Understanding NRI Property Ownership in India: Key Restrictions You Should Know

India has long been a favored destination for Non-Resident Indians (NRIs) looking to invest in real estate, whether it’s for residential, commercial, or investment purposes. However, like many countries, India imposes certain rules and restrictions on property ownership for NRIs. These regulations aim to maintain a balance between facilitating investments and protecting the interests of the country.

In this blog, we will explore the key restrictions and guidelines that NRIs must be aware of when buying property in India, ensuring that you make informed decisions and stay compliant with local laws.

1. Who is Considered an NRI?

Before diving into the restrictions, it’s important to understand the legal definition of an NRI in India. According to Indian law, an NRI is an Indian citizen who resides outside of India for more than 182 days during the preceding financial year for the purpose of employment, business, or vocation. A person on a tourist visa or a short-term stay doesn’t qualify as an NRI.

2. What Types of Property Can NRIs Buy in India?

NRIs are allowed to purchase properties in India, but the type of property they can buy is subject to specific rules:

• Residential Property: NRIs can buy residential properties in India. This is the most common type of property owned by NRIs. There are no restrictions on the number of residential properties an NRI can own.
• Commercial Property: NRIs are also allowed to invest in commercial properties. However, the purpose must align with the legal framework and guidelines for real estate transactions.
• Agricultural Land, Plantation Property, and Farmhouses: NRIs are prohibited from purchasing agricultural land, plantation properties, or farmhouses in India unless they are agriculturalists by profession and have prior permission from the Reserve Bank of India (RBI). This restriction is in place to avoid speculation in agricultural land and preserve farmland for local farmers.

3. Mode of Property Purchase by NRIs

NRIs can purchase property in India through the following methods:

• Direct Purchase: An NRI can purchase property directly in their name. The payment can be made via normal banking channels, i.e., through their NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts.
• Joint Ownership: An NRI can jointly own property with another NRI or with a resident Indian. However, there are no restrictions on joint ownership with a resident Indian, provided the total number of properties owned doesn’t violate any legal conditions.
• Power of Attorney (POA): NRIs who cannot be physically present in India for the property transaction can appoint a trusted representative in India through a Power of Attorney (POA). The POA can handle the transaction and legal formalities on behalf of the NRI.

4. RBI Regulations for NRI Property Ownership

The Reserve Bank of India (RBI) has issued specific guidelines for NRIs purchasing property in India. These include:

• Payment Method: NRIs can make payments for the property purchase using their NRE, NRO, or FCNR (Foreign Currency Non-Resident) accounts. It is important to note that payments must be made via banking channels; cash payments are strictly prohibited for property transactions.
• Repatriation of Funds: NRIs are allowed to repatriate the proceeds from the sale of property outside India, subject to certain conditions. The repatriation limit is typically capped at USD 1 million per financial year. However, to repatriate the sale proceeds, the property should have been purchased using foreign funds, and the NRI must ensure the payment of applicable taxes.
• Home Loans for NRIs: NRIs are eligible for home loans from Indian banks or financial institutions to purchase property. The loan repayment must be made via their NRE/NRO accounts, and the loan term cannot exceed the individual’s tenure abroad (typically 20-25 years).

5. Tax Implications for NRIs Owning Property in India

Owning property in India comes with certain tax implications for NRIs:

• Income Tax on Rental Income: If the NRI’s property is rented out, the rental income is subject to Indian income tax. The rental income is taxed under the head “Income from House Property.” NRIs must file an income tax return in India for rental income and pay taxes accordingly.
• Capital Gains Tax: When an NRI sells their property, capital gains tax applies. The tax rate for long-term capital gains (LTCG) is 20% with indexation benefits if the property has been held for more than two years. For short-term capital gains (STCG), the tax rate is the same as the NRI’s applicable income tax rate, based on the total income.
• TDS on Sale Proceeds: When an NRI sells property in India, the buyer is required to deduct tax at source (TDS) at a rate of 20% on the capital gains. This TDS is deducted at the time of the property transaction.
• Tax on Repatriation: Repatriation of funds by NRIs is also subject to tax implications. The repatriation of proceeds from the sale of a property, including capital gains tax, must be cleared before transferring funds abroad.

6. What Are the Restrictions on NRI Property Ownership in India?

While NRIs have significant flexibility when it comes to buying property in India, they must adhere to certain restrictions:

a) Agricultural and Plantation Land

NRIs cannot purchase agricultural or plantation land, nor can they buy farmhouses, unless they are agriculturalists by profession. They may only do so with prior permission from the Reserve Bank of India (RBI). This restriction is aimed at protecting agricultural land from speculation and ensures that it is available for genuine agricultural use.

b) Repatriation of Property Sale Proceeds

NRIs can repatriate the sale proceeds from their property, but only after adhering to specific regulations. The amount that can be repatriated is generally capped at USD 1 million per financial year. However, repatriation is allowed only if the property was purchased using foreign currency. Indian currency cannot be repatriated.

c) Ownership of Multiple Properties

While there are no specific restrictions on the number of properties an NRI can own in India, it is essential to ensure that they comply with tax laws and guidelines for income generation from these properties.

d) Not Purchasing Property on Behalf of a Resident Indian

An NRI can purchase property in India but cannot purchase property on behalf of a resident Indian. Therefore, an NRI cannot buy property for someone who is not an NRI or not eligible to purchase property in India under the current laws.

7. Legal Steps to Ensure NRI Property Ownership is Secure

To ensure that your investment as an NRI is safe and secure, it’s essential to follow certain legal steps:

• Title Search: Always verify the title of the property before purchase to ensure there are no encumbrances. A legal title search will confirm the ownership rights of the seller.
• Sale Agreement: Ensure that the sale agreement includes all necessary details such as the property description, agreed price, possession date, and any additional clauses or conditions.
• NOC from Relevant Authorities: If the property is located in a restricted or non-convertible area, ensure you have a No Objection Certificate (NOC) from the local authorities.
• Engage a Lawyer: It is advisable to engage a real estate lawyer who can help you navigate the legal process and ensure compliance with local laws.

8. Conclusion

Investing in property in India as an NRI is a great way to maintain a connection with your home country, build wealth, and secure a future in India. However, it is important to be aware of the restrictions and legal requirements involved in property ownership. By adhering to the rules and conducting thorough due diligence, you can ensure that your investment is both secure and profitable.

Disclaimer:

The information provided in this blog is for general informational purposes only and should not be considered as legal or financial advice. Property laws and regulations regarding NRI property ownership in India are subject to change. It is advisable to consult a legal professional or financial advisor who specializes in NRI property transactions before making any investment decisions. The author and platform are not liable for any actions taken based on this content.