Purchasing property in India as a Non-Resident Indian (NRI) is a straightforward process, but there are specific regulations and requirements that NRIs must follow. The process involves several steps, ranging from selecting the property to completing legal formalities. Here’s an outline of the process for purchasing property in India as an NRI:
1. Eligibility to Buy Property
- Types of Property NRIs Can Buy: NRIs are allowed to buy both residential and commercial properties in India. However, NRIs are not permitted to purchase agricultural land, farmhouses, or plantations in India.
- Who is an NRI?: An NRI is someone who is an Indian citizen or a person of Indian origin who resides outside India for employment, business, or vocation for more than 182 days during the preceding financial year.
2. Selecting the Property
- Choosing the Property: NRIs can buy property either directly from a developer or from the resale market. It’s important to choose a property based on your requirements—location, budget, legal status, and future returns.
- Research and Due Diligence: As an NRI, it’s crucial to conduct thorough research before purchasing the property. This includes checking the legal title of the property, verifying the developer’s credibility, and ensuring that all necessary approvals and clearances are in place.
3. Legal Framework for Property Purchase
- Reserve Bank of India (RBI) Regulations: NRIs are required to follow the guidelines set by the Reserve Bank of India (RBI) for property purchases. RBI permits NRIs to purchase property under the Foreign Exchange Management Act (FEMA).
- Power of Attorney (PoA): If you are unable to visit India for the property transaction, you can authorize someone you trust (usually a family member or lawyer) to act on your behalf by providing them with a Power of Attorney (PoA). The PoA can be used to sign documents and complete transactions.
4. Documentation Required for Property Purchase
NRIs must provide specific documents for the property purchase process. These include:
- Valid Passport: To prove NRI status.
- Visa/Residency Proof: To establish residency outside India (e.g., residence permit, work visa, or other documents).
- PAN Card: A Permanent Account Number (PAN) card is mandatory for any financial transaction in India, including property purchases.
- Overseas Address Proof: Address proof from the country of residence.
- Photographs: Passport-size photographs.
- Power of Attorney (if applicable): In case the NRI is not physically present to sign documents.
5. Payment Process
- Currency for Payment: Payments for property purchase must be made in Indian Rupees (INR). While payments can be made from the NRI’s NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts in India, the funds must originate from abroad (i.e., through remittances from overseas accounts).
- RBI Guidelines: The total payment for the property purchase should comply with the limits set by the RBI. It is important to ensure that the payment is made as per FEMA guidelines, and all funds used for the purchase are properly documented.
- Bank Transfers: The payment for the property can be made via an Indian bank account, and transactions should comply with the legal norms and limits for foreign remittances.
6. Stamp Duty and Registration Charges
- Stamp Duty: The stamp duty on property transactions varies by state in India. As an NRI, you must pay stamp duty at the rate applicable in the location where the property is being bought. This is a legal requirement for property registration.
- Registration: After payment of stamp duty, the property transaction must be registered with the local sub-registrar office. Both the buyer and seller need to sign the documents in the presence of the registrar.
- Registration Charges: The buyer is also responsible for paying registration charges, which typically range from 1% to 2% of the property value, depending on the state.
7. Tax Implications
- Income Tax: NRIs must pay tax on income earned from property in India, such as rental income or capital gains from the sale of property. NRIs are subject to TDS (Tax Deducted at Source) on rental income, which is deducted by the tenant.
- Capital Gains Tax: If you sell the property in the future, you will be liable to pay capital gains tax. The tax depends on how long you have held the property:
- Short-term capital gains (STCG): If the property is sold within two years of purchase, the gains are taxed at 30%.
- Long-term capital gains (LTCG): If the property is held for more than two years, the tax rate is 20%, with indexation benefits.
- Tax Filing: NRIs must file income tax returns in India for any income derived from property. You can also claim tax deductions, such as interest on home loans.
8. Power of Attorney (PoA)
- If an NRI cannot be present in India to complete the transaction, they can grant a Power of Attorney (PoA) to a relative or representative in India. The PoA authorizes the agent to act on the NRI’s behalf for signing documents, making payments, and handling legal formalities related to property purchase.
- Types of PoA: NRIs generally use General PoA (for all types of transactions) or Specific PoA (for a particular property transaction). The PoA must be signed and notarized in the country where the NRI resides and registered in India.
9. Title Verification
- It is important for an NRI to verify the legal title of the property being purchased. The developer or seller should provide all documents related to the title, including the Sale Deed, Property Title, and No Objection Certificates (NOCs).
- Title Search: Before proceeding with the property transaction, it is advisable to do a title search of the property to check for any legal disputes, encumbrances, or outstanding debts associated with the property.
10. Completion and Possession
- Sale Deed: The Sale Deed is the final document that transfers the ownership of the property from the seller to the buyer. It must be signed by both parties in the presence of witnesses.
- Possession of Property: Once the sale is registered, the buyer can take possession of the property and use it as desired. However, the buyer may have to wait until the developer completes construction (for under-construction properties).
Summary of Steps for NRIs to Purchase Property in India:
- Check Eligibility: Confirm that the property type (residential or commercial) is eligible for purchase by an NRI.
- Choose Property: Research and choose the property, ensuring that the developer or seller is credible.
- Gather Documents: Prepare required documents such as passport, visa, PAN card, proof of address, etc.
- Payment Process: Make payments from NRE or NRO accounts via legal channels.
- Stamp Duty and Registration: Pay stamp duty and registration charges; register the property with the local authorities.
- Tax Compliance: Be aware of tax obligations such as TDS, capital gains tax, and filing tax returns.
- Power of Attorney (PoA): If necessary, appoint a trusted individual to act on your behalf in India.
- Title Verification: Verify the legal title of the property to avoid disputes.
- Complete Transaction: Finalize the sale deed, pay all dues, and take possession of the property.
Conclusion:
Purchasing property in India as an NRI involves several legal and procedural steps, but it is manageable if done with the right knowledge and proper due diligence. By following the steps outlined above, NRIs can safely invest in Indian real estate, ensuring the transaction is legally sound and financially secure. Always consult with legal and real estate professionals for smooth execution of the process.