M.V. Kali Prasad

Some dos and don'ts for NRIs/PIOs buying property in India.

THE RIGHT PLOT: NRIs are allowed to buy residential or commercial property in India.

There are two regulatory authorities covering real estate investments in India by non-resident Indians (NRIs) or persons of Indian origin (PIO). One is the RBI and the other, FEMA. Both bodies have issued notifications/ guidelines for the acquisition, possession, operation and sale of real estate in India by NRIs/PIOs.

Permission

General permission is granted to NRIs/PIOs to acquire residential or commercial property in India. However, there are restrictions on the purchase of agricultural lands, farmhouses or plantations. NRIs/PIOs planning to buy real estate in India should ensure that the land, though stated to be a vacant site meant for the development of a layout or colony, is converted into a non-agricultural land and treated as such in local revenue records.

Payments

The property could be paid for either in Indian or foreign currency. The catch here is that at a later date, when the assessee proposes to repatriate the sale proceeds out of India, he can repatriate only the amount that was paid in foreign currency during the purchase.

Funding

NRIs/PIOs can secure financial assistance from commercial banks or housing finance companies for the purchase of residential properties. Loans can also be raised from authorised forex dealers, subject to terms and conditions. The buyer can negotiate for liquidating the loan in either foreign or Indian currency, according to convenience. As in the case of purchase consideration, loan repayments in foreign currency will be considered for repatriation when the property is sold at a later date.

Income

Under the Income Tax Act, any non-resident Indian is subject to tax on his/her income arising in India. Therefore, the income from real estate property acquired by an NRI in India is subject to tax.

Repatriation of income

After paying income tax in India, an NRI can repatriate his income subject, however, to permissions and sanctions. Repatriation is also possible if the forex dealer is satisfied that arrangements have been made for the payment of taxes in India.

Transfer of title

General permission is given for disposing of property acquired by NRIs/PIOs in India. The property can be willed or gifted.

Capital gains

NRIs/PIOs are not given any specific exemption from capital gains arising from the transfer of such property. They are liable to capital gains — short term or long term — on par with any other assessee.

Repatriation of sale proceeds

The sale proceeds of such property can be repatriated out of India, to the extent paid in foreign exchange during the purchase. Any loan repayment (inclusive of interest) in foreign currency will also be considered for repatriation.

In the case of residential properties, repatriation is restricted to sale proceeds from not more than two properties. In the case of a real estate property inherited by an NRI, the sale proceeds can be repatriated, provided there are documents to prove the inheritance or legacy to the satisfaction of the forex dealer and a certificate from a chartered accountant in the prescribed format. When the property is purchased in Indian rupees, the sale proceeds can be repatriated if the property has been held for not less than 10 years. When held for less than 10 years, repatriation is still possible if the sale proceeds are held in an NRO account for the balance period, either in a term deposit or in a savings account, or held in any other eligible investment.

Upper limit

Repatriations are subject to an upper limit of $1 million per annum.

Declarations

The NRI/PIOmust declare to the forex dealer that he/she has either paid the applicable taxes or made adequate arrangements for the payment.

Settling abroad

What does the law say in the case of citizens selling their property in India to move and settle abroad?

The assessees could have acquired property from their income in India. At the time of purchase, the RBI or FEMA provisions may not have been applicable. But can the sale proceeds be repatriated outside India? The sale proceeds from a residential property can be repatriated.

Another possibility is that the person may have sold the property at an earlier date and, in order to avail benefits under S.54 EC, he/she may have deposited the amount in a capital gains deposit scheme with NABARD or any other approved institution. As this amount is a part of the sale proceeds, it can be repatriated too.

And for those intending to sell their property and leave the country before March 31, the sale proceeds can be repatriated provided the capital gains tax is paid or arrangements made for the payment. A declaration to this effect needs to be made. A certificate from a chartered accountant and the computation of capital gains would be helpful.

Procedure

The NRI/PIO can approach an authorised forex dealer to facilitate repatriation of the money out of India.

(The author is a Hyderabad-based chartered accountant.)

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