Buying immovable property in India is fraught with difficulties due to a combination of factors. A meticulous planning at the investment stage itself could indeed avoid hassles later. Some of the pre-requisites indicated below would immensely assist NRIs.
- Scrutinise all original payment documents. The title to the property may be single or joint ownership basis. In the event of any difficulty, a certified copy can always be obtained from local sub-registrar’s office on payment of a nominal fee.
- Refer the documents to a lawyer who may certify that clear title can be passed on to the buyer.
- Obtain ‘No-encumbrance certificate" for the past 30 years to ensure that no mortgage has been outstanding on the property to be purchased. This will also enable the buyer to ensure that the title belongs to the rightful owner who wants to sell it.
- Obtain required clearance under the Urban Land ( Ceiling and regulation) act.
- In the event of sale by a third party viz., real estate promoter, check whether he is the absolute owner or holds a registered power of attorney to sell the property. It is better to buy from an established developer with a unblemished record.
- Seek the assistance of a registered valuer to ensure price quoted is correct market value. Agreement and Registration:
- Payment should invariably include a clause on payment of last instalment on possession and registration
- Sale deed or Agreement to sell must be executed by the seller and buyer. This should include full details and origin to the title to the property, proper identification to the property by neighbouring survey numbers, payment terms and payments made so far and cheque/ draft references. Also make sure that the buyer-builder agreements are equitable and do not contain clauses that are violative of your rights and interests.
- Buyer should ensure that their right is not negated in the sale deed through undertaking additional construction in violation of the Apartment Ownership Act if the municipal bye-laws permit it at a future date.
- The stamp duty varies from state to state in India. Ensure that the prevailing stamp duty is remitted. It is levied on the land value of the apartment and in some it is on the whole.
- The seller on completion of the project should execute the transfer of title to the buyer by getting it registered with the local sub-registrar of properties under whose jurisdiction the property is located.
While buyer’s presence is not necessary who can authorise his representative to execute the document, the seller ( this need not be the real estate promoter) must be present and transfer the title by signing the transfer deeds and all appropriate documents.
- The sale deed prepared earlier is only an initial contract. Before registration, the final deed is prepared on stamp papers of appropriate value which will be the prevailing rate of stamp duty in the respective states. This set of documents should be executed by the seller.
- Note that under Section 230 A of the income Tax act, 1961 all sale deeds showing the prescribed value and above should be cleared by the Income Tax officer. Only then, the Registrar will register the property.
- Irrespective of the value shown in the document, the Sub-Registrar will determine the market value of the property and the stamp duly.
- In case of purchase of apartments, proportionate share of the land on which the apartments are built are registered.
- The price indicated by the promoter should be firm. If the promoter desires for escalation, it should be done in accordance with the procedure followed by the Government undertakings and should form part of the Agreement.
- The Agreement should accompany plans, drawings and specifications of each item of work.
- The Agreement should specify the completion date and the terms of compensation in the event of delay in delivering possession of the apartment.
In spite of all efforts if a buyer gets duped, a complaint may be lodged under the Consumer Protection act.1986, which is a Central Act. Representation can also be made to the Monopolies and Restrictive Trade Practices Commission ( MRTPC ) for issuing instructions for indulging in unfair trade practices.
A number of states and union territories have established consumer protection councils. The redress machinery, which is quasi-judicial, has also been set-up in a number of states.
- An NRI can purchase any immoveable property that can be either commercial or residential, but are not allowed to buy any agricultural land, farm house or any plantation property.
- The NRI can get any immoveable property as a gift from any Indian citizen, Indian resident or any person from the Indian origin.
- The person can transfer the property if it’s his birth tight or legacy.
- An NRI who owns the property in India has the right to transfer the property to any resident by selling it.
- Agricultural land, farm house or plantation land can be transferred to any residence of India by gift.
RBI has issued a notification granting a general permission to NRIs for purchase of certain immovable properties in India without obtaining any specific permission from RBI. So Indian Citizens who have become NRIs, for FEMA purposes can acquire certain immovable property situated in India without any specific permission from RBI.
Though RBI has given general permission to the NRIs to purchase immovable properties in India, the permission does not grant power to acquire any and every property in India. The NRIs are allowed to purchase only residential or commercial property. So NRIs cannot purchase any agricultural land or plantation property. Since it is fashionable to own a farmhouse, let me make it very clear that under the existing dispensations, NRIs cannot purchase a farmhouse in India. This way as long as the investment being made by NRIs in India is either in residential property or commercial property, they are not even required to intimate RBI about such purchases, even post conclusion of the transaction. Moreover there is no restriction as to the number of residential or commercial property an NRI can acquire.
The payment for purchase of permitted property by an NRI can be made by way of remittance through banking channels from abroad or from money lying in their NRE/NRO or FCNR account. The money for purchase of the permitted properties has to come only through banking channels hence the payment cannot be tendered in the form of traveller’s cheques or foreign currency.
NRIs are even allowed to finance the purchase with home loan in Indian Rupees. The home loan can be granted by the Indian employer of the NRI employee for the purpose of financing of the property.
As far as payments of EMI for the home loan taken in Indian Currency in India is concerned, the same can be done either by direct remittance from abroad or from the money lying to the credit in NRE/NRO/FCNR account of the NRI. In addition to the above sources, the home loan can even be serviced out of the rents received from such property or money transferred to borrowers account from the account of relatives of such borrower.
In case the NRI is buying the property for the purpose of his own residence, the NRI can even take loan against deposits lying in their FCNR or NRE account upto an amount of Rs. 100 lacs for the purpose of servicing the home loan.
The property to be purchased by an NRI can either be purchased in single name or jointly with any other NRI. It may be noted that that a resident Indian or a person who is otherwise not allowed to invest in the property in India cannot even be made a joint owner in such property though the second named person might not even be contributing any money towards the property.
Lot of people who are taking up jobs outside India and thus would become NRIs are worried about what would happen to the properties, which they already own. There is nothing to worry about for such properties. A person who owns a property when he becomes an NRI can continue to hold the property in his name. It is interesting to note here that such resident Indian becoming an NRI is even allowed to continue to own agricultural land, plantation property or farm house which he is otherwise not allowed to purchase after becoming NRI. An NRI is allowed to let out the property, which he owned when he became an NRI without taking any permission from RBI. An NRI is even allowed to get the money sent back outside India after appropriate taxes have been paid in India from rent so received.
NRIs consider financial institutions as an easy option available in India for purchasing any property. At the same time financial institutions consider NRIs as their potential clients. Financial institutions provide home loans easily, efficiently and sooner to such people as they are very much prompt at the time of repayment. Furthermore, the repayment can readily be done by inward remittance through the proper banking channel. If someone is already getting income in India from sources like rent or dividend, he/she can directly repay the loan as well.
Now RBI has also predetermined these norms in home loans for non-residents who are looking forward to buying any property:
- A maximum of 80 per cent amount is financed by the financial institution. The rest should be given by the NRI.
- The remittance of the amount for down payment can be done from the place of residence by normal banking channels, i.e., NRO/NRE account in India.
- The NRI has to repay his principal amount as well as interest part from that similar channel only.
- Investment in real estate is a simple move but there are several drawbacks as well. So, one should be cautious enough at the time of purchase to secure the deal. Few points of consideration are under:
- Property name: The name of property should be clear from issues and the seller should have the required right to sell it, especially if it is inherited or any joint property.
- NDC: Always check that there will be no outstanding electricity/water bills or any other authority dues pending with the property. Take a no dues certificate from the seller at time of purchase.
- Bank release letter: It is advisable to take the bank release letter from the concerned bank, if the property had been mortgaged as security in any type of loan.
- Permits: The property of sale should have all approvals and permits from the civic authorities in terms of construction.
Whenever an NRI plans to invest in real estate, he should go through the proper channels, either through a friend or relative to ensure the authenticity of property.
He can also approach through property expos and seminars to choose a right property. A reputed developer can provide a clear title property free from a lawsuit. These developers will also take care of maintenance of the property after purchase as well.
By NRIs holding Indian Passport
NRIs holding Indian passport do not require prior permission of Reserve Bank of India to buy residential or commercial immovable property in India.
The purchase consideration may be paid either by remittance of funds from abroad through normal banking channels or out of NRE / FCNR / NRO account.
NRIs of Indian nationality do not require any permission for acquisition, transfer or disposal by way of gift of immovable property which is not a farmhouse or agricultural land or plantations property. Declaration on form IPI 7 for acquisition of commercial property for carrying on any industrial, commercial or trading activity by their proprietary / partnership firm in India is required to be filed with RBI within 90 days from date of purchase.
By foreign citizens of Indian origin
Under the general permission to NRIs holding foreign passport, the RBI has allowed them to acquire, hold, transfer or dispose off by way of sale or inheritance, immovable properties situated in India.
The general permission has been granted provided :
The property is for the purchasers bonafide residential use;
The purchase consideration is met either by remittance from funds abroad through normal banking channels or out of NRE / FCNR.
Income accruing by way of rent from the properties purchased or acquired by inheritance will not be allowed to be repatriated abroad even if the purchase consideration was met out of NRE / FCNR account.
It is however, necessary for foreign citizens of Indian origin to declare such property to RBI within a period of 90 days from the date of purchase in the prescribed IPI 7 to the Chief General Manager, Exchange Control Department, Foreign Investment Division, Central Office Department, Foreign Investment Division, Central Office, RBI Bombay.
Sale Of Immovable Property
General permission has been given to non residents holding Indian passports and foreign citizens of Indian origin, whether resident in India or not, to dispose of by sale or inheritance immovable properties situated in India subject to certain conditions.
Non residents holding Indian passports and foreign citizens of Indian origin have been allowed to repatriate original investment in equivalent foreign exchange in residential/commercial properties after obtaining prior approval subject to a maximum of two houses under certain conditions.
No transfer of any immovable property exceeding the specified value for different cities can be effected unless particulars are filed with the appropriate authority of the Income Tax department within 15 days of signing the agreement.
As per a new scheme of capital gains tax with effect from 1993-94, instead of deducting from the proceeds of transfer, actual amount spent to acquire the asset or the amount spent on improvement or addition thereto, the inflation index adjusted cost will be deducted. Brokerage, legal fees and other expenses incurred in selling the property would be allowed as a deduction from the taxable capital gains.
Exemption from Capital Gains on Sale of Residence
Capital gains arising on transfer of a residential house, comprising buildings or land appurtenant thereto, is exempt if the amount of capital gains is utilized in acquiring another residential house, either by purchase or by construction. The exemption cannot be claimed for vacant land as it is neither a residential house nor income there from is chargeable. The conditions required to be fulfilled to claim exemption here are : the capital asset being transferred is a residential house, including self occupied house income from the house is chargeable under the head - Income from house property the house is a long term asset the tax payer purchases or constructs a new residential house within the time specified
Letting Out Immovable Property
The RBI has granted general permission to NRIs and foreign citizens of Indian 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 regarding the repatriation of the rental income earned from such letting out of the property. The rental income is on a non-repatriation basis. Thus funds ( rental income ) must be credited to the NRO Account/ Resident Accounts in India.
Income From House Property
If the building or part thereof is used by the owner himself for the purpose of his own business then there will be no income from house property in respect of such building, the profits of which are chargeable to income tax separately. While the owner of the property is liable to pay tax, ownership will also include deemed ownership. Whenever a person who owns a house property in one city is transferred to another city, it has been specifically provided that the annual value of such a property would be taken to nil subject to the following conditions :
- the assessee must be the owner of only one house property
- that house property he cannot occupy because of his employment, business etc. away from the place
- the property must not have been actually let or any benefit derived there from
- no other deduction will be available to the assessee.