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Non-resident classification and criteria
IMPORTANT GUIDELINE
An Indian Citizen who stays abroad for employment/carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Persons posted in U.N. organizations and officials deputed abroad by Central/State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident. Therefore, all non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.
NRI FAQ’S
A foreign citizen (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri Lanka or Nepal), is deemed to be of Indian origin if,
i) He/She held an Indian passport at any time
ii) He/She or their parents or paternal grandfather was a citizen of India by virtue of the Indian Constitution.
Yes. However, Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain separate permission from the Reserve Bank.
The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NTE/FCNR accounts maintained with banks in India.
They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.
Yes. Reserve Bank has granted permission for the sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.
Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of the final purchase deed or from the date of payment of the final installment of the consideration amount, whichever is later.
Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank in Mumbai within 90 days of the sale of the property.
Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid.
Yes. Repatriation of original investment in respect of properties purchased by foreign citizens of Indian origin on or after 26th May 1993 will be allowed to be remitted up to the consideration amount originally remitted from abroad provided the property is sold after a period of three years from the date of the final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.
Applications for the purpose are required to be made to the Central Office of Reserve Bank within 90 days of the sale of property in form IPI 8.
Yes. Reserve Bank has granted permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income has to be credited to the NRO account.
Reserve Bank has granted permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd, etc to grant housing loans to non-resident Indian nationals for the acquisition of houses/flats for self-occupation subject to certain conditions.
Authorized dealers have been granted permission to grant loans up to non-resident Indian nationals for the acquisition of a house/flat for self-occupation on their return to India subject to certain conditions. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investments’ NRE/FCNR accounts.
Reserve Bank permits Indian firms/companies to grant housing loans to their employees deputed abroad and hold Indian passports subject to certain conditions.
One will need a guarantor for a loan mainly for collateral security. The guarantor will have to demonstrate appropriate net worth to cover the loan. Usually one can have a guarantor in any city where the loan issuer has a branch. Talk to loan issuers they will work something out for NRIs and foreign banks.
The income tax implications on house property income in India would be dependent on whether the property is kept vacant or let out. In case an NRI has only one property in India and if it is kept vacant, then it would be possible to say that there should not be any rental value for such property as the NRI was not able to occupy the same owing to his employment, business or profession carried out at any other place. However, if he owns two properties and both of them are kept vacant, then he is required to pay income tax on one of the properties as if the property had been let out. The tax laws do not provide clear guidance on how the rental value is to be determined for such property. It simply states that the annual rent should be the sum that the property might reasonably be expected to let from year to year. Though there are judicial precedents that are available that suggest the adoption of municipal value/ fair rent, there could be some practical difficulties in ascertaining such value in the ever-increasing rental market.
In the case of let-out properties, the actual rental income (after reducing the municipal taxes) would be subject to tax. The tax law allows a general deduction of 30% on the rental income and also allows for deduction towards interest subject to certain conditions.
Under Indian tax law, the payer is required to withhold tax on rental income paid to a non-resident @ 30.6% where the income of the non-resident does not exceed Rs. 10,00,000, otherwise at 33.66%.
RBI GUIDELINES
Sale and purchase of immovable property in India:
The Foreign Exchange Management Act, 1999 (FEMA), came in force with effect from June 1, 2000. Section 6 (3) (i) of the Act empowers the Reserve Bank to frame regulations to prohibit, restrict or regulate the acquisition or transfer of immovable property in India by certain persons mainly residents outside India. The restrictions under this clause are not applicable to a lease of immovable property for a period not exceeding five years. The regulations made by the Reserve Bank are called Foreign Exchange management (Acquisition and Transfer of Immovable property in India) Regulations, 2000, and have been notified vide Notification FEMA No. 21/2000-RB of May 3, 2000
A synopsis of the said Regulations is as under (Part I):
All persons, whether resident in India or outside India, who are citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, require prior permission of Reserve Bank for acquiring or transferring any immovable property in India.
A person resident outside India, who has been permitted by Reserve Bank to establish a branch, or office, or place of business in India (excluding a Liaison Office), has general permission of Reserve Bank to acquire immovable property in India, which is necessary for, or incidental to, the activity. However, in such cases a declaration, in prescribed form (IPI), is required to be filed with the Reserve Bank, within 90 days of the acquisition of immovable property.
An Indian citizen resident outside India does not require any permission to acquire any immovable property in India other than agricultural/plantation property or a farm house. An Indian citizen resident outside India does not require any permission to transfer any immovable property, to a citizen of India who is resident in India.
An Indian citizen resident outside India does not require any permission to transfer any immovable property other than agricultural or plantation property or farm house, to a person who: is a citizen of India resident outside India, or is a person of Indian origin resident outside India.
A synopsis of the said Regulations is as under Part (II):
A person of Indian origin resident outside India does not require any permission to acquire any immovable property other than agricultural land/farm house/plantation property in India by purchase, from out of funds: received in India by way of inward remittance through banking channel from any place outside India, or held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank under the Act.
A person of Indian origin resident outside India does not require any permission to acquire any immovable property in India other than agricultural land/farm house/plantation property by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India.
A person of Indian origin resident outside India does not require any permission to acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India.
A person of Indian origin resident outside India does not require any permission to transfer any immovable property in India other than agricultural and/farm house/plantation property, by way of sale to a person resident in India. A person of Indian origin resident outside India does not require any permission to transfer agricultural land/farm house/plantation property in India, by way of gift or sale to a person resident in India who is a citizen of India.
A person of Indian origin resident outside India does not require any permission to transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India Repatriation outside India, including credit to RFC, NRE or FCNR account, of sale proceeds of any immovable property situated in India, requires prior permission of the Reserve Bank except in circumstances stated in paragraph 13 below.
A synopsis of the said Regulations is as under (Part III):
In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a person resident outside India, who is a citizen of India, or a person of Indian origin, the authorized dealer may allow repatriation of the sale proceeds outside India, provided all the following conditions are satisfied:
- The immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules/Regulations/Law in force at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act, 1999.
- The amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in foreign currency non-resident account or (b) the amount paid where such payment was made from the funds held in non-resident external account for acquisition of the property.
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. Authorized Dealers have been permitted to allow the facility of repatriation of funds by NRIs/PIOs in their Non-Resident Ordinary Rupee (NRO) account up to US$ 100,000 per year representing sale proceeds of immovable property held by them for a period of not less than 10 years subject to payment of applicable taxes
- All requests for acquisition of agricultural land/plantation property/farm house by any person resident outside India or foreign nationals may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001
- The NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from the Reserve Bank. The rental income being a current account transaction is freely repatriable outside India.
Notes:
In the event of the sale of immovable property other than agricultural land/farmhouse/plantation property in India by a person resident outside India, who is a citizen of India, or a person of Indian origin, the authorized dealer may allow repatriation of the sale proceeds outside India, provided all the following conditions are satisfied:
- The immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules/ Regulations/Law in force at the time of acquisition, or the provisions of the Regulations framed under the Foreign Exchange Management Act, 1999.
- The amount to be repatriated does not exceed (a) the amount paid for the acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in foreign currency non-resident account or (b) the amount paid where such payment was made from the funds held in non-resident external account for the acquisition of the property.
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. Authorized Dealers have been permitted to allow the facility of repatriation of funds by NRIs/PIOs in their Non-Resident Ordinary Rupee (NRO) account up to US$ 100,000 per year representing sale proceeds of immovable property held by them for a period of not less than 10 years subject to payment of applicable taxes.
- All requests for the acquisition of agricultural land/plantation property/farmhouse by any person resident outside India or foreign nationals may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400001.
- The NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from the Reserve Bank. The rental income being a current account transaction is freely repatriable outside India.
