A home in India for NRIs
Find out about the documentation required by NRIs for buying and selling properties in the country and the amount they can repatriate after disposing of a house
For NRIs who want to invest in property in India, obtaining the PAN of the seller is mandatory. The purchaser is required to generate a challan-cum-statement in Form No. 26QB which is the online form for furnishing information regarding the taxes withheld. The purchaser is also required to issue a tax withholding certificate in Form 16B to the deductee (ie the seller of the property). Where the seller is an NRI, however, the buyer is required to obtain a tax deduction account number (TAN) to comply with tax withholding obligations. The taxes deducted are required to be deposited in the government account within seven days from the end of the month in which the tax is deducted.
The consequences of non-compliance with the tax deduction obligation can be harsh.
The buyer is obliged to withhold the taxes and remit the same to the government within the due date. Where the purchaser does not withhold the tax he shall be liable to pay simple interest at 1% per month on the amount of tax from the date the same was deductible to the date on which tax is actually deducted. However, where the purchaser has deducted the tax and has failed to remit the same within the due date, the interest rate applicable shall be 1.5% per month. Prosecution provisions may also result.
Delay in submission of Form 26QB would trigger a fee of ₹ 200 per day for the period of delay, which shall be remitted by the purchaser before submission of the Form 26QB. The quantum of fee, however, shall not exceed the amount of taxes to be remitted. Delay in submission of Form 26QB beyond one year from the due date could attract penalty ranging from ₹ 10,000 to ₹ 1 lakh.
House property would no longer attract wealth tax as the Wealth Tax Act has been abolished from 1 April 2015.
While purchasing a property in India, an NRI/PIO would need to be mindful of the exchange control regulations. Acquisition of immoveable property in India is governed by the Foreign Exchange Management ( Acquisition and transfer of immoveable property in India) Regulations, 2000. NRI/PIO’s are permitted to acquire commercial/residential property in India by way of purchase, gift or inheritance. However, purchase of agricultural land, plantation property, farmhouses is not permitted. If agricultural land, plantation property, farmhouse is acquired by way of inheritance, the same needs to be sold/gifted to Indian resident citizens only.
Funding the property
The purchase consideration can be paid out of funds remitted to India through normal banking channels from the bank account of NRI/ PIO located outside India or from funds held in a NRE/NRO/ FCNR account. No such payment can be made either by traveller’s cheque or by foreign currency notes.
NRI/ PIOs can also take loans from banks/ housing finance institutions/employer in India for purchase or even f or re pairs/ renovation/ improvement of residential accommodation owned by them in India. Repayment of the loan amount can be done either by way of: Inward remittance through normal banking channel, or By debit to the NRE/NRO/ FCNR account of the NRI/ PIO, or
Out of rental income from such property, or
By the borrower’s close relatives, as defined in Section 6 of the Companies Act, 1956. The immoveable property can be given on rent in India. The rent received can be credited to NRO/ NRE account or remitted abroad. In the event of sale of the property acquired, the amount can be repatriated outside India subject to certain conditions. The amount of repatriation must not exceed: the amount paid for acquisition of the immoveable property in foreign exchange received through normal banking channels, or the amount paid out of funds held in FCNR account, or 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.
The balance amount, if any, needs to be deposited in the NRO account, on which monetary repatriation limit of $ 1million per financial year will be applicable. For instance, if an NRI purchased a residential property in 2010 worth ₹ 50 lakh, remitting funds directly from his foreign account and sold the same in 2015 for ₹ 70 lakh with the capital gains of ₹ 20 lakh, then an NRI would be eligible to repatriate only ₹ 50 lakh to his foreign account and deposit the profit of ₹ 20 lakh in his NRO account. The sale proceeds of immoveable property acquired by way of gift should be credited to an NRO account only. For residential properties, the repatriation of sale proceeds is restricted to not more than two such properties. If property is acquired out of rupee resources or the loan is repaid by relatives in India the amount needs to be credited to the NRO account of the NRI/PIO. Capital gains also have to be accredited to the NRO account.
From an NRI’s perspective, besides being attentive to maintenance of the property purchased, he also needs to be mindful of the regulatory compliances.