Important Points Related to Sale and Purchase of Property by NRIs

I receive a lot of queries on my blog from NRIs related to sale and purchase of property. I answer each and every query. The reason why I receive more queries from NRIs is because the rules and regulations are more complicated compared to resident Indian. There are multiple permutation and combination involved. Most of the times queries from NRIs provide me an idea for a new post on the blog :). Thanks for posting your queries. In this post, i will share important points related to sale and purchase of property by NRIs.

The sale and purchase of property by NRIs is regulated under the FEMA (Foreign Exchange Management Act) 1999. The necessary regulatory framework and instructions are issued by the Reserve Bank of India. The FEMA also empowers the RBI to frame necessary regulations for the sale and purchase of property by NRIs. Though it might not be feasible to cover the each and every aspect in this post. I will try to cover all the important points that an NRI should know. You can also check my post, 5 Financial Points to consider when you become a Non Resident Indian.

Here I would like to clarify that in this post I will specify if the rule is different for PIO (Person of Indian Origin). Otherwise, the rule for NRIs and PIOs is same for sale and purchase of property. For example, PIO is treated at par with NRI in the case of TDS on Property Sale. Therefore, term NRI is inclusive of PIO until unless stated otherwise.

Type of Property NRIs can Sell and Purchase

There is a major confusion in this regard among NRIs. To simplify, I will divide this section into 2 parts as rules for sale and purchase are different.

(a) Type of Property NRIs can Purchase:

NRIs can purchase the residential or commercial property. It can be a constructed unit or plot/land. There is NO Restriction on the NRI property investment. The only restriction is on the purchase of an agricultural land. Here agricultural land also includes plantation property and farm house. Any future reference to agricultural land/property in this post will include plantation property and farm house.

All such property purchases excluding agricultural property are under general permission granted by RBI to NRIs (Citizen of India) and PIO. In case of PIO, either of following 2 conditions should be met

(i) PIO held Indian Passport at any time in the past

(ii) Either he/she or his/her father/grandfather was Citizen of India by virtue of the constitution of India or the citizenship act, 1955 (57 of 1955)

The general permission is not available for the purchase of agricultural land or plantation property or farm house in India. It does not mean that agricultural property cannot be bought by NRIs. It is possible but only with the permission/specific approval of Reserve Bank of India. You also need to check local state rules before the purchase of agricultural land. The reason being some states allow only agriculturist or farmers to purchase agricultural land. For purchases under general permission, intimation to RBI is not required. You can buy as many properties as you wish in India under general permission. There is NO restriction on the same.

(b) Type of Property NRIs can sell:

There is NO RESTRICTION on the sale of property to resident Indian by NRIs i.e. any type of property can be sold to resident Indian, PIO and NRI. The only exception is that agricultural land or plantation property or farm house cannot be sold to NRI or PIO.

The rule is different for PIO in this case. A PIO can sell non-agricultural land/property to resident Indian. But a PIO cannot sell agricultural land or plantation property or farm house to a resident Indian. Now you must be wondering assuming I as a PIO inherited agricultural land from my forefathers then what to do. The answer is PIO can sell or gift agricultural land or plantation property or farm house only to resident Indian who is also Citizen of India permanently residing in India. Though in certain govt notifications this condition is also applicable for NRIs but i came across cases wherein NRIs sold inherited agricultural property to resident Indian. The interpretation is subjective in this case.

Here I would like to add that a person who is resident Indian is not necessarily the Citizen of India and vice versa. A foreign national can be resident Indian but he is not a Citizen of India. Therefore, in the case of PIO both the conditions should be met i.e. Resident Indian and Citizen of India.

In general, PIO can sell the property to NRI and Resident Indian. If the buyer is also PIO then the prior approval from RBI is required.

Gift/Inheritance:

Normally, there is no restriction to accept any type of property i.e. commercial or residential as a gift or acquire through inheritance. The donor can be resident Indian, PIO or NRI. The only exception is that agricultural land cannot be gifted to NRIs or PIO. Agricultural land or plantation property or farm house can only be inherited. For example, NRIs cannot purchase agricultural land but he/she is free to inherit the agricultural land. There is no restriction. Therefore, NRIs can sell the inherited agricultural land only to the resident Indian as i discussed earlier also (This is one of the common queries from the readers of the blog).

In the case of PIO, rules are slightly different. PIO can inherit any immovable property including agricultural property only from a person who acquired this property in compliance with foreign exchange law or FEMA as applicable at the time of acquisition. A PIO can gift the residential or commercial property to Resident Indian, NRI (Citizen of India) or PIO.

Please note that the sale proceeds received from the transfer of gifted property should be credited only to the NRO account.

How to make Payment for Property Purchase?

This is another most common query on my blog. In many cases, NRIs don’t inform the banks regarding the change in residency status. Therefore, they retain a savings account for transactions in India. I discussed this topic in detail in my post, the most appropriate NRI Bank Account based on your requirement.

The payment for the property purchase can be made only from NRE/NRO/FCNR (B) account or any inward remittance through regular banking channels. In my opinion, if you are buying a property from Indian Income or Savings then you can make payment through NRO account. On the other hand, if the property is acquired from foreign income through inward remittance then the payment can be made through NRE or FCNR (B) account.

Recently, I came across an interesting case wherein both buyer and seller are NRIs. They were planning to carry out a financial settlement in the USA for a property transaction in India and that too in USD. Let me clarify, it is not allowed. A payment for property transaction in India cannot be made outside India.

Repatriation of Sale Proceeds:

For repatriation of sale proceeds from non-agricultural property, the following conditions should be met in case the property is purchased from inward remittance or foreign currency.

1. The property was acquired in compliance with FEMA or foreign exchange law as applicable at the time of purchase.

2. The amount of repatriation cannot exceed

(a) The amount paid for the purchase of property in foreign currency received through normal banking channel.

(b) The amount paid for the purchase of property in foreign currency out of fund held in Foreign Currency Non-Resident Account

(c) The equivalent of foreign currency held in NRE (Non Resident External) accounts as on date of payment, of the amount paid. Provided the payment for the purchase of the property was made from NRE account.

3. You cannot repatriate sale proceeds of more than 2 residential properties.

In short, the max limit of remittance is the amount received from inward remittance or amount paid/debit to NRE/NRO/FCNR (B) account for a property purchase or repayment of the loan i.e. only principal amount can be repatriated.

In case, the property was purchased from Indian rupee funds i.e. from NRO account or through inheritance/legacy. The max limit during the financial year is 1 Million USD after payment of all the taxes in India. The remittance should be supported by documentary evidence related to acquisition, inheritance, payment of taxes etc. The RBI Permission is required in case the remittance exceed 1 Million USD.

RBI Permission is required for Sale and Purchase of Property in India by

1. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan. Even to lease a property in India, RBI permission is required. The lease duration cannot exceed 5 years.

2. Foreign Nationals of non-Indian origin residing outside India cannot purchase any property in India. In the case of inheritance from resident Indian, Permission of RBI is required both at the time of inheritance and at the time of sale of such property. Just to add that property cannot be gifted to foreign nationals. For a residential lease of up to 5 years, permission from RBI or reporting to RBI is not required by the foreign nationals.

Other Important Points:

1. NRIs can avail home loan against property in India from banks/lenders abroad with prior approval from RBI. The reason for this query is that home loan interest rate in some countries like USA etc is very low. Therefore, it is beneficial for NRIs to avail home loan from the country of residence and mortgage the property in India to bank/lender abroad.

2. In case the deal does not go through because of any reason, the amount paid to the seller can be refunded in the same account from which the payment was made i.e. NRO/NRE/FCNR (B) account. If the payment was made from inward remittance then the amount refunded should be credited only to the NRE account.

3. NRIs can receive rental income in NRO or NRE account. This income can be remitted after paying taxes in India.

4. The definition of Resident Indian is different under FEMA and the IT Act. In this post, the definition of Resident Indian is based on FEMA i.e. a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April to March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period. Therefore, purpose or intention of stay is also critical.

5. Last but not least, to avoid any future tax issue/hassle NRIs can always opt for Advance Ruling. I discussed it in detail in my post, Advance Ruling – NRIs can avoid tax issues.

Copyright © Nitin Bhatia. All Rights Reserved.