The very first step is to list out your requirements. The budget, location, configuration, amenities and other parameters that you might want to consider important for you and your family to zero in on the property that you need.
Most quality projects come with a built-in set of amenities like swimming pool, gym, and common recreation areas. There may be other amenities that can be added at a cost. Look for features that are taken for granted, like pre-connected telephone, TV and Internet cables, security systems, interior design etc.Besides the amenities, familiarize yourself with the actual measurements of the project.
Analyze the plans to understand how much of the carpet area is usable floor area. Also, understand the common areas that are shared between apartments and regulations regarding their usage.
If the house is being acquired out of the sales proceeds of an earlier house, the exemption from the long-term capital gain tax on the sale of the earlier house can be claimed under U/s. 54. To claim this benefit, the new property should be acquired one year prior to selling or two years after the date on which the transfer of the earlier house takes place.If the new house could not be acquired within a period of one year from the sale of the earlier house, the sales proceeds should be deposited in a bank or institution, which runs Capital Gain Accounts Scheme approved for this purpose.
Other issues also need to be considered like if the person acquiring a house already holds another house, then every year, one of the two house properties would be deemed to be let out (U/s. 24) of the income tax act and the let-out value shall be treated as income. Hence, appropriate tax planning should be considered.
Further, in the case of individual or HUF (Hindu Undivided Family), an exemption is provided from long term capital gain tax U/s. 54F on sale of any long term capital asset, if the sale proceeds are invested in acquiring a house within the prescribed period. So, a house can be acquired to save on long term capital gain on sale of long term capital assets.
Who is an NRI?
Non Resident Indian (NRI) is a citizen of India, who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Non-resident foreign citizens of Indian Origin are treated at par with Non Resident Indian (NRIs).
Who is a PIO?
Person of Indian Origin (PIO) (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who
(a) at any time, held Indian passport, or
(b) who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
Who is OCI?
(a) Any person of full age and capacity:
(i) Who is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution, or
(ii) Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution, or
(iii) Who is a citizen of another country, but belongs to a territory that became part of India after the 15th Day of August, 1947.
(iv) Who is a child of such a citizen, or
(b) A person, who is minor child of a person mentioned in clause (a)
Provided that no person, who is or had been a citizen of Pakistan, Bangladesh shall be eligible for registration as an Overseas Citizen of India.
Documents required for buying property
– Pan card (Permanent account number)
– OCI/PIO card (In case of OCI/PIO)
– Passport (In case of NRI)
– Passport size photographs
– Address proof
Who can purchase immovable property in India?
Under the general permission granted by RBI, the following categories can freely purchase immovable property in India:
(a) Non-Resident Indian (NRI)- that is a citizen of India residing outside India
(b) Person of Indian Origin (PIO)- that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who
(i) at any time, held Indian passport or
(ii) who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
The general permission, however, covers only purchase of residential and commercial property and not for purchase of agricultural land/plantation property/farm house in India. OCI can purchase immovable property in India except agricultural land/plantation property/farmhouse.
Can a NRI/PIO acquire agricultural land/plantation property/farm house in India?
Since general permission is not available to NRI/PIO to acquire agricultural land/plantation property/farm house in India, such proposals will require specific approval of Reserve Bank and the proposals are considered in consultation with the Government of India
Tax on income from immovable property selling/renting
What is the Tax treatment for income generated from property selling or renting for NRI/ PIO/OCI?
The mere acquisition of property does not attract income tax. However, any income accruing from the ownership of it, in the form of rent (if it is let out)/annual value of the house (if is not let out and it is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is taxable in the hands of the owner
Do NRI/PIO/OCI have to file return in India for their property rental income and Capital Gains Tax?
The Government of India has granted general permission for NRI/PIO/OCI to buy property in India and they do not have to pay any taxes even while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more than 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess
How does the Double Taxation Avoidance Agreement work in the context of tax on income and Capital Gains tax paid in India by NRI?
India has DTAA’s with several countries which give a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.
Capital Gains Tax on NRI/PIO/OCI
Does Capital Gains Tax (CGT) apply to NRI/PIO/OCI?
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.
How is Rate of CGT computed? Type of asset: Assets like house property, land and building, jewellery, development rights etc. Rate of tax deduction at source (TDS)
– Long term – 20.6%
– Short term – 30.9%
– Exemption available (only for long term capital gains)
The long term capital gains arising on sale of a residential house can be invested in buying/ constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower.If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.
How does Double Taxation Avoidance Agreement work in the context of CGT paid in India on the foreign tax treatment?
In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI/PIO as prescribed by the Reserve Bank of India?
(a) If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:
(i) In foreign exchange received through normal banking channel or
(ii) By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.
Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s out of foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account up to USD one million, per financial year, as discussed below.
(b) If the property was acquired out of Rupee sources, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance. The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.
Is the rental income from property repatriable and what are the RBI rules?
The rental income, being a current account transaction, is repatriable, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.
NRI/PIO/OCI Home loans
Are NRI/PIO/OCI eligible for Housing loans to buy property from any Indian Bank?
An authorised dealer or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a non-resident Indian or a person of Indian origin residing outside India. for acquisition of a residential accommodation in India, subject to the following conditions, namely:
(a) the quantum of loans, margin money and the period of repayment shall be at par with those applicable to housing finance provided to a person residing in India.
(b) the loan amount shall not be credited to Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident non-repatriable (NRNR) account of the borrower.
(c) the loan shall be fully secured by equitable mortgage by deposit of title deal of the property proposed to be acquired, and if necessary, also be lien on the borrower’s other assets in India.
(d) the instalment of loan, interest and other charges, if any, shall be paid by the borrower by remittances from outside India through normal banking channels or out of funds in his Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Ordinary (NRO)/non-resident Special Rupee (NRSR) account in India, or out of rental income derived from renting out the property acquired by utilization of the loan or by any relative of the borrower in India by crediting the borrower’s loan account through the bank account of such relative (The word ‘relative’ means ‘relative’ as defined in section 6 of the Companies Act, 1956.)
(e) the rate of interest on the loan shall conform to the directives issued by the Reserve Bank of India or, as the case may be, the National Housing Bank.
Who should file tax returns?
If you are an NRI/OCI/PIO, you would have to file your income tax returns if you fulfill either of these conditions:
(a) Your taxable income in India during the year was above the basic exemption limit of ` 1.6 lakh OR
(b) You have earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit.
Note: The enhanced exemption limit for senior citizens and women is applicable only to residents and not to non-residents.
Are there any exceptions?Yes, there are two exceptions:
(a) If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.
(b) If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return
Tip: You may also file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below 1.6 lakh but the bank deducted tax at source on your interest amount, you can claim a refund by filing your tax return. Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward)capital loss against the gain and lower your actual tax ability. In such cases, you would need to file a tax return.
What’s the best way to file tax returns?
Traditionally, you could file your return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file returns on your behalf.
But nowadays, the easiest option for NRIs to file their Indian tax returns is by using the online platform. There are several options to file online
Copy of employment contract, Latest Salary slip, Latest work permit, Bank statement for 4 months or NRE/NRO a/c 6 months statement, Passport/visa copy, Utility bill for address proof, PIO/OCI card, Power of Attorney (if applicable, in respective bank’s format), Customer credit check report, Property agreement duly registered or other related docs, Income Tax returns last 2 years, Balance sheets and P&L a/c of the company for last 3 years, Bank a/c statements for last 6 months for company and individual both, Income tax returns (3 years)
Please refer to the below links for updated information
Ministry of External Affairs:http://mea.gov.in
Indian Income tax:http://www.incometaxindia.gov.in
RBI (NRI FAQ):http://www.rbi.org.in/scripts/faqview.aspx?id=52
Which documents are to be verified before the purchase of a Flat?
Besides technical details pertaining to area, one should verify the building plan approved by Municipal Corporation or such other competent authority, commencement certificate, ownership documents (title documents) etc. If it is a resale flat then verification of further documents such as Share certificate, rent receipts, Maintenance receipts etc. becomes necessary. Verification of Occupancy certificate is also imperative wherever applicable. However, this is a professional job and services of a competent advocate shall be used for the same.
What is Encumbrance Certificate?
All transactions that are in the nature of conveyance or transfer of immovable property of the value of Rs. 100/- or more have to be effected by a duly stamped and registered document. The entries relating to these transactions are recorded with the Registrar of Assurances concerned. The Encumbrance Certificate is an extract of this book for the period requested.
Who is liable to pay Stamp Duty-the buyer or the seller?
Unless the parties have agreed to the contrary, the liability of paying stamp duty is that of the buyer.
In whose name are the stamps required to be purchased?
The stamps are required to be purchased in the name of any one of the executors to the Instrument.
What is meant by the market value of the property and is Stamp Duty payable on the market value of the property or on consideration as stated in the agreement?
Market value means the price at which a property could be bought in the open market on the date of execution of such instrument. The Stamp Duty is payable on the agreement value of the property or the market value whichever is higher.
What do we mean by a Free Hold Property?
A freehold property (plot or a flat) is one where there are a whole and sole owner(s). Ownership is full and unconditional (within the provisions of the laws of the land) and there is no lessor/lessee involved.
What are the legal formalities in Gifting a Flat?
Gift of an immovable property is considered as a ‘transfer’ under the provisions of the Transfer of Property Act and the transaction has to be registered through a Gift Deed and the stamp duty should be paid as per provisions of the applicable stamp act.
What are the duties of the seller in a sale of an immovable property?
The seller should disclose all material defects in the property which is the subject of sale, to the buyer. He also must produce the title deeds of the property. Upon completion of Sale, he has to give the possession of the property and also deliver the title deeds on receipt of the price.
What are the duties of the buyer in a sale of an immovable property?
The buyer is to pay the purchase-money to the seller.
What is the purpose of Registration? What are the effects of non-registration?
By Registration of transaction of immovable property will become a permanent public record. This is a notice to the general public. Those getting transfer of property should verify whether such property has been previously encumbered. According to Transfer of Property Act right, title or interest can be acquired only if the deed is registered. If a deed of transfer, which is compulsorily registrable, is not registered, it will not be admissible in evidence.
What is 7/12?
It is a revenue document of ownership, mainly for agricultural land issued by Talathi of the respective villages in which property is located. It contains name of the owner, description of the property i.e survey no & hissa no, area of plot and Mutation entry Nos of any encumbrances by way of loan, charge, and tenure of land. This document is always available in local language. The validity of this document is 6 months from the date of issue.
What is Property Card?
It is also a document of ownership similar to 7/12 extract with all contents mainly applicable for urban areas. This is issued by concerned City Survey officer of respective Zone. It is essential to have the endorsement of the area of the plot in figures as well as in words in this document. The validity of this document is one year from the date of issue.
What is the difference between Lease and Leave and License Agreement?
The lease is a transfer of an interest in the property whereas in the case of L&L, there is no such transfer of an interest in the Property. Leave and license does not create any interest in the premises in favor of the licensee but gives the licensee the mere right to use and occupy the premises for a temporary period. The lease is assignable whereas L&L is generally not assignable. The lease creates heritable right under the transfer of property Act and also under Bombay rent act. Whereas it is not so with L&L.