Most non-resident Indians and persons of Indian origin want to buy a house in India for themselves or for their family. Generally, NRIs/PIOs have a doubt in their mind as to whether they can invest in a residential house property in India by remitting funds from overseas under the current foreign exchange regulations. This article attempts to address those concerns.
Who are NRIs/PIOs?
It is first important to understand how the law defines NRI. NRI refers to an Indian citizen who is residing outside India. PIO here refers to an individual (not being a citizen of select countries such as Pakistan, China and Bangladesh) who at any time held an Indian Passport or whose father or grandfather was a citizen of India.
What can they buy?
They can acquire any immovable property in India other than agricultural land, plantation and farm house. These days a number of options are available to buy houses of international standard with all the facilities such as club house and gymnasium.
Money for that buy
An NRI/PIO may use his own funds to acquire immovable property. He can also avail of a housing loan for this purpose.
Own funds — the NRI’s own funds means money received in India by way of inward remittance from overseas out of income earned overseas or personal savings outside India or funds held in non-resident external (NRE) or non-resident ordinary (NRO) or foreign currency (non-resident) (FCNR) bank account.
Housing loans from banks — Authorised banks have been permitted to provide a housing loan to an NRI/PIO for acquisition of a residential accommodation in India. This is, however, subject to certain conditions. The quantum of loans, margin money and the period of repayment is at par with the housing loans provided to residents in India; the loan amount cannot be credited to the NRE/FCNR account; it has to be fully secured by equitable mortgage of the property proposed to be acquired, and if necessary, also by lien on the NRI’s/PIO’s other assets in India; the installment of loan and interest and other charges has to be paid by the NRI/PIO by remittances from outside India through normal banking channels or out of funds in the NRE/FCNR/NRO account in India. In the last case, the loan and interest can also be repaid out of the rental income of such property.
If the property so acquired could not be used for own occupation and is let out, then NRIs/PIOs may earn rental income. The rental income can be credited into the NRO/NRE account.
Transfer of property
The NRIs may transfer such property to a person resident in India or even to another NRI or to a PIO, without any approval from the Reserve Bank of India.
Repatriation of money
The remittance of the sale proceeds depends upon the mode of acquisition — that is whether it was acquired out of the funds remitted from outside or out of rupee funds. A property can be acquired out of rupee funds by the NRI before leaving India or acquired after leaving India but from the savings bank account in an Indian bank out of income earned in India.
Property acquired from overseas remitted funds — Proceeds can be repatriated provided the amount does not exceed either the amount paid for acquiring the immovable property in foreign exchange received from overseas or the amount paid from the FCNR account; or the foreign currency equivalent, of the amount paid from the funds held in NRE account for acquisition of the property.
It is also important to note that in respect of the residential property, NRIs / PIOs can remit sale proceeds outside India for up to two such properties without any RBI approval. Remittance for third and subsequent house property requires RBI’s approval.
Property acquired from rupee funds held in India — the rules relating to this are dependant on the holding period of the property. For a property held for more than 10 years, up to $1 million per calendar year, without any RBI approval, can be repatriated out of the funds held in NRO account in respect of the sale proceeds of immovable property.
If such property is sold after being held for less than 10 years, remittances can be made if the sale proceeds were held for the balance period in the NRO account or other eligible investments. In respect of remittance of sale proceeds of assets acquired by way of inheritance or legacy or settlement no lock-in-period is there. In all other cases, specific approval of the RBI is required.
Remittance through normal banking channels — It is pertinent to note that, wherever specific approval of RBI is not required, the sale proceeds of the house property as well as the rental income may be remitted outside India through normal banking channels, after obtaining an appropriate certificate from a chartered accountant certifying that applicable taxes have been paid/provided for.
Therefore, NRIs/PIOs can acquire their dream house in India, rent it out, transfer or sell the same, if required. They can also take the rental income and their investment in the house property outside India, subject to the foreign exchange regulations.