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nri investment in indian realty

1. Who is an NRI?

A Non Resident Indian (NRI) is a citizen of India, who stays overseas for employment/carrying on business or vocation or stays abroad under circumstances indicating an intention of staying abroad for an uncertain duration. Persons posted in United Nations Organisations and officials deputed overseas by Central/State Government and Public Sector Undertakings (PSU) on temporary assignments are also treated as NRIs. Non-resident foreign citizens of Indian Origin are treated at par with NRIs.

2. Who is a PIO (Person of Indian origin)?

A person of Indian Origin (PIO) (not being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan) is  one, who at any time held an Indian passport or one, whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

A spouse (not being a citizen of Pakistan or Bangladesh) of a Indian resident or a person of Indian origin is also considered a PIO.

3. Who is an OCI (Overseas Citizen of India)?

Any person of full age and capacity, who is not or had been a citizen of Pakistan and Bangladesh shall be eligible for registration as an Overseas Citizen of India, if;

(i) he/she is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution
(ii) he/she is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution
(iii) he/she is a citizen of another country, but belongs to a territory that became a part of India after the 15th Day of August, 1947.
(iv)  who is a child of such a citizen.

A person, who is minor child of a person mentioned in the above clauses is also a OCI.

4. Who is eligible to buy an immovable property in India?

According to Reserve Bank of India (RBI) norms, an NRI can buy any property in India. Any Person of Indian Origin (PIO), an individual not being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan, can also buy immovable properties in India, if, (i) he/she, at any time, held Indian passport or (ii) whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

5. What are the documents required to buy a property in India?

(a) Pan card (Permanent account number)
(b) OCI/PIO card (In case of OCI/PIO)
(c) Passport (In case of NRI)
(d) Passport size photographs
(e) Address proof

7. What are the kind of properties an NRI/PIO cannot buy?

An NRI/PIO cannot usually buy agricultural land/plantation property/farm houses in India. Proposals to buy such a land have to be specifically approved by RBI, in consultation with Government of India. The only way they can acquire an agricultural land is by inheritance.

8. Are there any limits to the number of properties to be bought by NRIs?

An NRI/PIO can buy two residential properties in India. This is because if an NRI has bought two properties, then repatriation cannot be done for more than two residential properties if the funds are from an NRE account. If the funds are from a rupee account then the limitation is that the person has to hold the money in the account or in India for 10 years.

9. How can an NRI make the transaction while buying a property?

While making the payment for purchasing a property, funds can be remitted to India from abroad through regular banking channels or through the balance in the NRE, NRO or FCNR account.

10. What is the difference between NRE and NRO account?

Non-Resident External (NRE) account is a bank account that is opened by depositing foreign currency at the time of opening a bank account. Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian who is to go abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account.

Funds remitted from overseas sources or local funds that would otherwise have been sent to the account holder abroad can instead be transferred to NRE Accounts. Local funds that aren’t eligible to be remitted abroad must be credited to an NRO account.

One can transfer funds easily from NRE account to NRO account. However, if one transfer funds form NRO to NRE account, then you cannot repatriate the funds, i.e. the funds cannot be transferred back.

11. How are income tax applicable in case of properties owned in India?

According to Indian Income Tax Act, if a person (resident or NRI) owns more than one residential property, only one of them will be deemed as self-occupied. While no income tax will be applicable for the self occupied property, whether or not the other property is rented out or not, an income tax will be applicable on the basis of deemed rental income of the second property.

If you are an NRI and you have only one global property and the property is in India, then you are not liable to pay any income tax. However, if you own a property abroad and a property in India, then whether or not you rent out the property in India, you would have to pay income tax on deemed rental income on the property.

12. How is capital gains tax applicable in case of NRI?

The profit on sale of a property is part of capital gains. Hence, Capital Gains Tax (CGT) – both short term and long term is payable on the part of an NRI as and when he/she sells off the house or part of it.

If the property is held by an NRI for less than or equal to 3 years after taking actual possession, then the gains would be short term capital gains. They will be included in their total income as tax as per the normal slab rates shall be payable. However, if the property has been held for more then 3 years then the gain would be long term capital gains and will be subject to 20% tax plus applicable cess.

13. How does Double Taxation Avoidance Agreement work in case of NRIs?

In case of sale of an immovable property, the Double Tax Avoidance Agreement (DTAA) with most countries state that capital gains will be taxed in the country where the immovable property is situated. Hence, if an NRI owns immovable property in India, then he/she will be subject to pay tax in India on the capital gains which arise on the sale of the property. Similarly, letting of immovable property in India would be taxed in India under most tax treaties.

14. What are the norms of repatriation of funds that arise from sale of immovable property by NRI/PIO?

As per Reserve Bank of India (RBI) norms, if the property was acquired through remittance via normal banking channels/by debit to NRE/FCNR (B) account, the amount to be repatriated should not exceed the amount paid for the property.

In case of the property being acquired though rupee sources, NRI/PIO is permitted to remit an amount up to USD one million per financial year, out of the balances held in the NRO account.

15. Is rental income from property repatriable?

Rental income form property is repatriable as per the norms of RBI. Rental income is subject to income tax deduction and certification from a chartered accountant.

16. Can an NRI remit current income (rent) from India?

NRI/PIO can remit rental income from India to NRE account when certain documents are in place. The documents include a request letter, Form A2, FEMA declaration, original copies of 15 CA and CB duly signed by the remitter and CA, rent agreement and proof of rent amount remitted to NRE account, proof of tax payment, etc.
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