Intuitively, it feels like NRIs have virtually little to do with their roots or Indian origins. So can NRIs buy property in India? Well, the answer is yes.
Since there is foreign exchange involved, there would be some legal and taxation considerations involved in NRIs buying property in Hyderabad. As you would expect, there are a set of rules and guidelines for NRI property buyers. Purchase of immovable property in India by NRIs has to be in accordance with FEMA.
Here is a step-by-step guide and all that you need to know if you are an NRI buying an apartment or villa in Hyderabad. You can also find a checklist of all the documents you would need, or the property documents that you should check.
Who is an NRI?
- A Non Resident Indian (NRI) refers to Indian citizens living abroad.
- For buying property, NRI is defined under the Foreign Exchange Management Act, 1999 (FEMA) and the Income tax Act, 1961.
NRI According to FEMA
- Those who have resided in India for 182 days or more during the preceding financial year is a resident Indian and not an NRI
- Those residing outside India for a job, a business, a vocation, or other purpose for an uncertain period of time are considered NRIs, irrespective of their period of stay abroad.
- Those coming to India for taking a job, a business, a vocation, or other purpose for an uncertain period of time are considered as Resident in India, irrespective of the period of stay in India.
NRI According to Income Tax Act
- An NRI is a person who is not resident in India.
- Those residing in India for a period of 182 days or more during the previous year are not NRIs.
- Those residing in India for a period of 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year, are not NRIs.
Who is an Overseas Citizens of India (OCI)?
- A person who is not a citizen of India presently, but was in the past.
- A person who has at least one of the parents, or grandparents or great grandparents who is an Indian citizen.
- A person can register as an OCI if he or she is married to an Indian citizen or an OCI.
NRIs/OCIs - Who Can Buy Property?
- Both NRIs and OCIs can buy property in India.
- They don’t need to seek permission from the RBI.
What Type of Property Can an NRI Buy?
- They can buy both residential and commercial property.
- They can buy apartments and villas in Hyderabad.
What Type of Property NRIs Cannot Buy
- They cannot buy agricultural land, farmhouses or plantations.
- If they wish to buy these, then they would have to obtain permission from RBI, that RBI will decide on a case-by-case basis.
What About Property Owned Prior to Becoming an NRI?
- If a person is owning a property in India that was acquired before he or she became an NRI, then he/she can continue holding the property.
- NRIs are also allowed to hold any property - apartment villa, commercial property, a farmhouse, agricultural land, or a plantation that they owned prior to becoming an NRI.
Who Can be Joint Owner for NRI Buyer?
- NRI can buy individually or jointly with another NRI,
- NRI cannot buy jointly with resident Indians and others who are not allowed to buy property in India.
Power of Attorney
- NRIs may have to provide a power of attorney in the name of the builder or a friend/relative, in case they are not available at the time of completing the buying process.
- A lawyer can help an NRI in this matter.
Property Documents NRIs Should Check
- Title Deed (in the name of the seller).
- Sanctioned Building Plan.
- Commencement Certificate.
- Occupancy Certificate.
- Tax Paid Receipts.
- Encumbrance Certificate.
- Khata/Mutation Documents.
- Link Documents.
Documents required for NRI Property Registration
- PAN card.
- OCI/PIO card.
- Passport size photograph.
- Address proof.
- TAN Number (for buying commercial property).
Why is PAN Card Needed for NRIs?
- If the NRI wants to invest in mutual funds in India.
- If they want to transfer the funds received from the property transactions in India to their NRE or NRO accounts.
- They have a source of income in India (such as rent from property) that is taxable.
How Can NRI Pay for the Property?
- NRIs have to carry out all the transactions in Indian currency.
- They need to transact only through local banks when buying property in Hyderabad.
- As such, they should have an NRE/NRO or FCNR account in one of the authorised Indian banks.
Can NRIs Get Home Loan in India?
- NRI property buyers can apply for NRI home loan schemes for buying apartments and villas in Hyderabad.
- They need to invest at least 20% of the property value.
- They can get a loan up to 80% of the property value.
- Loan amount sanctioned depends on the paperwork and eligibility.
Documents NRIs Need to Apply for a Home Loan
- Two passport size photographs.
- Address proof of the applicant and co-applicant
Utility bills or driving license would count as address proof. They should be attested by the Indian Embassy in your country of residence.
- Six months bank statement of your NRE/NRO account in India
- Six months bank statement of your account held in the country of residence.
- Salary slip of your employer
- Self-declared residential status
- Power of Attorney (to be executed in the format given by the bank and attested from Indian embassy)
How Can NRIs Repay Home Loan?
- They have to make the payments through NRO/NRE accounts.
- They can issue post dated checks or opt for ECS.
Prepayment of NRI Home Loan
- There is no penalty for prepayment, partial payment or full value of the outstanding loan amount, if paid from own sources.
- Prepayment charges may apply if the NRI buyer is refinancing the loan to another financial institution in India.
Tax Deduction on Home Loan for NRIs
- NRIs are eligible for tax deduction on interest paid on the loan repayment of home loan if they file income tax returns in India.
- Tax deductions of up to Rs.1.5 lakh on housing loan principal repayment under section 80C can be availed.
- Tax deduction of up to Rs. 2 lakhs apply on interest payments if the home is lying vacant.
- The entire interest payable can be claimed as exemption if the home is rented out.
Taxation for NRIs on Capital Gains
- NRIs are liable for tax and eligible for tax benefits as resident Indian are.
- If they sell the property they bought within three years, then the earnings will be taxed as for short-term capital gains.
- If the property is sold after three years and the proceeds are invested to buy another property, then they can save on tax for long-term capital gains.
- TDS for NRI on sale of property is calculated at 20.6% on long-term capital gains and 30.9% on short-term capital gains.
- The final taxation rate is similar for NRIs and resident Indians.
- Depending on the tax slab applicable to the NRI, they can claim refund (if any) by filing income tax returns.
Repatriation of Proceeds From Sale of Property in India
- The property must have been purchased in accordance with the FEMA directives, applicable at the time of purchase.
- The amount repatriated cannot exceed the original amount paid for the property, if the property was acquired in foreign exchange remitted through normal banking channels or out of funds held in an FCNR (B) account.
- If an NRI inherited from a person outside India, prior approval of the RBI must be obtained for repatriation of funds
- Citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran must seek specific RBI approval for repatriation of sale proceeds.
NRI May Repatriate a Maximum of $ 1 Million Per Financial Year
- If the property was purchased out of rupee source fromf funds held in the NRO account.
- If the property was acquired by way of gift, and sale proceeds are credited to an NRO account.
- If the property was inherited from a resident Indian.
(The NRI should provide evidence of inheritance to the Central Board of Direct Taxes (CBDT). This includes an undertaking by the NRI and a certificate of an authorised chartered accountant).
- In the case of a residential property, repatriation of sale proceeds is restricted to less than or equal to two properties.
Can NRIs Rent Their Property in India?
- NRIs can rent out their property in India.
- It does not matter when the property was acquired - before or after becoming an NRI..
- Tax as applicable in the country should be paid on such receipts.
Gifting and Transfer of NRI Property
- NRIs can gift or sell apartments and villas in Hyderabad or immovable properties to resident Indians.
- NRIs can also transfer or gift any property to another NRI.
- NRIs cannot transfer or gift a farmhouse, agricultural land, or plantation to another NRI.