According to the Foreign Exchange Management Act (FEMA), an NRI is a citizen of India who is a resident outside India. FEMA is the act which governs the purchase of Indian real estate by NRIs.
A PIO (not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan) should have:
– At any time, held an Indian passport or
– Have a father or grandfather who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955)
(a) Any person of full age and capacity:
(i) Who is a citizen of another country, but was a citizen of India at the time of, or anytime after the commencement of the constitution, or
(ii) Who is a citizen of another country, but was eligible to become a citizen of India at the time of commencement of the constitution, or
(iii) Who is a citizen of another country, but belongs to a territory that became part of India after the 15th day of August, 1947.
(iv) Who is the child of such a citizen, or
(b) A person, who is the minor child of a person mentioned in clause (a) Provided that no person who is or had been a citizen of Pakistan or Bangladesh shall be eligible for registration as an Overseas Citizen of India.
Mandatory Documents For Buying Property in India
According to the general permission granted by the Reserve Bank of India (RBI), people under the following categories can freely purchase immovable property in India.
(a) .Non-Resident Indian (NRI) | (b) Person of Indian Origin (PIO) The general permission is only for the purchase of residential and commercial property and not for the purchase of plantation property /agricultural land / farmhouses in India. Overseas Citizens of India (OCI) can purchase immovable residential and commercial property in India.
Since general permission is not available for this purpose, an NRI / PIO would require specific approval from the Reserve Bank of India and such an approval would be granted only after considering the proposal in consultation with the Government of India.
Tax on Income from Selling/ Renting Property
The acquisition of property does not attract income tax. But, any income that is accrued from the ownership of the house, in the form of rent (if itis tenanted), or the annual value of the house (if it is not tenanted and it is not the only residential property owned by that person in India) and / or capital gains (short-term or long-term) arising from the sale of the house or part thereof is taxable in the hands of the owner.
The Government of India has granted general permission for NRI / PIO / OCI to buy property in India and they don’t have to pay any taxes even while acquiring property in India. But they have to pay taxes if they are selling the property. Rental income earned is taxable in India, and they will have to obtain a PAN card and file returns on income if they have rented out the property. If they sell the property, the profit on sale would be subject to capital gains. If they have held the property for less than or equal to 3 years after taking actual possession.
India has DTAAs with several countries which give favourable tax treatment in respect of certain heads of income. But, in the context of the sale of immovable property, the DTAA with most countries dictates that the capital gains will be taxed in the country where the immovable property is located. Hence, the non-resident will be subject to tax in IIndia 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.