Guidelines Nri

Property Investment Guidelines to Non Resident Indians

The Foreign Exchange Management Act, 1999 (FEMA) regulates the purchase of properties by Non-Resident Indians (NRI), Persons of Indian Origin (PIO), and foreign citizens.

The buyer must ensure that the land on which the purchase property is built is not agricultural land or plantation property, as these types of land can only be purchased by an agriculturist who is an Indian citizen.

An Indian citizen resident outside India or a PIO does not require any special permission to buy immovable property in India. However, no payment of the purchase price can be made in foreign currency. The buyer make the purchase in rupees through funds received in India through normal banking channels, or funds maintained in any non-resident account under FEMA and RBI regulations. There are also no restrictions on the number of immovable properties an NRI or a PIO may purchase for either residential or commercial purposes.

A foreign national resident outside India cannot buy immovable property in India. However, foreign nationals who are resident in India (and who are not citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan) can purchase immovable property in India without any special approval from the RBI. However such buyers should check with their lawyers before buying any property as they might require approvals from other authorities such as the State Government, etc.

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An NRI or PIO may repatriate the proceeds from the sale of immovable property in India on the following conditions:

  • The property was purchased by the NRI/PIO in accordance with the provisions of FEMA in force at the time of the purchase
  • The amount repatriated should not exceed the amount paid for the property if the property was acquired in foreign exchange remitted through normal banking channels or out of funds held in an FCNR (B) account.

In the following circumstances, the NRI/PIO may repatriate a maximum of USD one million per financial year:

  • Out of the balances held in the NRO account if the property was purchased out of rupee sources.
  • If the property was acquired by way of gift, the sale proceeds must be credited to an NRO account, and thereafter may be repatriated.
  • If the property was inherited from a person resident in India, it may be repatriated on production of documentary evidence proving inheritance, an undertaking by the NRI/PIO, and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes.

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

A foreign national may repatriate sale proceeds even if the property was inherited from a person outside India. However, prior approval of the RBI must be obtained.

Capital Gain is applicable when:

The sold property has been withheld by a person for a period of more than three years from the date of purchase / possession.

The sale proceeds are invested in a residential property which is bought one year before the sale of property or two years after the sale of first property.

The new property is bought after the sale of the first property. Capital Gain Taxes are saved by investing the sale proceeds in Capital Gain Bonds.

When a property is withheld by a person for more than three years, it results in long term capital gain on sale of that property, on which capital gain tax can be saved by investing that money in a residential property. 20% of capital gain has to be paid as tax if the money is not invested in residential property or Capital Gain Bonds.

When a property is withheld by a person for less than three years, it results in short-term capital gain on which tax cannot be saved. Capital gain is added to the income of a person and tax is calculated as per income tax slab rates.

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