Who is a Non Resident Indian?
Under the Foreign Exchange Management Act of 1999, Non Resident Indians are defined as follows:
Non Resident Indian means an individual being a citizen of India or a person of Indian origin (not being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan) who is not a “resident”.
Explanation: A person is deemed to be of Indian origin if he/she or either of his/her parents or any of his/her grand parents was born in undivided India.
Do non-resident Indian citizens require permission of Reserve Bank to acquire residential property in India?
In what manner the purchase consideration for the residential immovable property should be paid by Non-resident Indians holding Indian passport under the general permission?
Non-resident Indians holding Indian passport may pay the purchase consideration either by remittance of funds from abroad through normal banking channels or out of NRO Account or out of NRE Account or out of FCNR Account.
What are the formalities required to be completed by NRIs for purchasing residential immovable property in India under the general permission?
The Indian Government has considerably eased the restrictions relating to investments by NRIs in residential property. There is virtually no restriction or approval required for an NRI to invest in properties in India from funds received in India through normal banking channels or held in Non-resident External (NRE) account/ Foreign Currency Non-resident (FCNR) account (B)/ Non-resident Ordinary (NRO) rupee account. However, investment in agricultural land/ plantation property/ farm house is currently prohibited. The recurring rental income earned on letting out of property is also freely repatriable.
Can such property be sold without the permission of Reserve Bank?
Yes. Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another NRIs, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.
Can sale proceeds of such property if and when sold be repatriate out of India?
RBI has given general permission to a NRIs to repatriate the sale proceeds of Immovable property other provided the following conditions are satisfied, namely:
the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;
the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non Resident account or (b) the foreign currency equivalent, as on the date of payment, of the amount paid where held in Non-Resident External account for acquisition of the property;
in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Can NRIs acquire or dispose of residential property by way of gift?
An NRI can freely sell or gift his/ her property to another Indian resident or NRI or person of Indian origin. However, there are certain restrictions imposed on repatriation of sale proceeds. In case of investments made from inward remittances or out of NRE account or FCNR account (B), the repatriation of sale proceeds is permitted only upto the amount of initial investment.
In case the repatriation is made out of balances held in NRO rupee account (balances include sale proceeds of house property), then an amount of USD one million per calendar year can be repatriated subject to the condition that the property is held for 10 years prior to the date of sale. If the property is not held for 10 years, then the proceeds should be kept in the NRO account/ eligible investments for the balance period.
One of the significant restrictions that is placed on repatriation is that the NRI can repatriate the sale proceeds only upto two residential properties. This could dampen the interest of NRIs in residential property, as investors would like to have free flow of capital while making such investments.
Can the properties (residential/commercial) be given on rent if not required for immediate use?
Yes. Reserve Bank has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income are eligible for repatriation.
Can NRIs obtain loans for acquisition of a house/flat for residential purpose from authorized dealers/financial institutions providing housing finance?
Reserve Bank has granted general permission authorized dealers and housing finance institutions in India, approved by National Housing Bank to grant housing loans to non-resident Indian nationals for acquisition of a house/flat for self-occupation subject to conditions stipulated in relevant FEMA regulations.
Can NRIs give a Power of Attorney in favour of a person of his choice in India to complete loan formalities on his behalf?
Yes, an NRI may appoint a Power of Attorney in India to represent him in dealings in India. The Power of Attorney should be executed as per drafts provided by the housing finance company. The Power of Attorney can be given to any person of his choice in India.
Can the house occupied by NRIs be let out?
The RBI has granted general permission to NRI’s and foreign citizens of India origin, to let out their residential properties acquired for their bonafide residential purpose but which on account of their residence abroad, are not required for their immediate residential purpose. However, there are restrictions the repatriation of the rental income earned from such letting out the property. The rental income is on a non-repatriation basis. Thus funds (rental income) must be credited to the NRO Account/Residential Accounts in India.
What is the income tax implication on house property income in India?
The income tax implications on house property income in India would be dependent on whether the property is kept vacant or let out. In case an NRI has only one property in India and if it is kept vacant, then it would be possible to say that there should not be any rental value for such property as the NRI was not able to occupy the same owing to his employment, business or professional carried out at any other place. However, if he owns two properties and both of them are kept vacant, then he is required to pay income tax on one of the properties as if the property had been let out. The tax laws do not provide clear guidance on how the rental value is to be determined for such property. It simply states that the annual rent should be the sum which the property might reasonably be expected to let from year to year. Though there are judicial precedents that are available which suggest adoption of municipal value/ fair rent, there could be some practical difficulties in ascertaining such value in the ever increasing rental market.
In case of let out properties, the actual rental income (after reducing the municipal taxes) would be subject to tax. The tax law allows a general deduction of 30% on the rental income and also allows for deduction towards interest subject to certain conditions.
Under Indian tax law, the payer is required to withhold tax on rental income paid to a non-resident @ 30.6% where the income of the non-resident does not exceed Rs. 10,00,000, otherwise at 33.66%. In case an NRI wishes to have a lower rate, then he has to apply to the tax authorities in a specified format for obtaining a certificate for deduction of tax at lower rate. The NRI would be required to file a return of income at the end of the year if the taxable income exceeds Rs 100,000.
In case the NRI is taxed in the home country on the rental income derived from India, then he could consider claiming exemption or tax credit in the home country based on the double tax treaty agreement entered into India with such country, if any.