What are the restrictions on NRI property ownership in India?

Non-Resident Indians (NRIs) are allowed to own property in India, but there are certain restrictions and guidelines they must adhere to. These rules are primarily governed by the Foreign Exchange Management Act (FEMA), as well as guidelines from the Reserve Bank of India (RBI) and other government agencies. Below are the key restrictions on NRI property ownership in India:

1. Types of Property NRIs Can Own

• Residential Property: NRIs are allowed to purchase residential properties in India, including apartments, flats, and houses.
• Commercial Property: NRIs can buy commercial properties such as office spaces, retail spaces, or industrial units.
• Agricultural Land, Farmhouses, and Plantations: NRIs are not allowed to purchase agricultural land, farmhouses, or plantations in India. This restriction applies to both buying and owning agricultural property.
  • Exception: If an NRI inherits agricultural land or acquires it by way of a will from a relative, they are permitted to hold on to the property. However, they still cannot buy or sell agricultural land as a part of regular property transactions.

2. Eligibility to Buy Property

• Indian Citizenship or Person of Indian Origin (PIO): NRIs can buy property in India as long as they are Indian citizens or Persons of Indian Origin (PIO). A PIO refers to someone who was born in India or whose ancestors were Indian citizens.
• Foreign Nationals of Indian Origin (NRI): Foreign nationals of Indian origin (who are not Indian citizens) can purchase property in India, but only if they hold an Indian passport or are registered as PIOs.

3. Financial Regulations for Property Purchase

• Payment Method: NRIs must ensure that the payments for the property purchase are made through Indian bank accounts (NRE or NRO accounts). The funds for the purchase should come from abroad, and the transaction must be conducted in Indian Rupees (INR).
• Remittance Limits: Payments for the property must adhere to RBI’s remittance guidelines. NRIs are allowed to remit funds for the purchase of property under FEMA (Foreign Exchange Management Act) regulations. This can be done through NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts.

4. Power of Attorney (PoA)

• Power of Attorney: If an NRI is unable to be physically present in India during the property transaction, they can appoint a Power of Attorney (PoA) holder. The PoA can be a trusted family member or a legal representative in India who can handle the signing of documents and complete the transaction on behalf of the NRI.
• The PoA must be registered in India, and it can be a General PoA or a Specific PoA, depending on the scope of authority granted.

5. No Joint Ownership with Foreign Nationals

• NRIs can jointly own property in India with other NRIs or Indian citizens, but not with foreign nationals (who are not of Indian origin). This is due to the restriction that limits property ownership by foreign nationals.
• Co-ownership: If an NRI wants to co-own property with another individual, the co-owner must be an Indian citizen or an NRI. Foreign nationals who are not of Indian origin are not allowed to co-own property with an NRI.

6. Taxation on Property

• Income Tax: NRIs are required to pay tax on income generated from property in India, such as rental income or capital gains. They are subject to Tax Deducted at Source (TDS) for rental income, and they must file income tax returns in India if they have income from property.
• Capital Gains Tax: When selling property, NRIs are liable to pay capital gains tax:
  • Short-Term Capital Gains (STCG): If the property is sold within two years of purchase, the gains are taxed at 30% (without indexation).
  • Long-Term Capital Gains (LTCG): If the property is held for more than two years, the gains are taxed at 20% with indexation benefits.
• TDS on Sale: When an NRI sells property, the buyer is required to deduct TDS on the sale proceeds at the rate of 20% (for long-term capital gains) or 30% (for short-term capital gains) and remit it to the government.

7. Mortgage or Home Loan for Property Purchase

• Home Loan Eligibility: NRIs are eligible for home loans in India to purchase property. However, the loan must be taken from an Indian bank or financial institution.
• Repayment: The loan repayment can be made through funds from NRE/NRO accounts. Additionally, NRIs are allowed to remit funds from abroad for loan repayment.
• Loan Amount: The loan amount is typically subject to the same criteria as for Indian residents, but the conditions may differ slightly based on the NRI’s creditworthiness and income profile.

8. Repatriation of Funds

• Repatriation of Sale Proceeds: An NRI is allowed to repatriate the sale proceeds from the sale of a property back to their country of residence. The amount that can be repatriated is limited to the amount originally paid for the property in foreign currency (including the original purchase price and any appreciation in value), subject to RBI guidelines.
• Repatriation Process: The NRI must complete necessary documentation, including tax clearance and submitting forms to the RBI or the bank through which the funds are being repatriated.

9. Inheritance and Gift Rules

• Inheritance of Property: NRIs can inherit property from family members or relatives in India, regardless of the type of property (residential, commercial, or agricultural land). If an NRI inherits agricultural land, they may be permitted to retain it, though they cannot purchase agricultural land.
• Gift of Property: NRIs can also receive property as a gift from a resident Indian or another NRI. If the gift is made by an Indian relative, there are no restrictions. However, it must be ensured that the property is legally valid and no restrictions apply.

10. Joint Ventures with Indian Developers

• Real Estate Investment: NRIs can invest in real estate through joint ventures with Indian developers or builders. They can also form partnerships for commercial real estate projects, subject to the regulations set by the RBI and FEMA.
• Project Investment: When investing in a project or development, NRIs must ensure that the developer is RERA-registered (Real Estate Regulatory Authority) and the project complies with local laws.

Summary of Key Restrictions for NRIs Buying Property in India:

1. Agricultural Land: NRIs are not permitted to buy agricultural land, farmhouses, or plantations.
2. Co-ownership Restrictions: NRIs cannot co-own property with foreign nationals who are not of Indian origin.
3. Property Type: NRIs can buy residential and commercial properties but are prohibited from acquiring agricultural land.
4. Payment Rules: Payments must be made through NRE/NRO accounts and in Indian Rupees (INR).
5. Capital Gains Tax: NRIs are subject to capital gains tax on the sale of property, with different tax rates for short-term and long-term capital gains.
6. Repatriation of Sale Proceeds: Sale proceeds can be repatriated abroad, subject to RBI guidelines.
7. Power of Attorney (PoA): NRIs can appoint a PoA if they are not present in India for the transaction.
8. Inheritance: NRIs can inherit property, including agricultural land, but cannot buy agricultural land.

Conclusion:

While NRIs have the ability to purchase residential and commercial properties in India, they are subject to certain restrictions, particularly regarding agricultural land, farmhouses, and plantations. NRIs must comply with RBI and FEMA regulations, ensure the legality of the property title, and be aware of the tax implications. It is advisable for NRIs to consult with legal and financial professionals before proceeding with property purchases to ensure they meet all legal requirements and avoid potential pitfalls.