Acquiring property in India can be a complex process, particularly for those who reside outside the country. Indian citizens living abroad, known as Non-Resident Indians (NRI), are subject to specific regulations when it comes to purchasing or investing in Indian properties. The Foreign Exchange Management Act (FEMA) of 1999 and the notifications issued under it govern the acquisition or purchase of properties by Non-Resident Indians (NRI).
According to section 6(5) of the FEMA, Non-Resident Indians (NRI) can own, hold, and transfer immovable properties or invest in Indian currency or securities only if they acquired and owned such property, currency or security when they were residents of India or inherited it from someone who was a resident of India at the time of transfer.
There are two categories of individuals who are eligible to purchase immovable property in India – Non-Resident Indians (NRI) and Persons of Indian Origin (PIO). NRIs are Indian citizens who reside outside the country. A PIO is someone who either held an Indian passport at any time or whose father or grandfather was an Indian citizen as per the Constitution of India or the Citizenship Act of 1955.
Under the general permission available, Non-Resident Indians (NRI) and PIOs can freely purchase residential and commercial properties in India. However, the general permission does not apply to the purchase of agricultural land, plantation property, or farmhouses in India. These types of properties have separate regulations and restrictions on who can purchase them.
Non-Resident Indians (NRI) or PIOs must comply with the regulations set forth by the Reserve Bank of India (RBI) while purchasing properties in India. They need to ensure that the property they are purchasing is not located in any restricted areas, and they must have a proper legal representation while acquiring the property. Additionally, Non-Resident Indians (NRI) or PIOs cannot acquire agricultural land, plantation property, or farmhouse in India unless they receive prior approval from the RBI.
A) Eligibility:
For Non-Resident Indians (NRIs) looking to invest in Indian real estate, establishing eligibility is the first step. They must have a Person of Indian Origin (PIO) certificate, which they can apply for at the Indian Embassy or Consulate in their country of residence. If they don’t have a valid PIO certificate, they can also use their parent’s birth certificate as proof of their origin.
B) Home Loan to Non-Resident Indian
The Reserve Bank of India (RBI) has given general permission to banks and Housing Finance Companies (HFCs) registered with the National Housing Bank to grant home loans to NRIs for the purpose of buying residential house property in India. The loans granted to NRIs are subject to the same criteria as those applicable to resident Indians, including loan amount eligibility based on income, tenure of the loan, and extent of financing available for purchase of residential house property by Non-Resident Indians (NRIs). These loans are disbursed in Indian Rupees and must be repaid in Indian Rupees as well.
It is important to note that the amount of the loan cannot be credited directly to the NRI’s bank account and must be disbursed to the seller or builder of the property. If the Non-Resident Indians (NRIs) have already paid the consideration for the property, they cannot avail of the loan subsequently. The home loan to Non-Resident Indians (NRIs) must be secured by an equitable mortgage of the property they intend to purchase, and lenders are also allowed to accept other assets in India as security.
C) Repayment of Home Loan By Non-Resident Indians (NRIs)
Repayment of the home loan can be done through various sources, including remittances through banking channels, funds in Non-Resident External (NRE) accounts, Foreign Currency Non-Resident (FCNR) deposits, or Non-Resident Ordinary (NRO) accounts. The RBI also permits rental incomes received on the property to be used for servicing the EMIs.
According to RBI norms, a certain percentage of the value of the property can be funded by a financial institution, with the rest coming from the NRI’s personal resources. Since Indian financial institutions provide rupee loans, repayment must also be made in rupees. NRIs can also opt for funding overseas, where interest rates may be lower, especially if they are still overseas and have income accruing there.
All transactions must happen through the banking channel, and repayment must be made through inward remittances. NRIs can get the money remitted directly from their NRO/NRE accounts in India or issue post-dated cheques or Electronic Clearance Service (ECS) from their NRE, NRO, or FCNR accounts.
D) No Restriction on Purchase of Immovable Property By NRI
In India, there are no restrictions on the number of residential or commercial properties that can be purchased under general permission.
E) NRI Can Acquire Immovable Property by Gift
Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) can also acquire immovable property through gift from a person residing in India, an NRI, or a PIO.
F) TDS on Immovable Property
TDS, or tax deducted at source, is also applicable to NRIs. Section 194-IA applies to every non-resident transferee responsible for or paying any amount to a resident transferor as consideration for the transfer of any immovable property, except agricultural land. The transferee must deduct an amount equal to one percent or such rate as applicable at the time of making payment, whichever is higher. The TDS must be deducted and deposited into the government’s account before making payment to the seller.
However, if the consideration for the transaction is less than INR 50,00,000, no TDS shall be deducted on the purchase of immovable property by an NRI. It is important to note that section 194-IA is applicable only if the transferor is a resident.
G) Rates of TDS
The amount of Tax Deducted at Source (TDS) to be deducted on the purchase of immovable property depends on whether the seller provides their PAN number or not. If the seller provides their PAN number at the time of transaction and the value of the property exceeds 50 lakhs, TDS shall be deducted at a rate of 1% on the purchase price. However, if the seller does not provide their PAN number at the time of the transaction, TDS shall be deducted at a rate of 20% on the purchase price.
H) Time of Deposit of TDS
TDS must be deducted at the time of credit to the account of the transferor or credit of payment in cash or cheque or through any other mode, whichever is earlier. After deducting TDS, the deductor must pay the same to the government within 7 days from the end of the month in which the TDS was deducted. Online payment can be made to the Income Tax Department through any authorized bank, and a new challan-cum-statement form, Form 26QB, is introduced for the same. The PAN number of both the seller and the purchaser needs to be mentioned in the online form to provide details regarding the transaction.
I) TDS Certificate
A TDS certificate must be issued by the deductor in Form 16B within 15 days from the date of deposit of TDS. There is no need to file a separate return for the TDS payment on purchase/sale of immovable property on a quarterly basis. Form 26QB acts as a challan-cum-statement and contains all the necessary details required to be provided in the TDS return.
J) Interest on Late Deposit of TDS
Provisions of interest and penalty in case of late deduction and late payment apply to this section as well. In case of any delay in deduction of TDS, the deductor has to pay interest at a rate of 1% per month, and for any delay in payment of TDS, the interest rate is 1.5% per month.
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