India has granted
general permission for NRIs to buy property
How to buy a house in India
All you needed to know about buying a home in India.
March 03, 2006
Sanjay Chabbra, partner in Delhi based law firm Archer
and Angel to South Asia World.
Money Conrol
Is there lot of overseas Indians now more and more
interested in buying properties here and is it getting
easier for them?
Yes, the Indian government now has recognised the
demands of the NRI and people of Indian origin to
own piece of property over here in India and over
a period of time what we have seen is that the investment
is both for them to come back and some form of speculation
because India as a market now is giving good returns
and the economy is booming so a lot of people are
looking to come back. The rules have been much simplified
and it is become much easier to buy property for the
NRIs.
The new act FEMA (the Foreign Exchange Management
Act) that is a vast difference from the regulation
act (FERA) has made a tremendous difference in acquisition
of property and sale of property and even repatriation
of money if one has got property and he is selling
it of. Overall things have improved for NRIs and it
is a great time to be here
Could you just run us through check list- what
are the keys 2-3 things that you would advice a person
once he/she has decided they want a property in India?
It is essential if they have decided on a property
they most know about the property- who is the seller,
whom they are dealing with. It is a kind of due-diligence
process that one must undertake before they acquire
the property. A due diligence process would help them
to understand what the problem areas could be or what
the grey areas could be and they must also acquire
the property through proper NRI or NRE account and
this can be done in conjunction with the attorney
or dependable real estate agent.
Do you suggest that all of them should actually
hire property lawyers and go through property lawyers?
It would be very advisable because if they are sitting
abroad they will not understand the actual ground
rules that are prevalent here, so if they have somebody
who they can hire and can get the best advise. I think
that would be the best way to go.
Are there any RBI approvals needed to buy property
in India? Or any taxes to be paid? Will he need a
PAN number in India? Or does he have to file any paper
work to treasury department back in the US?
He would be happy to know that he doesnt require
any approvals. The government of India has granted
general permission for an NRI to buy property in India
and he has to pay no taxes even while acquiring property
in India but however certain taxed have to be paid
if he is selling this property. He would require a
PAN card if he has rented this property out and he
wants to repatriate that money but if it is going
to be a sale of property depending on time or the
amount of time he has held the property, the sale
proceeds would be subject to capital gains tax and
as of now if he has held the property for less than
3 years then he would be paying roughly about 30%
tax and if the property has been held for more than
3 years then it 20% as capital gains tax and that
is what he will have to pay.
Any limit on how many properties you can buy?
There are limits as of now to residential properties.
If he has bought 2 properties then he cannot repatriate
for more than 2 residential properties if they have
been bought from an NRE account and if the funds have
been sent of a rupee account then the limitation is
that he has to hold the money in the account or in
India for 10 years. So the restriction is 2 residential
properties.
How can one ensure that the land being used by the
builder is genuinely for residential purposes- how
can one check whether he is credible builder abiding
by all the laws - are there certificates of licensing
that one can ask him for to ensure that one is not
being cheated?
Unfortunately there are no acieration for the builders
as of now and there is a move on part of the government
to stream line things but as of now there is nothing.
As always you need to go to an attorney, you need
to speak to people, need to see the track record of
the last project that the builder may have done and
you also have to check the records of the property
that they are build up on and most of the builders
if they are genuine will have no problem in showing
you this records and giving it to you on a platter.
The track record is the best way to judge the credibility
of the builder and of course when you see the property
the people it is possible to judge and ore than that
you can have an good attorney to take care of your
interest who will go into finer details and let you
know what exactly is the situation on the ground.
What if an overseas Indian, he is bought property
gone back and wants to rent it out - would he be at
any kind of a disadvantage or the rent you know the
tenancy laws pretty much remain the same?
If you rent it out again, no permissions required,
he can rent it out, its a commercial decision.
If he feels that he getting the right price or the
right rent, he can rent it out but again check the
anticents of the tenant preferably trying to accompany
lease so that get all your documents right get it
good lease agreement done and have a registered and
again use an attorney who can help you out in case
of a problem.
I was looking at real estate as a product for
investments but then problem when it came to dealing
in financial transactions. I notice that most builders
I dealt with wanted my money in two parts, one was
what they call as white money by cheque and second
was a black money which was in form of cash which
must have been okay for most people locally but for
somebody coming from abroad where all his money is
accounted for it poses as a problem. So paying the
black component was kind of an unfair advantage because
I am converting my white money to black. So my question
is there any work around in this kind of situation?
Black money component, yes, it is there. We cannot
hide that fact that there is a black component in
the properties that are going in but again things
are changing especially If one is dealing with a big
builder a reputed builder I dont think that
they would encourage splitting off the payment. Infact
the big builders specially in the big metros they
would look at the client and tell him up front that
every payment has to be done through cheques. Infact
there are builders who are not only accepting the
purchase prize but also the maintenance charges just
through the cheque medium and black money has been
completely ruled out vis-à-vis with the big
builders.
The smaller builders in the smaller town and again
the other issue were that the stamp duties which were
payable, which were also attracted and made the black
component, part in an agreement. This has with the
bringing down of the stamp duty charges or the stamp
duty rates; I think this incidence of black money
is diminishing definitely. So I would advise Anil
(phoner) that he should deal with big builders.
I hold a green card and am keen to buy a home
in Delhi. I want to know whether there are any taxes
that one has to pay on buying the property and also
are these taxes paid via the builder or would she
have to pay them directly, please explain the tax
structure?
If she feels to purchase any property, she does not
have to pay any taxes. Taxes are only payable at the
time of repatriation of the money and as I said earlier
it will be subject to a capital gain tax. But at the
time of acquiring a property in India there is no
payment of tax and if there are any conversion rates
of the builder may have paid that he builds into the
same price, nothing additional at all.
I am a UK based lawyer and want to know if I would
have to pay taxes if I own a property in India. Also
can I avoid taxes on rental income on my Indian property
if I am already paying taxes in respect of the same
income in the UK?
Yes, he would have to pay taxes on his rental income.
He has to pay tax thats a something to remit
the money back; he has to pay the taxes at the prevalent
rates. But India is a signatory with a lot of countries
I have seen over 60 countries where you have the double
taxation avoidance agreement and under those he can
take advantage and pay the taxes here in India since
the property situated here. He can pay the taxes but
he can take advantage or equivalent tax rebate in
the UK.
I am from USA and my husband and me are planning
to move back from US end of this year. I want to know
whether returning Indians can retain their property
overseas even after they moved back to India?
Yes, you can. You can retain properties that you
acquired while you were a non resident while you were
staying there you can acquire those properties and
if you were acquire those properties you can maintain
those and retain those in these jurisdiction there
is no problem or restriction from the governments
point of view.
I wanted to sell my property in Chennai. I just
want to know how I can repatriate these funds from
the sales deal and what formalities are there are
that need to be fulfilled?
Now depending how he acquired the property the repatriation
process has to be understood in that contacts of the
property has been acquired from NRE account then the
restriction is that he can only repatriate money for
two residential properties. But if he acquires a property
from a NRO, which is a rupee account, then the restriction
is more with the timeframe. Then he cannot repatriate
that money for ten years. So that is the only restriction
if he is acquires from the rupee account and on the
payment of taxes he can take his money back.
But even if you had NRE account, is there a limit
that you can repatriate only so much in a year?
Yes, you can only repatriate the amount that you
have spend on acquiring the property. That is the
other limitation that you have through the NRE accounts
but hopefully we are looking at government liberalizing
their policies further.
I recently inherited some family property in Punjab.
The siblings have now decided to sell it. Again I
want to know how can I repatriate the funds from the
sales deed. Any special regulations when it
comes to inherited property?
Yes, the government allows you to repatriate in a
calendar year USD 1 million. So if has inherited property
worth a million dollars, without a problem he can
repatriate that money. So in that respect there shouldnt
be any problem.
Lot of NRIs are buying property, for their
parents or relatives. How does that works, can you
a sort of gift property in any amount?
Yes, you can gift properties, you can bequeath properties
to you relatives here. To your parents, you can but
them houses. Not an issue.
As told by Sanjay Chabbra, partner in Delhi based
law firm Archer and Angel to South Asia World.