NRI Guide-Devinarayan Housing
Importance of Investment in Real Estate The Prudent Investor The Recession and the aftermath Legal Consumer Protection Financing Unaccounted Money Who is a Non-Resident Indian? Who is a Foreign citizen of Indian origin? Purchase / Sale of Immovable Property by NRIs Acquisition of immovable property by NRIs holding Indian passport Acquisition of immovable property by foreign citizens of Indian origin Form IPI - 7 Acquisition of immovable property by foreign nationals of Non-Indian origin Permission to let out Immovable Property Overseas Real Estate Holding Immovable Property by Inheritance Sale of Immovable Property - RBI permission Sale of Immovable Property - Repatriation Of Funds Form IPI - 8 Investment in Real Estate Development by OCBsImportance of Investment in Real Estate
With the population exceeding the billion mark,real estate in the Indian sub-continent has obvious potential for growth. While the idyllic Indian village life has an emotional appeal, the discerning investor knows the importance of easy accessibility to schools, shops,offices, entertainment centres and airports. A real estate investment has far higher
value in the major towns and cities of India. A wise investment here can benefit from the historic movement of population
to urban centres. A process of economic liberalisation has also encouraged NRI investments into real estate,as the
return on investment has increased substantially as compared to the pre-liberalisation era. TOPThe Prudent Investor A complex web of legislation impinges on all property transactions in India. Violation of Development Control rules can cause demolition of construction. Income tax rules threaten expropriation for economic offences. Hindu joint family
succession rules impact on property transfers. Under this situation of hidden threats and lurking dangers, the best option for the investor is to chose a builder with a proven track record.Past performance in completed projects is the best assurance to the prudent investor. TOP The Recession and the aftermath There has been a severe recession in the real estate field since 1995. It is, in reality, a long needed market correction. The prices of real estate in Mumbai, Delhi and Bangalore had reached astronomical levels in an orgy of speculation. Fortunately, such speculative inflows were more limited in Tamil Nadu. But, everywhere, demand slowed down. Since apartment projects require co-ordinated investments by many buyers, promoters were forcedby a lack of demand to slow down, or even stop construction. This resulted in a shake up of the market, leaving only the strong promoters in a position to deliver spaces. The public has become wiser and customers are now more selective, carefully choosing safe projects. TOP Legal Title deeds by project properties are scrutinised by reputed legal advisors in addition to the housing finance institutions approval which also endorses the genuinity of the title deed,adequate verification of essential records such as Patta, encumberance Certificates,Planning Permission Approvals. An investor can employ a legal advisor to examine title for additional protection. It is safer to buy from an established builder with a good track record. TOP Consumer Protection Consumers in India can obtain relief under the Consumer Protection Act, 1986, which is a Central Act. Representation can also be made to the Monopolies and Restrictive Trade Practices Commission (MRTPC) for issuing instructions against unfair trade practices. TOP Financing The NRI investor has the option to raise finances from financial institutions. The LIC Housing and Finance Limited (LICHFL) is the leading institution in India in the field.They have offices all over the country and respond speedily and efficiently. Devinarayan Properties are normally eligible for finance and loan applicants can receive assistance and advice from our offices. TOP Unaccounted Money The use of unaccounted money for payments was very prevalent in the real estate field in India. It may be superfluous to warn the NRI investor of the dangers of accepting such risks.Even if an investor is not involved, he could be drawn into the problems of his seller. Fortunately, imaginative tax legislation is driving the real estate field away from black money. Also, computerisation and consequent extensive cross checking by the tax department has made it increasingly difficult to hide financial transactions. In fact, the current recession in India may partly be the result of thousands of individuals discovering that there is no safe place to hide black money. The population may need time to adjust to the concept that, just like death, taxes are inevitable. In the meanwhile, play it safe. TOP Who is a Non-Resident Indian? Non-Resident Indians are, in general,Indian Citizens who stay abroad for employment, business, vacation or any purpose in circumstances indicating an indefinite period of stay outside India.Indian citizens working abroad on assignments with Foreign governments, government agencies or International agencies like the United Nations. Officials of government and public sector undertakings deputed on assignments with foreign governments, agencies or organisations or with their offices (including Indian Diplomatic Missions) abroad.Non-Resident Indians become residents in India only when they come back to India for employment or business or vocation or for any other purpose indicating an indefinite period of stay in India. They are not regarded as residents in India during their short visits to India. TOP Who is a Foreign citizen of Indian origin? A Foreign citizen is said to be of Indian origin if : (a) He at anytime holds an Indian passport. (b) He, his father or paternal grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955) (c) He is the spouse of an Indian citizen or Indian origin. TOP Purchase / Sale of Immovable Property by NRIs The provisions relating to purchase / sale of immovable property in India by Non-Resident Indians (NRIs) are provided in the Foreign Exchange Regulation Act, 1973 and the Income-Tax Act, 1961. Consequent on the liberalisation in Exchange Control policy and procedures, the government has brought about major legislative and policy changes to encourage NRI investments in real estate. The salient features of liberalised policy and updated position are discussed in detail below. TOP Acquisition of immovable property by NRIs holding Indian passport Non-Resident Indians holding Indian passport do not require prior permission of Reserve Bank of India to buy a residential or commercial immovable property in India. The purchase consideration may be paid either by remittance of funds from abroad through normal banking channels or out of NRE / NRO / FCNR account. Non-Residents of Indian nationality do not require any permission for acquisition, transfer or disposal by way of gift of immovable property which is not a farmhouse or agricultural land or plantations property. Declaration of form IPI-7 for acquisition of commercial property for carrying on any industrial, commercial or trading activity by their proprietary partnership firm in India is required to be filed with RBI within 90 days from the date of purchase. TOP Acquisition of immovable property by foreign citizens of Indian origin Under the general permission to Non-Resident Indians holding foreign passport, the Reserve Bank of India has allowed them to acquire, hold, transfer or dispose of by was of sale or inheritance, immovable properties situated in India. The general permission has been granted, provided : (a) The property is for the purchaser's bonafide residential use; (b) The purchase consideration is met either from funds abroad through normal banking channels or out of NRE / FCNR account or out of FCNR Special Deposit account. (c) Income accruing by way of rent from the properties purchased or acquired by inheritance will not be allowed to be repatriated abroad even if the purchase consideration was met out of NRE / FCNR account. TOP Form IPI - 7 It is however, necessary for foreign citizens of Indian origin to declare such property to Reserve Bank of India within a period of 90 days from the date of purchase in the prescribed form (IPI-7) to the Chief General Manager, Exchange Control Department, Foreign Investment Division, Central office, Reserve Bank of India, Bombay. The following documents are required to be submitted along with the declaration: (a) A certified copy of the purchase deed or a certificate from the Co-operative Housing Society or an Association of the apartment owners as an evidence of transfer/registration of the property in the declarants name. (b) Certificate from the declarants bankers in India evidencing receipt of inward remittances in foreign exchange through normal banking channel or withdrawal of funds from the declarants NRE / FCNR account / FCNR Special.Deposit Account and payment of consideration for the property out of those funds. TOP Acquisition of immovable property by foreign nationals of Non-Indian origin Foreign Nationals of Non-Indian origin (whether resident in India or not) are permitted on application to Reserve Bank of India [Form No.IPI 1] to acquire, hold, transfer or dispose of immovable property provided the following conditions are satisfied : (a) The purchase consideration is made out of foreign exchange remitted from abroad in any convertible foreign currency through normal banking channels. (b) The property to be acquired is only for bonafide residential use. (c) The Foreign National of Non-Indian origin will provide an undertaking not to repatriate the sale proceeds at any future date. (d) Investment in ready-built house is permitted. (e) Investment in vacant plots is not allowed. (f) One unit for residential purposes is allowed. (g) Consideration will be made on a case by case basis only. In the absence of a specific circular, it may be necessary for a foreigner of non-Indian origin to obtain RBI's prior permission before letting out the residential premises acquired by him. TOP Permission to let out Immovable Property The Reserve Bank of India has also granted general permission to Non-Resident Indian citizens and foreign citizens of Indian origin, to let out their residential properties acquired for their bonafide residential purpose but which on account of their residence abroad, are not required for their immediate residential purpose. The rental income or proceeds of any such income from the properties are not allowed to be repatriated outside India and such funds should be credited to the owner's Ordinary Non-Resident rupee account (NRO) maintained with authorised banks in India. Any person in India can accept rental income arising from immovable properties held in India by the NRIs provided the income will be transferred to the Non-Resident Rupee accounts of the owners with authorised dealers within a period of two months. If the property is let out, be it residential or commercial, various deductions are allowed for income-tax purposes. If the rental income from property together with all other taxable income exceeds Rs. 40,000 then the assessee is liable to income-tax. If the net rental income is not sufficient to meet allowable deductions, the resultant loss would be allowed to be set off against any other income of the assessee, including salary income.Such loss has to be adjusted only against the current year's income. TOP Overseas Real Estate With the liberalisation of the FERA, NRIs can now buy immovable properties in any country outside India and retain them even after their return to India for permanent settlement.In addition the amount lying in the Resident Foreign Currency Account (RFC) can also be utilised after their return to India for the subsequent purchase of immovable property abroad. TOP Holding Immovable Property by Inheritance Where the capital asset becomes the property of the assessee by succession, inheritance or devolution, the cost of acquisition of the assets shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets or borne by the previous owner or the assessee as the case may be. The provisions applicable for purchase of immovable property by NRIs will apply to receiving and holding of immovable property by inheritance. TOP Sale of Immovable Property - RBI permission The Reserve Bank of India has granted general permission to non-residents holding Indian passports and foreign citizens
of Indian origin, whether resident in India or not, to dispose of by sale or inheritance immovable properties situated in India
subject to certain conditions. However, such property can be sold to another foreign national of Indian origin provided funds
towards purchase consideration are either remitted to India or paid out of balances in NRE/FCNR accounts. It is however, necessary for such persons purchasing the property to submit to the chief General Manager, Exchange Control Department, Foreign Investment Division, Central Office,Reserve Bank of India, Bombay, a declaration in the prescribed form IPI-7 within a period of 90 days from the date of purchase. TOP Sale of Immovable Property - Repatriation Of Funds The Reserve Bank of India has allowed non-residents holding Indian passports and foreign citizens of Indian origin to repatriate original investment in equivalent foreign exchange in residential/commercial properties after obtaining prior approval subject to
a maximum of two houses provided that: (a) The properties are purchased on or after 26th May 1993 (b) The property had been purchased from the remittances from abroad or from NRE / FCNR account in India. (c) The properties are not transferred or disposed of by way of sale for a period of three years from the date of the final
purchase deed or from the date of payment of final instalment where the agreement for purchase so provides.
(d) Only the amount of sale proceeds equivalent to the original investment in foreign exchange,if sold after three years, will
be allowed to be repatriated outside India and the balance amount of sale proceeds of the property should be credited to seller's Non-Resident Ordinary (NRO) Account with an authorised bank in India.
(e) The person intending to repatriate the original investment made in residential immovable properties shall submit an
application in Form IPI-8. TOP Form IPI - 8 The person intending to repatriate the original investment made in residential immovable properties shall submit to the Chief General Manager, Exchange Control Department, Foreign Investment Division (III), Reserve Bank of India, Central Office, Bombay - 400 023, within a period of 90 days of sale of the property an application in Form IPI-8. The IPI-8 application should be accompanied by: (a) An authenticated copy of agreement for sale, (b) A copy of declaration submitted to Reserve Bank of India at the time of purchase of immovable property; and (c) A copy of the valid Power of Attorney duly certified by a competent authority if the application is signed by a holder of Power of Attorney on behalf of the applicant. TOP Investment in Real Estate Development by OCBs Non-Resident Indians are now permitted to enter into the business of real estate development. This can be done by either forming a partnership firm or investing in a company incorporated in India. The Reserve Bank of India has relaxed certain provisions with regard to investment in Indian companies engaged in housing and real estate development. Person of Indian nationality/origin resident outside India (NRIs) are permitted to invest upto 100 percent in the new issues of equity shares/convertible debentures of Indian companies engaged/proposing to engage in the following areas: (a) Development of serviced plots and construction of built-up residential premises (b) Real estate covering construction of residential and commercial premises including business centres and offices. (c) Development of township. (d) City and region level urban infrastructure facilities including roads and bridges. (e) Manufacturing of building materials. (f) Financing of housing development. (g) Investment in proprietary/partnership firms engaged in real estate development is permitted on non-repatriation basis. The invested firm obtaining investment from the NRI/OCB will have to file a DIN declaration within 90 days to the RBI within whose jurisdiction the company is situated. The RBI has permitted limited repatriation facility to the interest or income portion on the investment (Circular No. 18 of 1994 series dated 10.9.94) subject to the terms and conditions that capital invested shall not be repatriable. (h) Investment in real estate development has since been extended to Overseas Corporate Bodies (OCBs) predominantly owned by NRIs. Overseas Corporate Body would mean any overseas company,partnership company, society and other corporate body predominantly owned directly or indirectly to the extent of at least 60 per cent by NRIs and includes any overseas trust in which not less than 60 per cent beneficial interest is held by NRIs directly/indirectly but irrevocably (notification 159/94 of 5.10.94). (g) Investment in real estate development on repatriation basis is available only to NRIs/OCBs in companies. Repatriation of the original investment in foreign exchange made by OCBs will be permitted with the prior permission of Reserve Bank only after a lock in period of three years from the date of issue of shares/debentures. In addition, OCBs will be permitted to repatriate the net profit (upto 16 per cent) arising from the sale of such investment after the lock in period of three years. (h) Dividend/interest on equity shares/debentures can, however, be remitted as per the procedure laid down in paragraph 10.C.24 of Exchange Control Manual subject to payment of applicable taxes without any lock-in period. (i) Application for necessary permission for the investment should be made in form ISD (R) by the concerned Indian company to the Chief General Manager, Exchange Control Department, Foreign Investment Division (II), Reserve Bank of India, Central Office,Bombay - 400 023.
(j) The facilities are granted to OCBs so long as the ownership/beneficial interest held in them by persons of Indian nationality/origin resident outside India continues to be atleast 60 per cent. (k) The OCBs are required to furnish at the time of applying for the facility for the first time and thereafter as and when required by Reserve Bank/authorised dealers, a certificate from an overseas auditor/chartered accountant/certified public accountant in form OAC/OAC-1 as the case may be. The overseas auditor/chartered account/certified public accountant has to certify that the ownership interest in the OCBs is held by NRIs. (l) The proformae of the certificates in form OAC/OAC-1 have been modified to ensure that the interest held by persons of Indian nationality/origin in the OCB is actually held by such persons and is not held by them in the capacity as nominees.