There are restrictions not only when NRIs buy property in India,
but also when they sell as well
Saurabh Kumar : live Mint :Jul 18 2013. 06 05 PM IST
The rupee is down about 7% since a year ago and by around 39% since five years ago, which makes it cheaper for people earning in dollars and spending in rupees. India received the highest amount of remittance at $69 billion in 2012 among all countries, according to the World Bank.
Given the current scenario—a depreciating rupee coupled with stagnant property prices in India—non-resident Indians (NRIs) may want to buy property in India. “There was a huge run-up in property prices in 2011 and 2012. Now they are consolidating,” says Rohit Raj Modi, director, Ashiana Homes Pvt. Ltd, a New Delhi-based real estate firm.
Recently, there has been significant increase in enquiries from NRIs for property in India. “High net worth individuals (HNIs) and people from the middle income group are showing interest as they see this as an opportunity. They either plan to come back at some point in time or have relatives to use the facility,” says Rajesh Saluja, chief executive officer, ASK Wealth Advisors Pvt. Ltd.
However, there are a few things that should be kept in mind before buying a property in India.
Which properties can you buy?
The Reserve Bank of India (RBI) through the Foreign Exchange Management Act (Fema) regulates how NRIs can buy property in India. NRIs can only buy residential and commercial properties and not agricultural land, plantation property and farmland. However, properties falling under these categories can be inherited. “If you already held properties falling under these categories before becoming an NRI, you can continue holding them,” says Saroj Maniar, partner, Contractor, Nayak and Kishnadwala, a Mumbai-based chartered accountant firm. Such properties can only be sold to resident Indian citizen. NRIs can buy multiple residential and commercial properties in India. Also, no prior permission is required for such transactions. NRIs can hold the property in joint names with another NRI but not an Indian resident or a foreign national. The NRI’s foreign address is mentioned in the purchase agreement.
Documentation: “Normally, the documents required for registration of immovable property would include a copy of passport, photographs, copy of permanent account number card and proof of address if it is different from the address mentioned in the passport,” says Maniar.
Customers are also asked for their bank details, says Modi.
Funding: An NRI can either pay through rupee-denominated non-resident ordinary (NRO) or through non-resident external (NRE) and foreign currency non-resident (FCNR) accounts. Loans are also available and can be taken from any Indian bank within India or from a branch of any Indian bank in the NRI’s country of residence.
Exit options
NRIs must have exit options because they face certain restrictions when selling a property. “Before making such investments, NRIs should keep in mind the exit options,” says Chintan Patel, director-transaction advisory services (real estate, industrial and hospitality), EY. NRIs can sell residential and commercial properties to resident Indians, Indian citizens resident outside India or to Persons of Indian Origin resident outside India. Also, under Fema only $1 million can be repatriated each year if the initial investment was made from the rupee-denominated NRO account. However, if the investment was made through NRE or FCNR account, then the amount of initial investment can be repatriated without any cap at one go. “This is also subject to the restriction that an NRI can only repatriate sales proceeds of two residential properties in their lifetime which is over and above the $1 million limit for every fiscal,” says Maniar. However, out of the profits made, only $1 million can be repatriated each fiscal. The rest of the amount needs to be in the NRO account and/or invested in India. Again in the next fiscal, another $1 million can be repatriated.
As far as taxes are concerned, if it is a long-term capital gain, in case the property was held for at least three years, a flat 20% tax is applicable apart from surcharge and cess. However, if it is a short-term gain, then the tax is applicable as per the slab rate plus surcharge and cess.
Real estate investments require a lot of planning and follow up. Falling rupee should not be the only reason to buy a property in India.
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