It is not complicated for NRIs to make a transaction (purchase and sell) of immovable properties in India and remittance of sale proceeds, though there are some regulations for NRIs to follow in the course of these transactions. Reserve Bank of India (RBI) governs these transactions and they are administered by Foreign Exchange Management Act (FEMA).
An NRI or a PIO (Person of Indian Origin) can buy a commercial or residential immovable property in India without seeking RBI’s prior permission. The amount paid at the time of purchase must be in Indian rupees through regular banking channels or NRI bank accounts under FEMA and RBI regulations. NRIs and PIOs can inherit property from an Indian resident, but cannot buy agricultural land or a farmhouse.
An NRI or PIO can sell residential or commercial properties to any resident Indian, NRI or a PIO but agricultural land can be sold only to a resident Indian. After the sale, comes the repatriation of sale proceeds to the country of residence. Certain guidelines laid down by FEMA must be followed in this case.
If an NRI sells a property in India before moving to a foreign country and becoming an NRI, then sale proceeds must be credited to the NRO account. The person is entitled to repatriate an amount up to USD 1 million, including all other capital transactions in each financial year considering all the taxes have been paid.
Repatriation is restricted to the sale of two residential properties only. The repatriation can be done if the property is held for a minimum of 10 years. If the property has been held for less than 10 years, then the money cannot be repatriated immediately. The money must be kept in the NRO account till it completes 10 years period and then it can be transferred.
The sale proceeds of a property purchased by an individual after gaining the status of an NRI can be remitted outside India only after fulfilling a few conditions like the purchase of the property must be in line with the foreign exchange laws prevalent at the time of purchase. And the repatriation must not exceed the amount of foreign exchange remitted by the NRI to India through normal banking channels to purchase the said property. The remittance must not exceed the amount paid through the NRE account during purchase.
In each case, the amount of sale proceeds must be credited to the NRO account and only then up to 1 million USD in each financial year can be repatriated. Such repatriation can be done only for two properties. Waiting for 10 years to complete with regard to repatriation, this does not apply for properties, which NRIs have bought with the money they have earned from outside of India.
NRIs or PIOs can repatriate the sale proceeds of immovable property inherited from a person who resides in India, provided they submit evidence of documents to support their inheritance and necessary tax clearance certificates from the Income Tax department. The amount must not exceed USD 1 million in each financial year.
If the property is sold by the NRI after 3 years of purchase, they will incur long-term capital gains of 20 per cent. NRIs are subjected to a TDS of 20 per cent as laid down by laws. If the property is sold before the completion of 3 years, they will incur short-term capital gain of a TDS amounting to 30 per cent irrespective of a tax slab.
In certain cases, NRIs are exempted from taxes. If the property is sold by the NRI after three years of buying it and invest the sale proceeds again in another residential property within 2 years of sale, gains can be exempted to the extent of the cost of a new property. The exemption can also be done by investing in capital gains bonds. If the above said reinvestment is done in bonds of the National Highways Authority of India and Rural Electrification Corporation of India within six months of sale they can be exempted from paying capital gains tax. The bonds will be locked in for 3 years.
Real estate is the premium segment of investment for both resident Indians and NRIs. Benefits are immense as far as investing in real estate is concerned.
