It makes sense for non-resident Indians (NRIs) and persons of Indian origin (PIOs) to invest in property in India as a long term gain since India is still under developed and offers huge potential than a lot of International Markets and home to a lot of NRI's.
An NRI is a person who is not resident in India. According to the Foreign Exchange Management Act (FEMA), 'person resident in India' includes a person residing in India for more than 182 days during the course of the preceding financial year.
It does not include a person who has gone out of India on employment, business or vocation, or for any other purpose for an uncertain period. Also, a person who has come to stay in India other than on employment, business or vocation, or for any other purpose for an uncertain period.
All other persons are NRIs. NRIs are permitted to buy and sell property in India. The acquisition and transfer of property by NRIs should be in accordance with the FEMA. The property should be purchased through a registered conveyance deed.
It may also be purchased on a power of attorney. In the latter case, an agreement to sell and a power of attorney are executed by the seller in favour of the buyer.
RBI permission not needed
NRIs do not require permission of the Reserve Bank of India (RBI) to acquire residential or commercial property in India. The RBI has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase property in India for their bona fide residential purposes. The payment has to be made either out of inward remittances in foreign exchange through normal banking channels or out of funds in a NRE or FCNR account maintained with a bank in India.
Foreign citizens of Indian origin, purchasing residential property in India under the general permission are required to file a declaration with the central office of the RBI at Mumbai within 90 days from the date of purchase of the property or final payment of amount. This has to include a certified copy of the document evidencing the transaction and bank certificate regarding the amount paid.
The RBI has granted general permission for sale of such property without its permission. However, where the property is purchased by another foreign citizen of Indian origin, the funds towards the purchase should either be remitted to India or paid out of the balance in a NRE or FCNR account. The remittance of the sale proceeds depends on the mode of acquisition -whether it was acquired out of funds remitted from outside or out of rupee funds. A property can be acquired out of rupee funds by a NRI before leaving India, or after leaving India, but from a savings bank account in an Indian bank out of income earned in India.
The proceeds can be repatriated provided the amount does not exceed the amount paid to acquire the property in foreign exchange received from overseas, the amount paid from a FCNR account, or the foreign currency equivalent of the amount paid from funds held in a NRE account.
On residential properties purchased, the RBI considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of two properties. The balance amount of sale proceeds, if any, will have to be credited to an ordinary non-resident rupee account of the owner of the property.
Applications for the 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 instalment of consideration amount, whichever is later.
The RBI has also granted general permission to foreign citizens of Indian origin to acquire or dispose off 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, subject to compliance with applicable tax laws.
Also, it permits non-resident persons (foreign citizens) of Indian origin to transfer by way of gift property held by them in India to relatives and charitable organisations subject to the condition that the provisions of all other laws, including the Foreign Contribution (Regulation) Act, are complied with.
The RBI has granted general permission to certain financial institutions providing housing finance to grant housing loans to non-resident Indian nationals for acquisition of a house for self-occupation subject to certain conditions. The purpose of the loan, margin money and the quantum of loan will be on par with those applicable to housing loans to residents.
Repayment of loan should be made within a period not exceeding 15 years out of inward remittances or out of funds held in the investors' NRE, FCNR or NRO account. The loan amount cannot be credited to a NRE or FCNR account of a NRI or PIO. The loan amount has to be fully secured by equitable mortgage of the property proposed to be acquired. If required, the bank may also have a lien on the NRI's or PIO's other assets in India.
Further, the instalments of the loan, interest and other charges should be paid by the NRI or PIO through remittances from outside India through normal banking channels, or out of funds in a NRE, FCNR, or NRO account in India. The RBI has granted general permission to let out a property in India. The rental income or proceeds of such investments are eligible for repatriation too. The loan and interest can also be repaid out of rental income of the property.