NRI Corner

The following categories are eligible to purchase immovable property in India under the RBI’s general permission:

• A Non-Resident Indian (NRI), an Indian citizen who lives outside of India.
• A person of Indian Origin (PIO), a person (not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan) who has held an Indian passport at any time or a person whose father or grandfather was a citizen of India under the Indian Constitution or the Citizenship Act, 1955. (57 of 1955).
  However, the general permission only applies to the purchase of residential and commercial property in India, not for agricultural land, plantation property, or farmhouses. Therefore, except for agricultural land, plantation property, and farmhouses, OCIs can buy immovable property in India.

• PAN card (Permanent account number)
• Card for OCI / PIO (in case of OCI / PIO)
• Obtaining a passport (In case of NRI)
• Photographs in passport size
• Proof of address

Since NRI / PIOs do not have general authority to purchase agricultural land, plantation property, or a farmhouse in India, such requests are required to be approved by the Reserve Bank. The applications are considered in consultation with the Indian government.
Income from the sale or rental of immovable property is subject to taxation.

Is it possible for NRIs, PIOs, and OCIs to obtain housing loans from any Indian bank?

A non-resident Indian or a person of Indian origin residing outside India may obtain a home loan from an authorized dealer or a housing finance institution in India certified by the National Housing Bank, subject to the following conditions:

• The loan amount, margin money, and repayment time must be at par with those applicable to home finance granted to an Indian resident.
• The amount of the loan will not be credited to the borrower’s Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR)/Non-Resident Non-Repatriable (NRNR) account.
• The loan will be fully secured through an equitable mortgage backed by a deposit of title deal on the property to be purchased and a lien on the borrower’s other assets in India if necessary.
• The loan instalment, interest, and other charges, if any, shall be paid by the borrower through remittances from outside India via normal banking channels or out of funds in his Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR)/Non-Resident Non- Repatriable (NRNR)/Non-Resident Ordinary (NRO)/non-Resident Special Rupee (NRSR) account or using the rental income accrued from renting property purchased by using the loan or any relative of the borrower in India by crediting the borrower’s loan account through the relative’s bank account. (The term relative refers to the definition of the relative in Section 6 of the Companies Act, 1956.)
• The interest rate on loan shall be in accordance with the directives of the Reserve Bank of India’s or the National Housing Bank.

Since rental income is a current account transaction, it is repatriable but subject to the proper tax deduction and certification by a Chartered Accountant in practice. Certain criteria apply to the repatriation of sale revenues. The repatriation amount cannot exceed the amount paid in foreign exchange for purchasing the immovable property.

1. If the property was purchased using foreign exchange, the amount to be repatriated should not be more than the sum paid for it:

• Foreign currency obtained through a traditional banking channel or
• By debiting an NRE account (foreign currency equivalent on the payment date) or an FCNR (B) account.

The repatriation of sale earnings from residential properties acquired by NRIs/PIOs with the foreign exchange is limited to two such properties. Capital gains, if any, can be credited to the NRO account, from which NRIs / PIOs can repatriate up to USD One million every financial year, in the ways mentioned below.

2. If the property was purchased with Rupee funds, the NRI / PIO might remit up to USD One million from the NRO account balances (including sale proceeds of assets acquired through inheritance or settlement) for all bonafide purposes to complete satisfaction of the Authorized Dealer bank, subject to tax compliance. NRI / PIO might use this facility to remit capital gains if the subject property was purchased with finances received via standard banking channels/debit to an NRE / FCNR (B) account.

The mere purchase of real estate is not subject to income tax. However, any income derived from ownership of it, whether in the form of rent (if it is rented out), the annual price of the property (if it is not rented out and this property is not the only residential property owned by that person in India), and capital gains (short or long term) stemming from the sale of this property or part of it, is taxable in the owner’s hands.

The Indian government has authorized NRIs, PIOs, and OCIs to acquire property in India, and they are not required to pay any kind of taxes while doing so. However, taxes must be paid by them if this property is sold. Rental income is taxable in India, and if they have rented this property, they will need to obtain a PAN card and file a tax return. In addition, the profit accrued from the sale of the property will be subject to capital gains taxes. If the person has owned the property for less than or equal to three years after obtaining actual possession, the gains are considered short-term capital gains and must be included in their total income and taxed at the regular rate. However, if the property has been owned for more than three years, the gain will be classified as long-term capital gains and liable to a 20% tax plus a levy (cess).

Traditionally, you might file your tax return by granting power of attorney to someone in India or sending your form and papers to an Indian tax specialist to file the return on your behalf. However, online tax return filing is the most convenient choice for NRIs to file their Indian tax returns.

Given below is a list of documents typically requested for home loans.

Salaried person:

• A copy of the employment agreement
• Latest pay-slip
• The most recent work permit
• 4-month bank statement or 6-month NRE/NRO A/c statement
• A copy of passport or visa
• Utility bill for address verification
• OCI / PIO card
• Power of Attorney (in the format of the respective bank, if applicable)
• Report on customer creditworthiness
• Property agreement or any related documents that have been officially registered
• Last two years’ tax returns

Self-employed person:

• Company’s balance sheets and P&L A/c for the last three years.
• Bank statements for the previous six months as well as income tax returns (3 years) of the firm and the individual
• A copy of your passport or visa
• PIO / OCI card
• Utility bill for address proof
• Power of Attorney (in the format of the respective bank, if applicable)
• Report on creditworthiness
• Property deeds or other documents of a similar nature

India has DTAAs with several countries. These DTAA’s give a favourable tax treatment regarding certain heads of income. However, when it comes to the sale of immovable property, the DTAA with most countries provides that the capital gains are taxable in the country the immovable property is located in. Hence, NRIs will be subject to tax in India on the capital gains arising from the sale of immovable property in India. Moreover, under most tax treaties, the letting of immovable property in India would be taxed in India because the property is in India.

For different types of assets such as property investment, land and buildings, jewellery, development rights, and so on, the rate of tax deducted at source (TDS) is as follows:

• 20.6 per cent in the long term
• 30.9 per cent in the short term

There is an exemption available (only for long term capital gains)

Long-term capital gains from the sale of a residential property can be used to acquire or build another residential property within a certain time frame. However, the exemption is limited to the amount of capital gain or money invested in a new home, whichever is smaller. The entire gain or a proportionate gain is exempted if the capital gains are invested in bonds issued by the Rural Electrification Corporation or the National Highways Authority of India (NHAI). According to the 2007-08 financial budget, the maximum amount that can be invested in capital tax saving bonds is INR 50 lakhs.

Suppose an NRI pays any tax on capital gains generated in India. In that case, they can obtain a tax credit for taxes paid in India as the income earned in India is also included in the country of tax residency. However, the amount of tax credit depends on the regulations of the taxpayer’s home country where they are a tax resident and the tax credit that can be claimed as determined in the respective country’s DTAA.

In case you are an NRI, OCI, or PIO, you must file your income tax returns if you meet the following criteria:

• You accrued short-term or long-term capital gains from selling any investments or assets in India during the year, even though the gains were smaller than the basic
  exemption amount.

Note that the increased exemption limit for older citizens and women only applies to residents of India and not NRIs/OCIs/PIOs.

There are two exceptions to the rule:

• You do not need to file a tax return if your taxable income was only capital gains income and/or investment income (interest) and tax deductions at source have been
  made from such income.
• You do not have to include long-term capital gains from the sale of equity shares or equity mutual funds in your tax return as you do not pay any tax on them.

You can file a tax return for claiming refunds. This situation can arise when the tax deducted at the source exceeds the tax liability. For example, if your taxable income for the year was less than INR.1.6 lakh, but the bank has already deducted tax at source on your interest, you can file a tax return to claim a refund. Another example is when you incur a capital loss that you can deduct from your capital profits. Although capital gains may have been taxed at source, you can offset (or carry forward) capital losses to reduce your overall tax obligation. You need to file a tax return in such circumstances.