There are a number of myths surrounding owning, inheriting, buying, selling or even renting out property in India. Especially when an individual holds Non-resident Indians (NRIs) or Overseas Citizens of India (OCI) status. This post aims to answer some of the most common questions arising from NRI property in India.
1. Can an individual who has NRI/OCI/PIO status buy property in India?
Under the general permission granted by the Reserve Bank of India (RBI), the following categories of individuals can purchase property, inherit property or receive property by way of gift in India:
- Non-Resident Indians (NRI) meaning Indian citizens residing outside of India
- Person of Indian Origin (PIO) is an individual who
- previously held Indian passport or
- 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)
- Overseas Citizenship of India (OCI) cardholders are individuals of Indian descent
PIO’s who are citizens of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan will require prior RBI approval to purchase property in India.
2. Can an Overseas Citizen of India (OCI) buy or sell any type of property in India?
As per the guidelines issued by RBI, an OCI/PIO can invest in any residential or commercial property. The guidelines also state that they can buy any number of residential or commercial properties. Further, they can inherit agricultural land or farmland. However, they are not permitted to buy or invest restricted property such as farmland, plantation land or agricultural land. Such proposals will require specific approval of the Reserve Bank and the proposals are considered in consultation with the Government of India.
3. An individual being a resident of India bought a property, can the person continue to own the same property after becoming an Overseas Citizen of India (OCI)?
Yes, a person who had bought a residential or commercial property, agricultural land, plantation property or a farmhouse in India when he was an Indian citizen, can continue to hold that property without the approval of the Reserve Bank after becoming an OCI cardholder.
4. An individual being a resident of India bought a property and is now an OCI, can he/she legally gift the said property?
Yes. He/she may transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India and is a citizen of India or to an OCI cardholder resident outside India.
5. An individual being a resident of India bought a property and is now an OCI, can he/she rent out such property?
Yes, OCI cardholders can rent out their properties in India.
6. Can NRI/OCI jointly purchase a property in India with their spouses?
A joint acquisition is allowed by the spouse of an NRI/OCI of immovable residential or commercial property, subject to the following conditions:
- Consideration: shall be paid from
- funds received in India through banking channels, or
- funds held in any non-resident account maintained in accordance with the provisions of the Act;
- Marriage: the marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property;
- Prohibition: The non-resident spouse is not otherwise prohibited from such acquisition.
7. Is the rental income from property repatriable?
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 the acquisition of the immovable property in foreign exchange.
8. Can a foreign national of non-Indian origin resident outside India purchase immovable property in India?
No. A foreign national of non-Indian origin, resident outside India cannot purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. However, he/she can acquire or transfer immovable property in India, on a lease, not exceeding five years. In such cases, there is no requirement of prior permission or reporting to the Reserve Bank of India.
9. Can a foreign national who is a person resident in India purchase immovable property in India?
Yes, a foreign national who is a ‘person resident in India’ within the meaning of Section 2(v) of the Foreign Exchange Management Act (FEMA), 1999 can purchase immovable property in India, but the person concerned would have to obtain the approvals and fulfil the requirements, if any, prescribed by other authorities, such as, the State Government concerned, etc. The onus to prove his/her residential status is on the individual as per the extant FEMA provisions, if required by any authority.
However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank.
10. What is the Tax treatment for income generated from property selling or renting for an NRI/ PIO/OCI individual?
Purchasing or inheriting a property does not attract income tax. Only the following scenarios will attract tax implications:
- Any income accruing from the ownership of the property in the form of rent if it is let out
- The annual value of the house if is not let out and it is not the only residential property owned by that person
- Short term or long term capital gains tax arising on the sale of this house or part thereof is taxable in the hands of the owner.
11. 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.
12. Do NRI/PIO/OCI have to file returns in India for their property rental income and Capital Gains Tax?
Individuals who hold NRI/PIO/OCI status are required to pay taxes if they are selling their property in India. 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 the 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 and if the property has been held for more than 3 years then the resultant gain would be long term capital gains.
13. How does the Double Taxation Avoidance Agreement (DTAA) 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 favourable tax treatment in respect of certain heads of income. However, in the case of the sale of immovable property, the DTAA with most countries provides 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.
14. How does the Double Taxation Avoidance Agreement work in the context of CGT paid in India on 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 taxpayer is a tax resident.
These are the broad guidelines meant for reference only. We strongly advise that you seek professional legal advice.
You might also be interested in these posts:
