Legal nitty-gritty for NRI property buyer

By Tinesh Bhasin

One of the things that’s on the mind of many Indians who start working abroad is buying a property
back home. It can be for their family living in India or because they want to come back to their roots
later in life.

Buying a property in India, however, can be a complicated affair for non-residents. Typically, they
rely on their relative to help them tide across multiple regulations. If you have a non-resident
relative relying on you to understand Indian regulations; we have got answers to the most common
issues that NRIs face and resolutions to them.

DOES PASSPORT MATTER?

Typically, when someone is abroad, the person would either continue to have an Indian passport
and permanent residency of another country or the non-resident could be a foreign national with
another passport. The term NRI is used loosely many times to denote a person with Indian roots
living abroad. In regulations, there is a difference.

There is a set criterion in the Foreign Exchange Management Act to define those who hold an Indian
passport and those who don’t. “There was a concept called people of Indian origin (PIO) for a foreign
passport holder. There was also an overseas citizen of India (OCI) card that provides several travel
and investment privileges. In 2015, the government amended the Citizenship Act and merged PIO
with OCI,” said Mukesh Jain, founder, Mukesh Jain and Associates, a law firm. RBI recognises NRIs
and Overseas Citizen of India Cardholders (OCC) on the same footing with effect from March 2018.

Solution: If you have a foreign passport, you can buy property in India provided you get OCI card.

WHAT KIND OF PROPERTIES NRIS CAN BUY?

NRIs and OCCs are permitted to acquire immovable property in India other than agricultural land or
farmhouse or plantation property. But the money used for buying property should be received by
way of inward remittances or held in a non-resident account. “Foreign nationals who are married to
NRIs or OCCs can acquire one immovable property jointly with their spouse,” said Atul Pandey,
partner, Khaitan & Co.

But citizens of 11 countries including Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran,
Nepal, Bhutan, Macau, Hong Kong or Democratic People’s Republic of Korea (DPRK), cannot acquire
or transfer immovable property in India, irrespective of their residential status, without prior
permission of the RBI.

Solution: Non-residents can buy residential as well as commercial real estate. They are not
permitted to purchase agricultural or farm lan.

CAN NRI INHERIT OR GIFT PROPERTIES?

An NRI or an OCC can inherit any immovable property in India. Also, laws permit them to inherit
agricultural land and farmhouses, which they are otherwise not entitled to purchase. There is also no
restriction on persons from whom a non-resident can inherit property. “An NRI and OCC can even
inherit a property in India from another NRI or OCC.
Similarly, a non-resident can freely bequeath or gift property located in India to a resident, NRI, or an
OCC, except for nationals of the 11 countries. An NRI OCC can also receive a property as a gift. “If the
property is from a close relative as defined in the Income Tax Act – mother, father, children, brother,
and so on – then, there will be no tax implication. But if it is not from a close relative, it would be
taxable in the hands of the receiver based on either the sale price or stamp duty value. Tax will be
paid on higher of the two values,” said Suresh Surana, founder, RSM Astute Consulting Group, a
chartered accountancy firm.

Solution: Non-residents can inherit or gift any property including agricultural or farm land.

CAN NRIS BUY PROPERTY THROUGH COMPANIES?

Foreign firms having an office in India have restrictions on property purchases. If a company has
established an office in accordance with the Foreign Exchange Regulation Act (FERA) and the Foreign
Exchange Management Act (FEMA); it can purchase real estate that is necessary or incidental to
carrying on its business.

On winding up of the business, the sale proceeds of such property can be repatriated only with the
prior approval of RBI. “But, if a foreign company has established a liaison office, it cannot acquire
immovable property in India. In such cases, the liaison offices can only take property on lease for up
to five years,” said Jain.

Solution: Non-residents cannot buy real estate through companies for personal purpose

CAN POWER OF ATTORNEY BE MISUSED?

There was a time when many non-residents gave a general power of attorney (PoA) to relatives or
property agents to manage the day to day affairs. Many later found that the relative or the agent
had sold the property. But the Supreme Court (SC) has held that their properties cannot be transfer
based on a general PoA. In a ‘general’ PoA, the owner of the property (the principal) can authorise
another person (the agent) to act on his or her behalf.

Solution: NRIs can use a specific PoA if they want to authorise a person to sell on their behalf. But to
be a valid document, the PoA must be registered in India after paying stamp duty.

HOW MUCH FUNDS CAN NRIS REPATRIATE?

An NRI or an OCC may need to repatriate either the rental income or sale proceeds. “A non-resident
can remit income like rent from A Non-Resident Ordinary (NRO) or from Non-Resident External
(NRE) account in India. If the tenant is directly remitting rent to the non-resident, it would be
subjected to the limits prescribed under liberalised Remittance Scheme (LRS), which is a maximum of
$250,000 every financial year,” said Surana.

In case the NRI or OCC wants to repatriate the sale proceeds, there are a few conditions. Explains
Sandeep Jhunjhunwala, director, Nangia Andersen: the first is that the property was acquired
complying to provisions of FEMA regulations. Two, the money paid for the purchase was through
banking channel. Three, in the case of residential property, the repatriation of sale proceeds is
restricted to two properties.
There is no monetary ceiling on remittance of sales proceeds of immovable property. In other cases,
a remittance made by NRIs or OCIs should be within the overall limit of $ 1 million each financial
year.

Solution: Sale proceed to repatriation is allowed without any ceiling. For rent and other purpose, the
annual limit is $1 million

Are NRIs covered under RERA?

In case of disputes, NRIs and OCCs can seek relief from various courts and fora just like a resident.
Civil disputes about the title can be adjudicated before the high courts. They can even approach real
estate regulators in the state or consumer fora.

Solution: They can approach any regulator or court to seek relief just like an Indian

IN A NUTSHELL

Barring a few regulations, the rules for NRIs and OCCs are similar to that of a resident Indian. The
introduction of RERA has further ensured that developers stick to their promises. Some states are,
however, yet to implement RERA fully.

Property consultants say that it’s best to stay away from real estate in such states unless there is a
reputed developer that can be trusted. “The risks of non-completion or delay are mitigated by
selecting good developers with proven completion track records and sound funding, and the cost
arbitrage that under-construction homes provide over ready-to-move ones is still a pretty compelling
rationale,” said Anuj Puri, chairman, ANAROCK Property Consultants.