Paying Money to buy a Property in India by NRIs

Once you have decided to buy a property in India next question comes about the payments. An NRI / PIO make payment for purchase of residential / commercial property in India out of

(a) funds remitted to India through normal banking channels or

(b) funds held in NRE / FCNR (B) / NRO account maintained in India

Traveller’s cheque or foreign currency notes or by other mode except those specifically mentioned above, cannot be used to make the payments

Property buying is always a big risk. There might be cases when the deal does not go till the end. So the questions of repatriation arises. Is repatriation of application money for booking of flat / payment made to the builder by NRI/ PIO allowed when the flat or plot is not allotted or the booking / contract is cancelled?

The Authorised Dealers can allow NRIs / PIOs to credit refund of application/ earnest money/ purchase consideration made by the house building agencies/ seller on account of non-allotment of flat/ plot/ cancellation of bookings/ deals for purchase of residential, commercial property, together with interest, if any, net of income tax payable thereon, to NRE/FCNR account, provided, the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the Authorised Dealer is satisfied about the genuineness of the transaction.

In some cases NRIs might want to go for loans. In this case the NRI / PIO can avail of loan from an authorised dealer for acquiring flat / house in India for his own residential use against the security of funds held in his NRE Fixed Deposit account / FCNR (B) account. Such loans are permitted subject to the terms and conditions laid down in Schedules 1 and 2 to the Notification No. FEMA 5/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time. Banks cannot grant fresh loans or renew existing loans in excess of Rs. 100 lakhs against NRE and FCNR (B) deposits, either to the depositors or to third parties. The banks should also not undertake artificial slicing of the loan amount to circumvent the ceiling of Rs. 100 lakh.

Such loans can be repaid in the following manner:

(a) by way of inward remittance through normal banking channel or

(b) by debit to the NRE / FCNR (B) / NRO account of the NRI/ PIO or

(c) out of rental income from such property

(d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.

NRI / PIO, can also avail of housing loan in Rupees from an Authorised Dealer or a Housing Finance Institution in India approved by the National Housing Bank for purchase of residential accommodation or for the purpose of repairs / renovation / improvement of residential accommodation.

But the loans are subject to certain terms and conditions laid down in Regulation 8 of Notification No. FEMA 4/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time. Authorised Dealers/ Housing Finance Institutions can also lend to the NRIs/ PIOs for the purpose of repairs/renovation/ improvement of residential accommodation owned by them in India. Such a loan can be repaid (a) by way of inward remittance through normal banking channel or (b) by debit to the NRE / FCNR (B) / NRO account of the NRI / PIO or (c) out of rental income from such property; or (d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.

Another option for loans by NRI/PIO avail of housing loan in Rupees from his employer in India but subject to certain terms and conditions given in Regulation 8A of Notification No. FEMA 4/2000-RB dated May 3, 2000 and A.P. (DIR Series) Circular No.27 dated October 10, 2003, i.e.,

(i) The loan shall be granted only for personal purposes including purchase of housing property in India;

(ii) The loan shall be 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;

(iii) The lender shall ensure that the loan amount is not used for the purposes specified in sub-clauses (i) to (iv) of clause (1) and in clause (2) of Regulation 6 of Notification No.FEMA.4/2000-RB dated May 3, 2000.

(iv) The lender shall credit the loan amount to the borrower’s NRO account in India or shall ensure credit to such account by specific indication on the payment instrument;

(v) The loan agreement shall specify that the repayment of loan shall be by way of remittance from outside India or by debit to NRE/NRO/FCNR Account of the borrower and the lender shall not accept repayment by any other means.

Source: http://www.realtycompass.com/blog

NRIs Should Beaware of Tax Before Investment in Property

There are few deductions which are applicable to Indian residences when they buy a property in India. An NRI / PIO also have the same deductions for the property.

Just like Indian residents the same deductions are applicable for NRIs. Municipal taxes paid during the year and housing loan interest payment are deductible. Standard deduction of 30 per cent of the net rent (gross rent less municipal taxes) can be obtained for repair and maintenance, irrespective of actual expenditure.
Housing loan principal repayment, stamp duty and registration charges are allowed as deduction from one’s gross income under the overall limit of Rs 1 lakh per year, under Section 80C.
Incase the NRI / PIO decides to give away his property on rent then taxes become applicable. When a certain threshold limit is reached rent received becomes taxable in India and NRI has to file a tax return in India in case the rent received along with other income exceeds the threshold limit.
The rent may be additionally taxed in the NRI’s country of tax residence. There may be some tax relief available under the Double Tax Avoidance Agreement (DTAA) for NRIs who are tax residents in certain countries. This may allow one to get credit for Indian taxes paid.
How does one handle a vacant property?
Again, treatment here is similar to a resident. A property which is not rented out is treated as a self-occupied property and the taxable value is NIL. The only deduction available against such property is interest on housing loan up to Rs 1.5 lakh per year. When there are more than one property that is not rented, then the owner can choose one property as self-occupied and all the other un-rented properties shall be deemed to be let out, even if not actually let out. For these, the rent that the property would likely fetch is considered as gross rent and all other deductions as applicable for a rented property will be allowed.
Deduction for principal repayment on housing loan can be obtained on all property, whether it is rented, self-occupied or deemed to be let out.
An NRI is exempt from wealth tax on a property that has been rented for more than 300 days. Also, one vacant house property can be declared as self-occupied property and is exempt from wealth tax. The value (net of outstanding loans) of second and subsequent vacant properties would be subject to wealth tax, at the rate of 1 per cent on the value in excess of Rs 30 lakh, says Parizad Sirwalla, Practicing Chartered Accountant, KPMG.
NRIs are subject to capital gains tax in India, similar to what is applied to residents. They can get long-term capital gains rate for property held for over 36 months and can claim exemption by investing in another house property or specified bonds. Capital gains may also be taxable in the NRI’s country of residence. Relief may be available in the form of credit for Indian taxes paid, in case the NRI is a tax resident of a country with which India has a DTAA.
Limits and conditions for repatriation are different based on the funds used for buying property. If the property was acquired as per the foreign exchange laws, the amount of repatriation is restricted to the extent of the initial purchase cost of the property. For example, assume the purchase price was $100,000 (Rs 40 lakh, with an exchange rate of Rs 40) and the sale price was Rs 75 lakh. Assuming the prevailing exchange rate at the time of sale is Rs 60, one can repatriate Rs 60 lakh ($100,000).
Gains made on foreign source funded properties (Rs 15 lakh in the example above) as well as all proceeds from property purchased with rupee sources, can be repatriated under the general limit of Rs 10 lakh per financial year.

Source: http://www.realtycompass.com/blog/

Tips NRIs could use to Buy a Property in India

In India, property prices have appreciated significantly over the past five years. However, for the overseas Indian, it has only been a marginal increase owing to the depreciation of the Indian rupee against the US dollar. This has made investments in India’s real estate sector more affordable and extremely lucrative for overseas investors.
In fact at the Overseas Indian Facilitation Centre (OFIC), every other investment query is regarding buying residential property in India. With the Union Cabinet approving the Real Estate (Regulation and Development) Bill, the sector should soon become more transparent and better protect consumer interest.

If you are an overseas Indian, adhering to some basic rules will help you navigate towards market for real estate India.

GROUND CHECKS
First, determine the nature of the property. As per the guidelines from the Reserve Bank of India (RBI), an overseas Indian cannot buy agricultural land, plantations and farm land in the country.
Examine all the legal documents before buying the land. There have been cases of residential projects being built on agricultural land without securing approval from the government. In such cases, the investment will be deemed illegal, irrespective of who buys the land.
Therefore, ensure that you have seen the title deed, in original, and that it is solely in the name of the seller. If the seller is unable to produce the original and shares a photocopy, there is a possibility that a loan has been taken against the property. Initiate a thorough check to avoid the pitfall of the sale being challenged at a later stage.
Besides this, also ascertain that the property has secured all clearances required by law, such as environment and municipal clearances and the authority to transfer the undivided share of land to each apartment owner and the entire plot to the society upon completion of the project. Even for projects under construction, insist on these documents to ensure that your investment is safe.
It would be advisable to use the services of a lawyer in India to ratify the claims made and ensure that the builder has secured all the necessary approvals. This will ensure you’ve covered all legal aspects.
In case the property (irrespective of its nature) was acquired or inherited by you (the overseas Indian or NRI) when you were a resident of India, you can sell or build on the property without the approval of the Reserve Bank of India. However, if you wish to sell it, you must be a resident citizen of India.

THE PURCHASE
Having identified a property after due diligence and negotiation, you will arrive at a price at which the sale is agreed. Subsequently, a sale agreement must be drawn on a Rs 50 stamp paper, which will mention the final amount, advance payment, time limit to pay the due amount and details of installment.
Once the sale deed is completed, you need to get it registered at the sub-registrar or Sub-District Magistrate. The overseas buyer’s foreign address has to be mentioned in the sale agreement. He can appoint a representative in India (with a power of attorney) to act on his behalf. The power of attorney should be notarised with the Indian consulate in the buyer’s country of residence.
The property can be registered in the name of the NRI and the holder of the power of attorney can sign on his behalf by producing a copy of the document to the appropriate authorities.
The payment of purchase price, if any, should be made from either funds received in India through normal banking channels or funds held in a nonresident bank account. You could pay through rupeedenominated non-resident ordinary (NRO) or nonresident external (NRE) accounts and foreign currency non-resident (FCNR) accounts.

TAXATION MATTERS
Apart from the registration cost and stamp duty, a service tax is also levied on the transaction. It depends upon the property you are buying. If you want to buy a property in India that is being constructed by a builder, you will have to pay a service tax of 12.36% on 25% of the total price for apartments up to 2,000 square feet and 30% for bigger apartments.
For a built-up property or a single residential unit, stamp duty is to be paid on purchase of the property. The stamp duty payable varies from state to state and is different for properties in rural areas. There are three slabs for payment of stamp duty in Delhi-4% of the property value if the new owner is a woman, 5% if it is the joint property of a man and a woman and 6% if a man is to own the property. A registration fee of 1% is applicable for all property transactions.

Source: http://www.realtycompass.com/wp/advisory/tips-nris-could-use-to-buying-a-property-in-india/

REAL ESTATE SCENARIO IN INDIA

The Real Estate scenario in India is undergoing a transformation. With lifestyles changing and nuclear families becoming the trend due to the work demands along with the fast paced life, people today prefer to buy a readymade house, villa or apartment in India.

Residential apartments in Bangalore are gaining a lot of traction in the market. The IT companies create a lot of job opportunities in Bangalore due to which it has people from all over the country and even all over the world coming and settling in Bangalore. Hyderabad is also a budding IT park along with Pune. The Hyderabad Realty has got a boost due to the coming up infrastructure in the city. Hyderabad now boasts of one of the best international airports. It is developing at a very fast pace due to which builders and even the common man considers investing in Properties in Hyderabad.

Bangalore and Hyderabad are two cities which are developing at a major pace due to the influx of opportunities from the IT sector. Major builders and real estate experts say that in Bangalore people have the capacity and the will to buy a house in Bangalore. They are able to invest in properties in Bangalore. The local residents also invest in the Bangalore realty as it gives them options for extra income by means of rent. Bangalore is surrounded by several industrial areas too which are known for the core industries. So not only does it aid in the development of the city but also the outskirts. There are many properties and villas in Bangalore that are coming up in the outskirts. Presence of industrial areas ensure that the facilities come up in the nearby areas. Since the property prices are low in the outskirts the apartments and villas are usually luxury villas as the builders can afford to invest more on the constructions. People also get more spacious houses compared to those in the city at almost the same cost. It also provides an escape from the hustle bustle of the city.

People prefer buying properties in Bangalore close to the vicinity of their workplace. The traffic in the city is a major obstacle in long distance commutation. The commute often takes hours due to slow moving traffic which results in loss of time. Hence keeping all the factors in mind people prefer residential apartments in Bangalore close to their work area.

Source: http://realtycompass.wordpress.com/2013/08/06/real-estate-scenario-in-india/