Introduction
For non-resident Indians (NRIs), buying or selling immovable property in India and remitting the sale proceeds is not particularly difficult, but there are certain rules and regulations that must be followed during these transactions. These regulations are established by the Reserve Bank of India (RBI) and fall under the Foreign Exchange Management Act (FEMA). This article will cover the laws regarding property purchase and sale by NRIs, as well as the repatriation of sale proceeds, in separate sections.
Property Purchase by NRIs
An NRI or Person of Indian Origin (PIO) is legally entitled to purchase residential and commercial property in India without prior permission from the RBI. There is no limit on the number of immovable properties they can purchase. However, under FEMA and RBI regulations, the purchase amount must be paid in Indian Rupees through standard banking channels or through NRI bank accounts. While NRIs can inherit property from Indian residents, there are restrictions on directly acquiring agricultural or plantation land. Nonetheless, inheriting such property from Indian residents is permissible.
Property Selling by NRIs
An NRI can sell their Indian residential or commercial property that they purchased or inherited from an Indian citizen, NRI, or PIO. However, in the case of selling agricultural land, plantation property, or a farmhouse, the property must be sold to a resident of India. Repatriation of sale proceeds to the NRI's country of residence follows the sale and must comply with FEMA guidelines specified by the RBI.
Repatriation of Sale Proceeds (Property Purchased as an Indian Citizen)
Sale proceeds from properties purchased while the individual was a resident of India must be credited to the NRO (Non-Resident Ordinary) account. NRIs are entitled to repatriate up to USD 1 million per fiscal year, provided all taxes are paid. Repatriation is limited to proceeds from the sale of two residential buildings. Additionally, a ten-year ownership tenure is requisite for repatriation, with funds held in the NRO account if the property is owned for less than a decade.
Repatriation of Sale Proceeds (Property Purchased as an NRI)
Sale proceeds from properties acquired post-NRI status attainment must adhere to specific conditions, including compliance with foreign exchange rules prevailing at the time of purchase. Repatriation quantity is dependent upon various factors, including foreign exchange utilization, loan repayments, and NRE (Non-Resident External) account transactions. Repatriation is limited at USD 1 million annually, with an exemption from the ten-year waiting period for properties purchased using foreign funds.
Taxation on Land Transactions by NRIs
NRIs are subject to taxation on land transactions, with distinctions between long-term and short-term capital gains. Long-term gains, acquired post three years of property ownership, attract a 20% tax rate. Short-term gains within the three-year threshold incur a 30% tax. Exemptions exist for reinvestment of sale proceeds into residential properties or specified capital gain bonds.
Conclusion
In conclusion, as an NRI, successfully navigating property transactions in India requires following RBI and FEMA guidelines. Whether buying, selling, or repatriating sale proceeds of residential or commercial properties, grasping the rules is crucial. The complexity is apparent in factors like the 10-year repatriation waiting period, tax intricacies, and exemptions. Seeking expert advice ensures a smooth process. Ultimately, meticulous planning, compliance, and awareness of legal frameworks pave the way for NRIs to achieve their property goals in India. Dream responsibly, plan wisely, and let your property journey reflect well-informed decisions.
The author is a Chartered Accountant and former EY employee, serves as the Chief Consultant of the NRI Desk and Influencer Desk at AKT Associates. He specializes in offering consultancy services tailored for NRIs and is dedicated to creating educational content to raise awareness within the NRI community.
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