NRE) account in India. If the tenant is directly remitting rent to the non-resident, it would be subjected to the limits prescribed under the Liberalised Remittance Scheme (LRS), which is a maximum of $250,000 every financial year,” said Surana.

Typically, there’s a cap of $1 million a year on repatriation. In case NRIs or OCCs want to repatriate the sale proceeds to their country of residence, they can only do up to the prescribed limit. But they can repatriate a higher amount, after RBI approval, in case property sold meets the following three criteria. The first condition, according to Sandeep Jhunjhunwala, director, Nangia Andersen, a law firm, is that the property acquisition should comply with FEMA regulations. Second, the money for the purchase should come from a banking channel and, third, in the case of residential property, the repatriation of sale proceeds should be restricted to two properties, said Jhunjhunwala. In other cases, say, where the property sold was inherited, the cap will apply.

Answer: There’s a $1 million cap on repatriating sale proceeds of a property, rent and other income. OCC and NRI can remit a higher amount to the home country only in some conditions.

Can NRIs get disputes resolved via RERA?

In case of disputes, NRIs and OCCs can seek relief from various Indian courts and fora, just like any resident Indian property owner. Civil disputes about the title of a property owned by an NRI can be adjudicated by Indian courts. NRIs can even approach real estate regulatory authorities or consumer fora of any state.

Answer: They can approach any regulator or court to seek relief just like an Indian resident.

Is it a good time for NRIs to buy property?

The real estate sector has been witnessing a slowdown for a while now, and cases of delays and defaults have eroded buyers’ trust.

While the introduction of Rera has ensured that developers stick to their promises, some states are yet to implement it fully. Experts said it’s best to stay away from real estate in such states. “The risks of non-completion or delay are mitigated by selecting good developers with proven track records and sound funding. The cost arbitrage that under-construction homes provide over ready-to-move-in ones is still a compelling rationale,” said Anuj Puri, chairman, ANAROCK Property Consultants.

Given the ongoing slowdown in the real estate market, non-residents should ideally avoid buying residential properties as of now.