Income Tax & RBI Rules for NRIs Buying Indian Properties

Non-resident Indians (NRIs) who used to purchase property in India might reveal the same toughness to follow all the complaints because of their unawareness of the Indian laws. The taxation would be an additional problem for them.

The Foreign Exchange Management Act (FEMA) permits Indian citizen who lives outside the country to invest in Indian real estate. But the same arrives with some peculiarities. For example, the property must not be agricultural land, a farmhouse, or plantation property. When the exempted properties would be gifted or inherited then NRIs would require the government and RBI approvals to get legal owners upon these properties.

NRIs could transfer any immovable property to an individual resident in India. They could transfer immovable property excluding agricultural land, plantation property, or farmhouse to an Indian citizen or PIO resident outside India.

RBI Compliance and Rules

In this, there are some compliances which are being mandated by RBI towards NRI’s immovable property.

1. NRIs could perform the payments for the acquisition of the immovable property.
2. The funds could be obtained in India via normal banking channels through the inward remittance method via any place outside India or through the debit to his NRE/FCNR(B)/NRO account.
3. These payments would not be incurred by traveller’s cheque, foreign currency notes, or additional ways, except those specifically mentioned as per the RBI.
4. An NRI who bought the residential or commercial property under general permission would not be needed to provide any documents to the Reserve Bank.

All the payments should be performed in the Indian currency and via banking channels through the NRI account. Tax experts specified that “NRIs can use their funds or avail home loans from banks or other financial institutions. RBI allows buyers, including NRIs, to avail 80% of the overall property value via loans from financial institutions.”

Implications of Tax

To avail of the property there are some tax implications. It is essential to find out whether a seller is a resident or a non-resident according to the Income Tax Act. An NRI who bought an immovable property in India should deduct TDS which is computed based on the residential status of the individual who sells the property and the kind of capital gains.

Read Also: Easy Explanation on TDS for Property Sale by NRI ( 2022 Guide)

When an NRI buys an immovable property in India via a resident then he should deduct the TDS at a 1% rate if the sale consideration is more than Rs 50 lakh. When the NRI buys a property through the non-resident and when the long-term capital gains are subjected to be applied then the TDS must be deducted at a 20% rate. Short-term capital gains would be applicable when a TDS at 30% is required to get deducted. The short-term capital gains would be subject to be applied when the property gets sold within 2 years or less upon its acquisition. When a property gets sold post 2 years of acquisition then it is called a long-term capital gain.

Within 30 days of deduction, the deducted tax is needed to get deposited. A 1% per month will be levied as a TDS penalty if the Non-deduction or late deduction of tax is held. The same would be applicable from the date on which the tax was deductible to the actual deduction date. The IT Act would furnish some tax exemptions to NRIs beneath section 54 when they do not purchase or sell the properties for short and long-term gains. The tax exemptions would be applied on the property to be used such as self-occupied or let out. The exemption would be applicable to the total capital gain on the sale and not to the total sale amount.

The purchaser should be sure that the sale consideration would not be less than the stamp duty value of the property, or the loss when it surpasses Rs 50,000 would get taxed in the buyer’s hands. The purchaser would be required to take a Tax Deduction and Collection Account Number (TAN) for withholding of taxes.

By choosing some diligence NRIs will be profitable to invest in the property in India for themselves and their family members. All you are required to do is to spend some time to know about the regulations.

Income Tax Rules for NRIs

Agricultural land, farmhouse, or plantation property in India would be allowed to be purchased by NRIs.

• TDS with 20% shall be levied when the NRI bought the property via the non-resident and LTCG is taken.
• On purchasing via resident, NRI should deduct a 1% TDS when the sale rate surpasses Rs 50 lakh.
• Up to 80% of the whole property value, NRI can avail for the home loans.