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NRI purchasing property in India FAQ’s


KADS Real Estates is well equipped to provide all possible assistance to Non-resident Indians (NRIs) or Persons of Indian Origin (PIOs) be it buying, selling, leasing, renting or even maintaining immovable property for those who do not have a trustworthy and transparent local source to look after their real estate related affairs in Mumbai.

Here is the latest information and Frequently Asked Questions concerning NRI’s on immovable property in Mumbai, India. If you have any specific queries, please Contact us.

Who is a foreign citizen of Indian Origin?

A foreign citizen (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri Lanka or Nepal is deemed to be of Indian Origin if :

  1. he held an Indian Passport at any time or
  2. he or his father or paternal grand father was a citizen of India by virtue of the constitution of India or the Citizenship Act, 1955. (57 of 1955).

Whether Foreign citizens of Indian origin require permission of The Reserve Bank of India to acquire immovable property in India for their residential use or not. If yes, what are the formalities required to be completed by them?

Yes, However, Reserve Bank of India has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to acquire immovable property in India for their bonafide residential purpose. They are, therefore, not required to obtain separate permission of The Reserve Bank of India. They are required to file a declaration in form IPI 7 with Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

How should the purchase consideration for residential immovable property be paid by foreign citizens of India origin under the general permission?

The purchase consideration should be met either out of inward remittance in foreign exchange through normal banking channels, or out of funds from NRE/FCNR accounts maintained with banks in India.

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 acquired by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.

Can sale proceeds of immovable property if and when sold be remitted out of India?

Repatriation outside India , including credit to RFC, NRE or FCNR account, of sale proceeds of any immovable property situated in India, requires prior permission of the Reserve Bank except in circumstances stated in paragraphs below:

(A) In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a person resident outside India, who is a citizen of India, or a person of Indian origin, the authorised dealer may allow repatriation of the sale proceeds outside India, provided all the following conditions are satisfied :-

  1. The immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules / Regulations/Law in force at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act,1999;
  2. 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 such payment was made from the funds held in non-resident external account for acquisition of the property;
  3. And in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

(B) Authorised Dealers have been permitted to allow the facility of repatriation of funds by NRIs/PIOs in their Non-Resident Ordinary Rupee (NRO) account upto US$ 100,000/- per year representing sale proceeds of immovable property held by them for a period of not less than 10 years subject to payment of applicable taxes.

What are the conditions required to be fulfilled if repatriation of sale proceeds is desired? What is the procedure for seeking such repatriation?

Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed or from the date of payment of final installment of consideration amount, whichever is later. Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of The Reserve Bank at Mumbai within 90 days of the sale of the property.

Can foreign citizens of Indian origin acquire or dispose residential property by way of gift?

Yes, Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid.

Can immoveable property held in India, be Transferred by way of gift to relatives / registered charitable trusts / organisations in India ?

Yes, General permission has been granted by Reserve Bank to non-resident persons (foreign citizen) of Indian Origin to transfer, by way of gift, immoveable property held by them in India to relatives and charitable trusts / organisations subject to the condition that the provisions of all other laws, as applicable are complied with.

Can foreign citizens of Indian origin acquire commercial properties in India? Can they dispose of such properties?

Yes, under the general permission granted by The Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchaser’s NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration. Yes they can dispose of such properties.

Can sale proceeds of such property be remitted out of India?

Yes. Repatriation of original investment in respect of properties purchased by foreign citizens of Indian origin on or after 26 May 1993 will be allowed to be remitted up to the consideration amount originally remitted from abroad provided the property is sold after a period of three years from the date of the final purchase deed or from the date of payment of final installment of consideration amount, which ever is later. Applications for the purpose are required to be made to the Central Office of Reserve Bank within 90 days of the sale of property in form IPI 8.

Can the properties (residential / commercial) be given on rent if not required for immediate use?

Yes, The NRIs/PIOs can freely rent out their immovable properties in India without seeking any permission from the Reserve Bank of India. The rental income being a current account transaction is freely repatriable outside India.

Can NRIs obtain loans for acquisition of a house / flat for residential purpose from financial institutions providing housing finance?

The Reserve Bank has granted permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd., etc, and authorised dealers to grant housing loans to non-resident Indian nationals for acquisition of a 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.

What are the documents required for loan processing?

The following documents are required along with the application form: Photocopy of the labour contract duly countersigned by applicant’s employer (translated to English for non-English documents). Latest salary certificate (in English) specifying the following:

  1. Name (as it appears in the passport)
  2. Date of joining
  3. Passport Number
  4. Designation
  5. Perquisites and salary
  6. Photocopy of labour card/identity card
  7. Photocopy of valid resident visa stamped on the passport
  8. Photocopy of monthly statement of local bank account
  9. Property related documents

NRI’s and TDS on Property

Selling of property by NRI is taxable under u/s 195 of the Income Tax Act, 1961. n layman terms, if any NRI is selling property in India to Resident Indian, TDS should be deducted under section 195 by Resident Indian from total consideration value. In some cases, NRI’s insist to deduct TDS only on capital gains but from definition of section 195 it clear that TDS should be deducted on total Sale Value. Current TDS Rate under section 195 is 20.66% for Long Term Capital Gain and 33.99% for Short Term Capital Gain. In case of NRI Seller, income tax slab of NRI is not considered for TDS on short term capital gain under section 195 i.e. TDS rate is fixed at 33.99%. Whereas in case of Resident Indian Seller, Short Term Capital Gain Tax is payable at the Marginal rate i.e. as per Income Tax Slab of the individual. If NRI does not have PAN or does not produce PAN then TDS Rate will be 20% even if Assessing office issue NIL / Lower Tax Deduction Certificate under section 195 or Tax Exemption Certificate.

How to deduct TDS on NRI under section 195?

  • TAN (Tax Deduction Account No):Before deduction of TDS under section 195, buyer should obtain TAN under section 203A of the Income Tax Act, 1961. You can apply for TAN online by filing Form 49B. You may click on following link to apply for TAN
  • https://tin.tin.nsdl.com/tan/
  • Besides TAN, Buyer should have his own PAN and PAN of NRI Seller to deduct TDS under section 195.
  • TDS under section 195 should be deducted at the time of making payment to NRI seller. It should be clearly mentioned in sale deed between NRI seller and buyer that TDS is deducted at specific TDS rate under section 195 and buyer will product TDS certificate to NRI Seller.
  • TDS deducted by buyer should be deposited through Form No / Challan for TDS Payment on or before 7th day of next month in which the TDS is deducted. For example if TDS is deducted during January, 2015 i.e. between 1st Jan 2015 to 31st Jan, 2015 then last date to deposit TDS without any penalty is on or before 7th Feb, 2015.
  • TDS under section 195 can be deposited by the buyer only through banks authorized by Govt of India / Income Tax Department to collect Direct Taxes. To check Bank Branches which are authorized to collect direct taxes, Please click on following link: https://www.tin-nsdl.com/oltas/oltas-bank-branches.php
  • After depositing TDS, the next step for buyer is to electronically file TDS return by submitting form 27Q. The TDS returns are filed quarterly i.e. for TDS deducted during the quarter (If payment is made in installment)

Penalties for Non Compliance of Section 195:

  1. If the Buyer fail to deduct or deposit TDS under section 195 then buyer will be declared as Assessee in Defaultas per section 201 of Income Tax Act. All the tax dues including interest and penalty will be recovered from buyer by the income tax department. A buyer cannot claim ignorance ref to TDS provisions under section 195 while buying a property from NRI.
  2. There are whole lot of other penalty clauses under section 272 and 271 of income tax act 1961. Some of the common penalties levied are
  3. Penalty of Rs 10,000 if buyer fail to obtain or quote TAN by buyer
  4. Penalty of Rs 10,000 if buyer fail to quote PAN
  5. 100% penalty in case of non-deduction of TDS partially or fully
  6. Penalty of Rs 100 per day for delay in filing TDS returns or failure to issue Certificate of Deduction of TDS within 15 days

How NRI’s can lower TDS on Property Sale?

We will understand how NRI’s can lower the TDS on Property Sale. Before you decide to go ahead with property sale following 2 points should be considered. Whether I am willing to pay capital gain tax or would like to save capital gain tax by Re-investment of capital gains. Once these 2 points are clear then we are ready for property sale in India.

CASE STUDY:

Mr. Taneja lives in California. He has property in Delhi which he bought in Aug, 2009 for 70 lakhs. He is planned to sell it in FY 2014-15 for 1.5 Cr. Now in his case, the answer to above mentioned 2 points are:

  1. Capital Gain will be Long Term Capital Gain as Mr. Taneja held the property for more than 36 months. Rate of Capital Gain Tax for Long Term Capital Gain is 22.66%
  2. Mr. Taneja is inclined to save capital gain tax by re-investment of capital gains

Therefore 1st task is to calculate long term capital gain of Mr. Taneja. Indexed cost of acquisition of property is approx 1.13 Cr and he is selling it for 1.5 Cr. Long Term Capital Gain from property sale is approx 37 lakhs and corresponding Long Term Capital Gain Tax at 22.66% is 8.38 Lakh.

If in case of Mr. Taneja, buyer deduct TDS at 20.66% u/s 195 then TDS will be deducted on sale consideration value i.e. 1.5 Cr. TDS u/s 195 will be approx 31 Lakh against Mr Taneja’s Long Term Capital Gain Tax liability of 8.38 Lakh. In short, u/s 195 excess TDS to the extent of 22.62 lakh will be deducted assuming Mr Taneja decided not to re-invest capital gains from property sale.

After point 1 i.e. calculation of capital gain, there are 3 possible scenarios:

(a) Capital Gain is Zero or there is Capital Loss on Property Sale: In this case NRI Seller can apply for NIL Tax Deduction Certificate.

(b) NRI Seller is willing to pay Actual Capital Gain Tax i.e. if Actual Capital Gain Tax liability is less than TDS u/s 195: In this scenario, based on capital gain tax calculation NRI seller can apply for Lower tax Deduction Certificate. In above example, Mr. Taneja can apply for Lower Tax Deduction Certificate as actual long term capital gain tax liability is only 8.38 lakh against TDS of 31 lakh u/s 195.

(c) NRI seller is willing to re-invest capital gain to save capital gain tax: In this case, NRI Seller can apply for Tax Exemption Certificate.

How to apply for Nil / Lower Tax Deduction Certificate or Tax Exemption Certificate on Property Sale?

NRI Seller can apply for Nil Tax Deduction or Lower Tax Deduction with Income Tax Assessing Office. In case, NRI seller is planning to re-invest capital gain as i mentioned earlier then he can apply for tax exemption certificate. Based on assessment by Income Tax Department, certificate will be issued to NRI seller for property sale. In this case, buyer will not deduct TDS u/s 195 on sale consideration value. In above example, if Mr Taneja get certificate from Income Tax Department then buyer will pay full consideration i.e. 1.5 Cr to Mr. Taneja without deducting TDS. NRI seller can handover original Nil Deduction Certificate to the buyer for his reference. In short, buyer need not to file any TDS in seller’s name as TDS will not be deducted in this case. Income Tax Department will issue separate certificate to NRI seller for TDS on capital gains. For Tax Exemption Certificate, NRI seller can submit application in Income Tax Department under whose jurisdiction his / her PAN belongs to. To know the jurisdictional IT office of PAN, click on following link https://incometaxindiaefiling.gov.in/e-Filing/Services/KnowYourPan.html

In few cases it is observed that TDS is not applicable on property sale as NRI seller obtained NIL Deduction or Tax exemption certificate but then buyer deducted TDS u/s 194IA just for the sake of deducting TDS. In such cases, full payment should be released to NRI seller for property sale and buyer should obtain Nil deduction certificate / Tax Exemption Certificate from NRI seller.

Documents Required: Income tax department may ask for following documents to issue Nil / Lower Tax Deduction or Tax Exemption certificate

(a) Passport

(b) PAN

(c) Sale Agreement / Sale Deed

(d) Income Tax Returns

(e) Bank Statement

(f) Any other document deemed relevant

Entire process may take upto 1 month’s time and it is advisable to hire a professional for this job.

In case, there is no tax liability then NRI can file form 15CA and 15CB online. These forms can be filed by CA. After filing form 15CA and 15CB, money can be transferred to country of residence else money can be retained in NRO account in India. Repatriation of funds during FY should not exceed $ 1 Mn.

NRI’s and PIO’s can repatriate sale proceeds of property inherited from resident Indian without RBI’s permission subject to certain conditions.  General Permission is available for repatriation of sale proceeds from inherited property. Documents required are Inheritance Certificate / Succession Certificate or Probate and a certificate from Chartered Accountant in specific format.

Word of Caution:

  1. Please check income tax rules in your country of residence on capital gain out of property sale in India.
  2. Please check income tax rules related to long term capital gain exemption under section 54/54F/54EC in your country of residence.
  3. Please check whether DTAA (Double Taxation Avoidance Agreements) is signed between India and your country of residence.
  4. Last but not the least, in many cases it is observed that NRI seller insist buyer to not deduct TDS. In specific cases, TDS is not deducted due to ignorance at buyers end. In all such scenarios, hefty penalty can be imposed on buyer or on NRI seller. It is always advisable to pay all taxes on time to buy peace of mind which is priceless.
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