NRI & Foreign Ownership

 

Who is an NRI?

According to the Foreign Exchange Regulation Act of 1973, Non-Resident Indians are:

  1. Indian citizens who stay abroad for employment or carrying on business or vocation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad; OR
  2. Government servants who are posted abroad on duty with the Indian missions and similar other agencies set up abroad by the Government of India where the officials draw their salaries out of Government resources; OR
  3. Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, United Nations etc.  OR 
  4. Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.

Who is a foreign citizen of Indian Origin?

A foreign citizen is deemed to be of Indian Origin if : i) he held an Indian Passport at any time or ii) he or his father or paternal grand father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955. However this does not apply to citizens of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri Lanka or Nepal 

What is the difference between carpet area, built-up and super built-up area?

Carpet area of an apartment or building means the area that is actually used and in which a carpet can be laid. Carpet area + Area of the balcony + area of the walls are known as built-up area. 
The super built up area includes the built-up area + common spaces like lobby, lifts, stairs, garden and swimming pool.

PURCHASE

What should a buyer keep in mind while purchasing a house?
Some important factors to consider while purchasing are:

  1. Locality: Proximity to transport hubs, schools, hospitals, market, central business district, entertainment centres, hotels, restaurants, pollution levels, safety records of the neighbourhood.
  2. Total area of the property i.e. Carpet Area Or Built Up Area Or Super Built Up Area.
  3. Adequate car parking space.
  4. Construction should be of a high quality. 
  5. Reputation of the builder or seller. Check around with local sources to find out more of the builders reputation. 
  6. Adequate water, electricity and other utilities should be an important factor.
  7. Get a good idea of the costs of various components like price, stamp duty, registration charges, transfer fees, monthly outgoings, society charges & costs of utilities.
  8. Assess the potential resale value or the potential rental income of the property.
  9. List out any other advantages and disadvantages of the property to help make a better decision.

Checklist for buying a residential property

Since your hard earned money is at stake, it is advisable the following checklist is followed:

  1. It is advisable that the potential buyer studies the market for the market trends about prevalent rates of property in the vicinity and last known transactions.
  2. Ask for photocopies of all deeds of title related to the property to be purchased. A legal opinion through a good standing advocate is advisable. The legal counsel will examine the deeds to establish the ownership of the property by seller, preferably through an advocate. Ascertain the survey number, village and registration district of the property as these details are required for registration of the sale. Previous encumbrances and loans, if any on the property must be cleared before completion of purchase of the property. The title of the Vendor to the property must be clear and marketable.
  3. One of the major issues with a number of properties is the deviation of the built plan from that of the approved plan. Check for approved layout plan and approved building plan with number of floors and square footage approved against what is built in the property.
  4. Clearances from the following authorities is good to have: Municipality, Electricity, Water, Pollution, Lift Authorities, Fire and ensure the property has been issued Occupancy Certificates.
  5. Check the building bye-laws in that area to verify any infringements with respect to setback, side setback, height, square footage usage etc.
  6. To get a good idea of the total purchase price, confirm transfer fees, stamp duty and registration charges to be paid on purchase of the property as well as other outgoings to be paid for the property i.e. property tax, water and electricity charges, society charges, maintenance charges
  7. After payment of the entire sale price, take over legal possession of the property along with documents of title in original from the Vendor of the property
  8. Change name of the holder of the property to the purchaser in the records of the society, Electricity Company, municipal corporation, Index II etc.  

What are the permissions required from RBI for NRI’s to acquire or dispose off immovable property in India?

NRI's do not require any permission to acquire any immovable property in India. This does not apply to the purchase of agricultural / plantation property or a farm house. The table below gives a better idea of purchases that are possible for NRI’s:

 

Relevant to NRI’s

 

NRI

PIO

Resident

Buy Property From

Yes

Yes

Yes

Sell Property To

Yes

Yes

Yes

Receive Gift From

Yes

Yes

Yes

Give Gift To

Yes

Yes

Yes

AGRICULTURAL PROPERTY

Purchase Property From

No

No

No

Sell Property To

No

No

Yes

Receive Gift From

No

No

No

Give Gift To

No

No

Yes

 

 

Relevant to PIO’s

 

NRI

PIO

Resident

Buy Property From

Yes

Yes

Yes

Sell Property To

No

No

Yes

Receive Gift From

Yes

Yes

Yes

Give Gift To

Yes

Yes

Yes

AGRICULTURAL PROPERTY

Purchase Property From

No

No

No

 

Sell Property To

No

No

Yes

 

Receive Gift From

No

No

No

 

Give Gift To

No

No

Yes

 

           

What are the modes of payment for purchase consideration of the immovable property allowed under the general permissions?

The purchase consideration can be transferred to the seller through one of the following methods: 

  1. Inward remittances in foreign exchange through normal banking channels.
  2. Funds can be transferred from any non resident accounts maintained with banks in India. 

What are the restrictions on the number of residential properties that can be purchased by an NRI? 

There are no restrictions on the number of properties an NRI can purchase. The repatriation of funds is restricted only to two such properties.

What are the guidelines to be followed by NRI’s and foreign citizens of Indian origin while buying agricultural land / plantation property & farmhouse? 

All requests must be made to:
The Chief General Manager, Reserve Bank of India, 
Central Office, Exchange Control Department, 
Foreign Investment Division (III), 
Mumbai 400 001.

SALE & REPATRIATION

Do we require permission from RBI to sell such property?

No. RBI has granted general permission for sale of such property. However, where another foreign citizen of Indian origin purchases the property, the purchase consideration should either be remitted to India or paid from balances in non-resident accounts maintained in India.

Can the sale proceeds of such property if and when sold be remitted out of India? 

On conclusion of sale of immovable property other than agricultural land / farm house/plantation property in India by either an NRI or PIO, the person can remit the funds provided all the conditions noted below are met:

  • All the provisions of the Exchange Control Rules/Regulations/Law in force at the time were met at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act, 1999; 
  • NRIs/PIOs can remit sale proceeds of immovable property irrespective of how long the property was held. The profits from the sale of such property cannot be repatriated. The repatriation should not be more than the amount remitted to acquire the said property. 
  • The repatriations are restricted to sale proceeds of two such properties, if the property was purchased from funds held in NRE Account.

RENT & REPATRIATION

Are NRI's/PIO's allowed to rent out the properties (residential/commercial)?

Yes, they can freely rent out their immovable property, whether purchased through application of forex or otherwise. Only the after-tax amount of such rental income can be repatriated outside the country without seeking any permission from the RBI. 

LOAN RELATED

Does RBI have any guidelines for loans to NRI's/PIO's?

Yes. The guidelines laid by RBI for grant of Housing Loans to NRIs are:

  1. A loan of upto 85% of the cost of the residential property can be availed.
  2. The remaining cost of dwelling unit can be met through direct remittances from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India.
  3. Repayment of the loan, comprising of the principal and interest including all the charges are to be remitted from abroad only through normal banking channels, your Non-Resident (External) [NR (E)] Account and /or Non-Resident (Ordinary) [NR (O)] account and /or Non-Resident Special Rupee account [NRSR] in India

Can other Authorised financial institutions grant loans to NRIs for acquisition of a flat/house for residential purposes?

Yes, Authorised dealers can grant loans to NRI's for acquisition of house/flat for self-occupation on their return to India subject to certain conditions. The repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investors' NRE/FCNR/NRO accounts.

Can Authorised financial institutions grant housing loan to NRI's either as a principal borrower or as a co-applicant / guarantor or where the land is owned jointly by such NRI borrower with his resident close relative?

Yes. Such housing loans can be availed as both a principal borrower or as a co-applicant / guarantor or where the land is owned jointly by such NRI borrower with his close relative. The loan can also be repaid by the close relatives in India of the borrower.

What documents do I need to submit along with the application for a loan?

The following documents are normally to be submitted along with the loan application:

  1. Copy of an employment letter in English translation duly countersigned by the employer.
  2. Latest pay slip (in English) with the following details:
    i. Name (as it appears in the passport)
    ii. Date of joining
    iii. Passport Number
    iv. Designation
    v. Perquisites and salary
  3. Copy of the company identity card.
  4. Copy of valid resident visa stamped on the passport.
  5. Copy of monthly statement of local bank account for the last 4 months.
  6. Property related documents.

Can an NRI borrow a loan against the security of immovable property in India? Are there any restrictions? 

An NRI can borrow against the security of immovable property from Authorised financial institutions but are subject to following conditions:

  1. The loan should be used for personal requirements or for borrower's own business purposes; and
  2. Loan cannot be used for the following activities:
    a. Business of chit fund, or
    b. Nidhi Company, or
    c. Agriculture or plantation activities or in real estate business, or construction of farm houses, or
    d. Trading in Transferable Development Rights (TDRs),
  3. The loan amount cannot be remitted outside India,
  4. Repayment of loan shall be made from out of remittances from abroad or by debit to NRE/FCNR/NRO account or out of the sale proceeds of shares or securities or immovable property against which such loan was granted.

 

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