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Source: Moneycontrol.com

Checklist for NRI buyers before buying a home in India

A curtain raiser on the entire process of home buying in India- this note can be helpful to non-resident Indians to understand how the monetary aspects of home buying work.

Checklist for NRI buyers before buying a home in India
Sukanya Kumar
Retaillending.com
 
There are plenty queries and ambiguity around a purchase, executing Power of attorney (POA), home loan and tax matters related to an investment in property in India for non-resident Indians (NRI). A few basic questions and answers here to guide a homebuyer, starting from the inception of the idea to buy, till the property gets sold and money transferred back abroad. Hope it makes a good read.
 
Who are termed as NRI-s?
 
A person holding an Indian passport, who is currently located anywhere else in the world and stayed there continuously for more than 180 days is considered as an NRI (Non-resident Indian).
 
Who are PIO and OCI? Can they buy a property in India?
 
Other than an NRI-s who holds an Indian passport, any Person of Indian origin(PIO) who is currently holding a passport of a different country, but was himself an Indian citizen earlier or whose ancestors have been Indians upto the fourth generation(great grandparents), is considered a PIO. The current country of residence can be any except Afghanistan, Bangladesh, Bhutan, China, Iran, Nepal, Pakistan &  Sri Lanka. He will have a free passage to India without a visa.
 
Overseas citizen of India (OCI) on the other hand has a lot of misconceptions around it. People think that it is a dual-citizenship card. Please understand that there is no such thing, as India does not allow any citizen of other country to hold an Indian citizenship. An OCI has no voting rights in India and he cannot have a government job or hold any legislative position in India. Simply put, he is not an Indian citizen.
 
In fact, the Government of India has announced vide Gazette Notification No.26011/01/2014-F.I dated 09.01.2015, that all PIO cards issued till 09.01.2015 are deemed to be OCI card. The scheme has been withdrawn now.
 
Henceforth, applicants may apply for OCI card only, as PIO card scheme is no longer in existence. Transfer of PIO Card to OCI card is optional. One can apply for OCI card in lieu of valid PIO card free of any charges.
 
All NRI, PIO and OCI can buy residential or commercial properties in India.
 
What type of property can an NRI not buy in India?
 
They cannot buy an agricultural or farmland or plantation property. However, they can inherit them.

What documents are required from them to make a property purchase in India? Does it require RBI permission?
 
No permission from RBI is required. They should hold valid passport with PIO/OCI card (wherever applicable), address proof, PAN (permanent account number in India) and photograph to buy a residential or commercial property in India.
 
How to fund the property purchase?
 
Overseas currency can be brought to India through legitimate banking channels to make such purchase, or if the NRI holds a non-resident external(NRE) or non-resident ordinary(NRO) rupee account in India, which holds the fund, then by issuing a cheque from that account can do. If the NRI has any deposits in his foreign currency non-resident(FCNR) account, that fund can also be used to make the purchase.
 
Is a power of attorney required to purchase property in India?
 
If the NRI does not want to travel to India for registering the property in his own name, then he can execute a power of attorney (POA) from abroad to a close relative residing in India to sign on his behalf, on the purchase contract and register the property in his absence. The POA has to be signed by the principal (who is giving the power) in presence of the consulate officer or notary abroad, and will have to be attested by them.
 
What is adjudication of POA?
 
The POA issued abroad will have to be sent to India and the POA-holder will have to sign and adjudicate it, within 3 months from the date of assigning the power, in India at the registrar's office. Only after this the POA will be considered 'given'.
 
How to repatriate the funds?
 
Repatriation of funds is the transfer of the sale proceed of the property from India to abroad. It gets transferred from Indian rupee to a foreign currency. You can read about it here
 
As per Indian Income Tax laws, just ownership of a property in India does not make you pay for any taxes, unless you have rental income coming from it. Upon selling the property, however, one is exposed to the short term or long term capital gains tax.
 
Short Term Capital Gain (STCG) tax is when the property is sold for a profit within 3 years of  purchasing it. The profit then is taxable under the income tax slab in which the seller falls in. For example, if you bought a property worth Rs 60 lakh in 2012 and sold it in 2014 for Rs 80 lakh, then income tax on the profit of Rs 20 lakh will be levied on the tax slab you fall in India.
 
Long term capital gains(LTCG) tax is when you sell the property after 3 years of purchasing it. You get the benefit of indexation. Also the profit so arrived at after availing indexation is taxed at 20.6%.
 
However, if you reinvest the profit, in Section 54EC bonds issued by REC or NHAI (within 6 months of the sale) or buy another property with it within next specific number of years, then the tax gets waived off.
 
Is income from rental income taxable in India as well as abroad?
 
If there is a rental income in India, then tax papers need to be filed in India mentioning the PAN and tax to be paid. Also to note, that though holding one property in India is considered as 'self-owned', a second property, even if it is not on rent, is considered 'deemed rented' and tax needs to be paid for that. You can, however, show 30% of the deemed rental as 'maintenance cost'. There is no tax to be paid abroad (say, USA) on 'deemed' income, but declaring it is important as during repatriation of funds from India, it should not cause any issue.
 
Is home loan available in India for NRI, PIO & OCI?
 
Home loan is easily available for all three categories in India. Some multinational banks have special schemes and easy paperwork too. They do not seek a POA for extending home loan to NRI-s. However, there are plenty country restrictions with different lenders. So, getting an advisor on your side will be an intelligent move.
 
What are the tax benefits in India on home loan?
 
According to section 24 of the Income Tax Act, the interest on a home loan is deductible from the income gained from house property to the extent of Rs 2 lakh per annum for self occupied property. For other than self occupied property, you can claim actual interest paid. Moreover, up to Rs 1.5 lakh of the principal repayment can be deducted under section 80C (subject to an overall limit of Rs 1.5 lakh of that section including other investment options which allow grant under the same section).
 
Can a POA sell/rent an NRI-s property in India?
 
There are specific POA given to the person here in India, which if authorised to do such transactions on behalf of the owner, it can be done. Proper stamp charges to be paid at the registrar's office during execution of such POA, so that after many years also it can be traced in the record during such transactions.
 
Happy investing in properties in India !
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