Though the Indian real estate environment has become very conducive for NRI investors yet again, there is often still hesitation to take the plunge because of uncertainty about the legal implications.
The doubts that many first-time NRI property investors have are often very pertinent, and finding answers to them is far from easy.
It is time to tackle some of the questions that NRIs often ask in Gulf countries which have, by far, the strongest complement of Indian expatriates anywhere in the world.
Often, these investors do not have access to a lawyer well-versed in Indian property laws and related fields of expertise, which is why many of their questions are legal in nature.
Here are the answers to the recurring doubts that individual NRI property investors face:
NRIs can certainly bequeath property to their legal heir/s or any one of their choice via a Will. An NRI can inherit any immovable property in India, whether it is residential or commercial — and even agricultural land or a farmhouse (which they are otherwise not entitled to purchase).
An NRI is also free to inherit property from another NRI or resident of India. However, the RBI’s permission is necessary if the property is inherited by a citizen of a foreign state and is a resident outside India.
An NRI can gift residential and commercial property to a person residing in India, or another NRI. However, if the property is agricultural land, plantation property or a farmhouse, it can only be gifted to a citizen of India residing in India.
Gifts received from relatives (as defined under the Income Tax Act) are not taxed — but at the time of registration, one has to pay the prevalent stamp duty and registration charges. Relatives include a spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents and any lineal ascendant or descendant of self or spouse. If the gift is received on the occasion of marriage or from a registered trust, it is exempt from tax.
Some NRIs are more interested in investing in Indian real estate via companies they have formed on foreign soil, or they may work for a foreign company that is interested in establishing a footprint in India.
The Indian realty sector is eligible for 100% FDI (Foreign Direct Investment) under the automatic route in the construction development segment, which includes townships, housing, built-up infrastructure. An overseas company or a subsidiary company outside India can invest in Indian real estate via this route, but not in finished buildings.
The laws are quite lenient but have some provisos.
There is no restriction on NRIs for repatriating rental income or even property sale proceeds (other than agricultural land, a farmhouse and plantation property) as long as the total proceeds are within the set limit of USD1 million in a fiscal year.
Here are the conditions :
The property being sold was acquired as per the foreign exchange regulations applicable during that period.
– The amount being repatriated cannot exceed the cost of the sale proceeds from the transaction.
– The sale proceeds from a maximum of two residential properties can be repatriated.
– The maximum amount of repatriated funds from a Non-Resident Ordinary (NRO) account is capped at $1 million per fiscal year.
– Funds can be repatriated only after settling all the applicable taxes and other charges.
If the property was purchased with money received from inward remittance or debit to NRE/FCNR/NRO account, the entire principal amount can be repatriated outside India immediately while the balance must be deposited in an NRO account.
To start the repatriation process, the NRI must get a certificate from a Chartered Accountant (CA) in India, issued in Form 15CB. The form can be downloaded easily from the Indian government tax website. This form verifies that the money acquired was via legal channels and all due taxes have been paid. The CA verifies and signs the form.
The next step is to fill Form 15CA which can also be downloaded from the same website. The form must be filled and submitted online, after which a system acknowledgement number is automatically generated and displayed. The NRI must print out the filled undertaking of Form 15CA displaying the system-generated acknowledgement number, and sign it.
The final step is to take the signed undertaking along with the CA certificate on Form 15CB to the bank where one has an NRO account. The concerned bank will check the forms and transfer the money abroad (up to $1 million in an FY). Apart from these forms, the bank will also ask for a copy of the sale document of the property. If the property has been inherited, the bank will ask for the Will copy, legal heir certificate, and death certificate of the person on whose death the property was inherited.
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