Who is an NRI?
A Non Resident India (NRI) is an Indian Citizen, who resides abroad for various reasons i.e. Employment opportunities/ business purposes etc. Investment into the Indian Property market has always lured NRI’s for both emotional as well as lucrative reasons. The Government of India also brings forward new schemes to attract Foreign Direct Investments (FDI) from abroad.
The Reserve Bank of India (RBI), has granted only general permissions to NRI’s to freely purchase immovable property in India. The RBI and the Foreign Exchange Management Act (FEMA) has liberalized its rules and regulations, for NRIs who intend to purchase immovable assets in India. Additionally, they are creating beneficial schemes that allow repatriation of their involved capital.
Procedure for the purchase of Immovable Property by an NRI in India
- In order to make a purchase of any real estate property in India, the NRI must have the required requisite documentation i.e. valid passport acting as an address proof and photographs etc.
- Open Non Resident External (NRE) or Non Resident Ordinary (NRO) Rupee accounts with Indian Banks to make any property investment: Both these accounts are Indian rupee accounts and are opened by the NRI. In both the accounts, minimum monthly balance is Rs.75, 000/-.
- The purpose of NRE (Non Resident Rupee) Account is to return the money obtained in India to the NRE account. The purpose of an NRO (Non Resident Ordinary) account is to keep the money earned or received in the country. Hence, it attracts tax on the interest earned.
- Proper legal help and assistance should be obtained to verify each and every document i.e. title deeds to ascertain whether the property is free from defects, mortgage free, encumbrance free etc. Ensure that title deeds are clear from any legal issues and seller must have ownership rights to make the sale deal to avoid future litigations.
- Payment of Registration Fees & Stamp Duty: After the property purchase has been finalized and executed, the property should be registered with the respective authority in the name of the purchaser, and all the registration and stamp duty payment should be made by the NRI.
Legal Restrictions on the purchase of property by an NRI
According to the rules & regulations issued by FEMA and the RBI, an NRI is granted general permission to make investments in certain immovable properties in India and not any or every property in India. It includes:-
- Only Residential or commercial property though there is no restriction on the number of purchases.
- NRIs are not allowed to make investment in any agricultural land or commercial property.
- NRIs are not allowed to purchase a farmhouse in India.
- The payment can be made only via banking channels either from abroad or from their NRE/NRO/FCNR account i.e. no Traveler’s cheques or Foreign Currency.
Joint ownership of purchased property is allowed provided both the owners are Non Resident Indians.
Payment made for property purchased
An NRI, who plans to invest in property in India, should opt for authentic payment channels after acquiring thorough knowledge of applicable legal norms, restrictions and permissions. There are two ways through which NRIs can make the payment for their investment. The important thing is that it has to be via legal banking channels.
- First way is discussed above i.e. by opening NRE/NRO/FCNR bank accounts.
Second source of financing is through Home Loans from financial conditions where following norms are prescribed by RBI i.e.:-
(i) The maximum limit of loan from financial institutions is 80%, remaining has to be arranged by NRI.
(ii)Remittance of down payments/Easy Monthly Installments (EMI) can be made from his/her place of remittance via normal banking channels i.e. NRE/NRO Account.
(iii) Repayment of principal or interest also has to be made via aforesaid channel only.
NRI can service the home loan out of the rent received from such property or any amount received in his account from his or her relatives/ dividend received on his equity investments.