money matters for NRIs
Property Transactions of NRIs

Persons resident outside India who are citizens of India may purchase immovable property in India other than agricultural/land/plantation/farmhouse.

Acquisition and Transfer of Immovable Property in India

A person resident outside India, who is a citizen of India (NRI), can acquire by way of purchase any immovable property in India, other than agricultural/ land/ plantation/ farmhouse. He may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India, who is a citizen of India, or to a person of Indian origin resident outside India, or a person resident in India. He may transfer agricultural land/ plantation property/ farm house only to Indian citizens permanently residing in India.

A person resident outside India, who is person of Indian origin (PIO), can acquire any immovable property in India, other than agricultural land/ plantation property / farm house

1. By way of purchase out of funds received by way of inward remittance through normal banking channels, or by debit to his NRE/FCNR (B) / NRO accounts. The payment of the purchase price may not; however be by traveler's cheques, or foreign currency notes.

2. By way of gift from a person resident in India, or an NRI, or a PIO.

3. By way of inheritance from a resident in India, or a person resident outside India who had acquired such property in accordance to the provisions of the foreign exchange law in force or FEMA regulations at the time of acquisition of the property.

A PIO may transfer any immovable property other than agricultural land/ plantation property/ farmhouse in India by way of sale, or gift to a person resident in India who is citizen of India.

Interest or share in a Co-operative Housing Society or Apartment Owners Association

Though the term 'immovable property' has been widely used in FEMA, no where does it define the term. Further, even the definition of 'immovable property' given in the Transfer of Property Act, 1982, the General Clauses Act, the Sale of Goods Act and the Indian Registration Act, taken together, do not clarify what 'immovable property' is. They only suggest what is either included or not included in "immovable property". In fact, in the above Acts, shares in the co-operative society are not included in the definition of the term 'immovable property'.

Accordingly, any interest or share in a Co-operative Housing Society or Apartment Owners Association (also known as Condominium abroad) is an immovable property for the purposes of these regulations.

Refund of Purchase Consideration on Account of Non-Allotment of Flats/Plots/ Cancellation of booking

Authorized Dealers are permitted to credit refund of application/ earnest money/ purchase consideration made by the housing building agencies/ seller on account of non-allotment of flat/ plot cancellation of bookings/ deals for purchases of residential, commercial property, together with interest, if any (net of income tax payable thereon), to NRE/ FCNR account, of Non-Resident Indian/ Persons of Indian Origin provided, the original payment was made out of NRE/ FCNR account of account holder, or remittance from outside India through normal banking channels and the authorize dealer is satisfied about the genuineness of the transactions.

Acquisition of Immovable Property for carrying on permitted activity

A person resident outside India who has branch, office or other place of business (excluding a liaison office) for carrying on his business activity with requisite approvals, in India may acquire an 'immovable property' in India which is necessary for, or incidental to carrying on such activity, provided all applicable laws, rules, regulations or directions for the time being, in force are duly complied with. The entity/ concerned person is required to file a declaration in the form IPI with the Reserve Bank within 90 days from the date of such acquisition. The Non-Resident is eligible to transfer, by way of mortgage, the said immovable property to an authorized dealer as a security for any borrowing.

Commission to Agents

Authorized Dealers can freely permit remittance of commissions to agents abroad for sale of residential flats or commercial plots, in India up to US$ 25000 or 5% of the inward remittance per transaction whichever is higher.

Repatriation of sale proceeds

In the event of sale of 'immovable property' other than agricultural land/ farm house/ plantation property in India by NRI/PIO, the authorized dealer will allow repatriation of sale proceeds outside India provided;

The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law, in force at the time of acquisition by him, or the provisions of FEMA Regulations;

1. The amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or out of funds held in Foreign Currency Non-Residents Account; or (b) the foreign currency equivalent as on the date of payment of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property.

2. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

3. In the case of sale of 'immovable property' purchased out of Rupee funds, Ads may allow the facility of repatriation of funds out of balances held by NRIs/PIO in their Non-Resident Rupee (NRO) accounts up to US$ 1 million per financial year, production of undertaking by the remitter and a certificate from the Chartered Accountant in the formats prescribed by the CBDT.

Prohibition on Acquisition or Transfer of Immovable Property in India by Citizens of Certain Countries

No person being a citizen of Pakistan, Bangladesh, Sri-Lanka, Afghanistan, China, Iran, Nepal or Bhutan shall acquire or transfer immovable property in India, other than lease not exceeding five years without prior permission from the Reserve Bank.

Foreign national of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India.

Foreign Nationals of non Indian origin who have acquired 'immovable property' in India with the specific approval of the Reserve Bank cannot transfer such property without prior permission from the Reserve Bank.

Housing Loans

Housing loans for the purchase of residential property in India and loans for repairs/renovation of residential accommodation owned by them in India are permitted to NRIs and PIOs.

Application/earnest money paid to house-building agencies refunded due to non-allotment of flat (with interest) can be credited to the NRE/FCNR account of the account holder, provided the original payment was made out of the NRE/FCNR account or if the remittance was received from abroad.

A corporate body registered or incorporated in India can grant loans to its employees who are Non-Resident Indians or Persons of Indian origin subject to the following:

1. The loan is granted for personal purposes, including purchase of housing property in India.

2. The loan is granted in accordance with the lender's staff welfare scheme/staff housing loan scheme and subject to other terms and conditions applicable to its staff resident in India.

3. The loan must be for the purpose specified i.e. to purchase a house.

4. The amount should be credited to the borrower's NRO account.

5. It should be on the condition that repayment is by debiting the NRE/ FCNR (B)/ NRO/ NRNR/ NRSR account, or by an inward remittance or out of rental income derived from renting out the property acquired by utilization of the loan.

Indian companies in India can grant loans in foreign currency to the employees of their branches outside India for personal purposes in accordance with the lender's staff welfare scheme/loan rules and other terms and conditions as applicable to its staff resident in India and abroad.

Tax Issues

The interest paid on these loans is available both on the repayment of principal and on the interest. These are as follows:

1. Tax rebate for principal repayment – Rs. 20,000.

2. Interest up to Rs. 1, 50,000/- is eligible for rebate.

This interest should have been paid for the acquisition of housing property. Housing Loans are available from several financial institutions and most commercial banks. The amounts vary from one institution to another.

Capital gains tax is payable on the sale of property. Capital gains tax is payable on the excess earned over the original cost. Certain expenses, such as legal costs and brokerage are deductible from this excess capital gain. Tax is however non-payable under Section 54 if:

1. The residential house (original asset) is held for a period of more than three years.

2. The seller has purchased a residential house within a period of 1 year before, or 2 years after the date of transfer or sale of the original asset (the house) or has constructed a residential house (new asset) within a period of three years after the date of transfer or sake of the original asset.

3. Where the amount of the amount of the capital gains is not utilized for acquisition of the new asset before the due date of furnishing the return of income; it should be deposited by the assessee in an account with any specified bank or institution.

4. The cost of the residential house equals or exceeds the amount of capital gains.

Where the amount of capital gains is greater than the cost of the new asset; the difference between the amounts of capital gain and the cost of the new asset will be chargeable as long term capital gain.

Where the new asset is sold within 3 years from the date of its purchase, or construction; the cost of the new asset is to be reduced by the amount of capital gain exempted from tax on the original asset and the difference between the sale price of such new asset and such reduced cost will be chargeable as short-term capital gain and treated as the income of the previous year in which the new asset was sold.

Under Section 54 EC, capital gains accruing or arising on transfer of long-term capital assets will be exempted if the net consideration has been invested in specified bonds, debentures, shares of a public company or units of a mutual fund subject to the fulfillment of all the conditions stated below:

1. The taxpayer has, within a period of six months from the date of transfer or sale of the asset, invested whole or any part of the net consideration in any of the bonds, debentures, shares of a public company or units of a mutual fund permitted/notified by the board.

2. The cost of the specified securities is not less than the net consideration with respect to the original asset. If the cost of specified securities is less than the net consideration, then only the proportionate capital gain will be exempted.

After availing of the exemption, the assessee has to retain the specified securities for three years from the date of their acquisition.

If the specified securities are transferred or converted into money or the assessee takes a loan or advance against the security of such specified securities at any time within a period of three years from the date of their acquisition, the amount of exempted capital gain on transfer of original asset will be deemed too long term capital gain:

1. Of the previous year in which specified securities are transferred or converted (otherwise than by transfer) into money, or

2. Of the previous year in which loan or advance is taken against security of such securities. It may be noted that irrespective of the quantum of loan, or advance taken the entire exempted amount of capital gain will be brought to tax.

It should also be noted that where the cost of the specified securities is also eligible for rebate of income tax under Section 88 the rebate will not be allowed if the exemption is availed under Section 54 EC.

Under Section 54 ED of the Income Tax Act, the capital gain accruing or arising on the transfer of a long term capital asset will be exempted if the assessee has invested the capital gain in the long term specified asset, subject to the fulfillment of the conditions mentioned below:

1. The assessee has within a period of six months after the date of transfer or sale of the original asset, invested whole or any part of the central excess in long term specified assets.

2. The costs of the long term specified asset is not less than the capital gain in respect of the original asset. If the cost of the long term asset is less than the capital gain then capital gain proportionate to part of the capital gain invested will be exempted.

After availing of the exemption, the assessee has to retain the long term specified asset for a minimum period of one year from the date of its acquisition.

If the long term specified asset is transferred or converted (otherwise than by transfer) into money, or the assessee takes a loan or advance on the security of such long term specified asset at any time within a period of one year from the date of its acquisition, the amount of exempted capital gain or transfer of original asset will be deemed to be long-term capital gain:

1. Of the previous year in which the long term specified asset is transferred or converted into money, or

2. Of the previous year in which the loan or advance is taken against security of such long term specified asset. It may be noted that irrespective of the quantum of loan, or advance taken, the entire exempted amount capital gain will be bought to tax.

Where the cost of long term specified asset is also eligible for rebate of income tax under Section 88, the said rebate will not be allowed if the exemption under section 54 ED is availed.

Under Section 54F the long term capital gain arising from the transfer of any capital asset not being a residential house, will be exempted if the assessee has purchased or constructed a residential house, subject to the fulfillment of all the conditions given here under:

1. The assessee is an individual, or a Hindu undivided family.

2. The capital gained from the transfer of any long term capital asset other than a residential house.

3. Within a period of one year before or 2 years after the date of transfer or sale of the original asset, the assessee purchases a residential house; or constructs a residential house within 3 years from the date of transfer or sale of the original asset.

4. Where the amount of the net consideration is not appropriated or utilized for acquisition of the new asset before the due date of furnishing the return of income; it should be deposited by the assessee in an account with any specified bank or institution.

5. The cost of purchase or construction of the new asset is not less than the net consideration of the original asset.

6. On the date of transfer of the original asset, the assessee does not purchase within two years or construct within 3 years after that date any other residential house (other than the new asset).

If these conditions are satisfied then the capital gain arising on sale or transfer of original asset will be wholly exempted on sale or transfer of original asset will be wholly exempted.

Where only a part of the net consideration is invested in the new residential house, then only proportionate capital gain will be exempted.

1. After availing of the exemption, the assessee has to retain the residential house for a period of not less than 3 years from the date of purchase or construction; and

2. The assessee should not purchase any other residential house other than the new asset for a period of 2 years from the date of transfer of the original asset, or construct any other residential house other than the new asset for a period of 3 years from the date of transfer of the original asset.

If the above conditions are not satisfied, then the capital gain originally exempted shall be treated as long term capital gain of the previous year in which such a new asset is sold, or another residential house other than the new asset is purchased or constructed as the case may be. The house may be let out or self-occupied.

Remittance of Rent

Rental income received on letting properly, as it is current income, can be remitted irrespective of whether the property was purchased through foreign exchange or otherwise if tax has been paid or provided for.

If the house was purchased though a loan and is rented out, the rental income, even if it is more than the installment, should be adjusted towards repayment of the loan. If the rental income is less than the installments, the borrower should remit the amount of the shortfall, or pay it out of a bank account that he has.


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