An Indian citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. organisations and officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as non-temporary assignments and are also treated as non-residents). Non-resident foreign citizens of Indian origin are treated at par with non- resident Indian citizens (NRIs).
Acquiring immovable property in India by persons resident outside India is regulated in terms of Section 6(3) (i) of the Foreign Exchange Management Act (FEMA), 1999 as well as by the regulations contained in Notification issued by RBI viz Notification No FEMA. 21/2000-RB dated May 3, 2000, as amended from time to time. The persons resident outside India are categorized as Non- Resident Indians (NRIs) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. A person resident in India who is not a citizen of India is also covered by the relevant Notifications.
Statutorily, under the provisions of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India.
The regulations under the Notification No FEMA 21 dated May 3, 2000 permit a NRI or a PIO to acquire immovable property in India other than agricultural land or, plantation property or farm house. Further, foreign companies who have been permitted to open an office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. This stipulation is not available to entities which are permitted to open liaison offices in India.
The relevant regulations covering the transactions in immovable property have been notified vide RBI Notification No. FEMA 21/2000-RB dated May 3, 2000 and this basic notification has been subsequently amended by the notifications detailed below:
- Notification No.FEMA 64/2002-RB dated June 29, 2002
- Notification No.FEMA 65/2002-RB dated June 29, 2002
- Notification No.FEMA 93/2003-RB dated June 9, 2003 and
- Notification No. FEMA 146/2006-RB dated February 10 2006 (available with A.P.(DIR Series) Circular No. 5 dated 16.8.2006 on website) All the above notifications are available on RBI website: www.fema.rbi.org.in
The restrictions on acquiring immovable property in India by a person resident outside India would not apply where the immovable property is proposed to be acquired by way of a lease for a period not exceeding 5 years or where a person is deemed to be resident in India. In order to be deemed to be a person resident in India, from FEMA angle, the person would need to comply with the criterion for residency as defined in Section 2(v) of FEMA 1999. However, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire or transfer immovable property in India, (other than on lease, not exceeding five years) without prior permission of the Reserve Bank.
NRIs/PIO are allowed to repatriate an amount up to USD one million, per financial year (April-March), out of the balances held in the NRO account subject to tax compliance. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.
While the statutory and regulatory provisions are indicated above, we have been receiving several queries from individuals on operational procedures regarding acquisition, holding and transferring of immovable property in India and repatriating / remitting the proceeds arising from sale of such property. In order to clarify these issues, we have attempted a set of FAQs on various issues relating to acquisition and transfer of immovable property in India by a person resident outside India and a person resident in India who is not a citizen of India.
A person of Indian origin means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who: Held an Indian Passport at any time, or Who or whose father or paternal grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.
NRIs are granted the following facilities:
- Maintenance of bank accounts in India.
- Investments in securities/shares of, and deposits with, Indian firms/companies.
- Investments in immovable properties in India.
Under the general permission available, the following categories can freely purchase immovable property in India) Non-Resident Indian (NRI) – that is a citizen of India resident outside India) Person of Indian Origin (PIO) – that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who At any time, held Indian passport, or Who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
The general permission, however, covers only purchase of residential and commercial property.
Yes, the Reserve Bank has granted general permission to NRIs to acquire or dispose of NRI India Properties by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin (PIO) whether resident in India or not.
The Reserve Bank has granted some general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd., etc, and authorized dealers to grant housing loans to NRI nationals for acquisition of a NRI house/flat for self-occupation subject to certain conditions. Criteria regarding the purpose of the loan, margin money and the quantum of loan will be at par with those applicable to resident Indians. Repayment of the loan should be made within a period not exceeding 15 years, out of inward remittance through banking channels or out of funds held in the investors’ NRE/FCNR/NRO accounts.
Types of Power of Attorney :
Following are the important things to be kept in mind while executing the POA
- Customer should prepare POA as per defined format.
- Then this document will have to be stamped for Rs. 500/- (ESBTR, Franking, Stamp paper).
- Executant should paste his/her photograph along with signature.
- Executant should sign each each page of POA.
- POA should be authenticate/adjudicate from Indian Embassy or local authority.
- Executant should send authenticated/adjudicated POA in India.
- In India, the POA holder has to paste his/her photograph along with his/her left hand thumb impression and signature before Notary and POA should be notarised from a Registered Notary. Please ensure that a stamp of “Before Me” is affixed on the document.
- POA holder and executants Photo ID should be attach before Notary.
Tax on income from immovable property selling/renting
The Mere Acquisition Of Property Does Not Attract Income Tax. However, Any Income Accruing From The Ownership Of It, In The Form Of Rent (If It Is Let Out)/Annual Value Of The House (If Is Not Let Out And It Is Not The Only Residential Property Owned By That Person In India) And/Or Capital Gains (Short Term Or Long Term) Arising On The Sale Of This House Or Part Thereof Is Taxable In The Hands Of The Owner.
The Government Of India Has Granted General Permission For NRI To Buy Property In India And They Do Not Have To Pay Any Taxes Even While Acquiring Property In India. However, Taxes Have To Be Paid If They Are Selling This Property. Rental Income Earned Is Taxable In India, And They Will Have To Obtain A PAN And File Return Of Income If They Have Rented This Property. On Sale Of The Property, The Profit On Sale Shall Be Subject To Capital Gains.
If They Have Held The Property For Less Than Or Equal To 2 Years After Taking Actual Possession Then The Gains Would Be Short Term Capital Gains, Which Are To Be Included In Their Total Income As Tax As Per The Normal Slab Rates Shall Be Payable And If The Property Has Been Held For More Then 2 Years Then The Resultant Gain Would Be Long Term Capital Gains Subject To 20% Tax Plus Applicable Cess.
India Has DTAA’s With Several Countries Which Give A Favorable Tax Treatment In Respect Of Certain Heads Of Income. However, In Case Of Sale Of Immovable Property, The DTAA With Most Countries Provide That The Capital Gains Will Be Taxed In The Country Where The Immovable Property Is Situated. Hence, The Non-Resident Will Be Subject To Tax In India On The Capital Gains Which Arise On The Sale Of Immovable Property In India. Letting Of Immovable Property In India. Would Be Taxed In India Under Most Tax Treaties In View Of The Fact That The Property Is Situated In India.
- Type of asset: Assets like house property, land and building, jewelry, development rights etc. Rate of tax deduction at source (TDS) Long term – 20.6% < Short term – 30.9%.
- Exemption available (only for long term capital gains) The long term capital gains arising on sale of a residential house can be invested in buying/ constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India.
- (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds
In Case The Non-Resident Pays Any Tax On Capital Gains Arising In India, He Would Normally Be Able To Obtain A Tax Credit In Respect Of The Taxes Paid In India In The Home Country, Because The Income In India Would Also Be Included In The Country Of Tax Residence. The Amount Of The Tax Credit As Also The Basis Of Computing The Tax Credit That Can Be Claimed Are Specified In The Respective Country’s DTAA And Is Also Dependent On The Laws Of The Home Country Where The Tax Payer Is A Tax Resident.
An NRI would have to file income tax returns if either of the following conditions are fulfilled :
- Taxable income in India during the year was above the basic exemption limit OR
- Earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit.
Traditionally, you could file your return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file returns on your behalf.
Though, the easy method for NRIs to file their Income tax returns in India is online filing. There are several options to file online, on the appropriate government sanctioned website.