The Legalities of NRI Property Ownership in India

 – Shajai Jacob –

Though the Indian real estate environment has once again become very conducive for NRI investors, there is often still hesitation to take the plunge because of uncertainty about the legal implications. The doubts that many first-time NRI property investors have are often very pertinent and finding answers to them is far from easy.

It is time to tackle some of the questions that NRIs often ask in the Gulf which has, by far, the strongest complement of Indian expatriates anywhere in the world. These NRIs often do not have access to a lawyer well-versed in Indian property laws and related fields of expertise, so – not surprisingly – many of their questions are legal in nature.

One recurring doubt that individual NRI property investors have is:

Can an NRI use a Will to bequeath property in India to someone else – either another NRI or a resident Indian?

The answer is that NRIs can certainly bequeath property to their legal heir/s or any one of their choice via a Will. An NRI can inherit any immovable property in India, whether it is residential or commercial – and even agricultural land or a farmhouse (which they are otherwise not entitled to purchase). An NRI is also free to inherit property from another NRI or resident of India. However, the RBI’s permission is necessary if the property is inherited by a citizen of a foreign state and is a resident outside India.

A related question that often crops up in discussions with NRI investors is

Can a property be gifted, and what are the statutory charges levied on a gifted property?

An NRI should certainly be clear on this in order to make an informed decision.

An NRI can gift residential and commercial property to a person residing in India, or another NRI. However, if the property is agricultural land, plantation property or a farmhouse, it can only be gifted to a citizen of India residing in India. Gifts received from relatives (as defined under the Income Tax Act) are not taxed – but at the time of registration, one has to pay the prevalent stamp duty and registration charges. Relatives include spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents and any lineal ascendant or descendant of self or spouse. If the gift is received on the occasion of marriage or from a registered trust, it is exempt from tax.

Some NRIs are more interested in investing in Indian real estate via companies they have formed on foreign soil, or they may work for a foreign company interested in establishing a footprint in India. In such cases, a common question is:

Can an overseas company or a subsidiary company outside India invest in Indian real estate?

Well, the Indian real estate sector is eligible for 100% FDI (Foreign Direct Investment) under the automatic route in the construction development segment, which includes townships, housing, built-up infrastructure.  An overseas company or a subsidiary company outside India can invest in Indian real estate via this route, but not in finished buildings.

Many NRIs wonder:

How to repatriate funds from real estate investment, both for rental income and proceeds on sale?

Here, too, the laws are quite lenient but have some provisos.

There is no restriction on NRIs for repatriating rental income or even property sale proceeds (other than agricultural land, a farmhouse and plantation property) as long as the total proceeds are within the set limit of USD1 million in a fiscal year. The conditions are:

The property being sold was acquired as per the foreign exchange regulations applicable during that period.
The amount being repatriated cannot exceed the cost of the sale proceeds from the transaction.
The sale proceeds from a maximum of two residential properties can be repatriated.
The maximum amount of repatriated funds from a Non-Resident Ordinary (NRO) account is capped at $1 million per fiscal year.
Funds can be repatriated only after settling all the applicable taxes and other charges.

If the property was purchased with money received from inward remittance or debit to NRE/FCNR/NRO account, the entire principal amount can be repatriated outside India immediately while the balance must be deposited in an NRO account.

To start the repatriation process, the NRI must get a certificate from a Chartered Accountant (CA) in India, issued in a form called ‘Form 15CB’. The form can be downloaded easily from the Indian government tax website. This form verifies that the money acquired was via legal channels and all due taxes have been paid. The CA verifies and signs the form.

The next step is to fill another form called ‘Form 15CA’ which can also be downloaded from the same website. The form must be filled and submitted online, after which a system acknowledgement number is automatically generated and displayed. The NRI must print out the filled undertaking of Form 15CA displaying the system-generated acknowledgement number, and sign it.

The final step is to take the signed undertaking along with the CA certificate on Form 15CB to the bank where one has an NRO account. The concerned bank will check the forms and transfer the money abroad (up to $1 million in an FY). Apart from these forms, the bank will also ask for a copy of the sale document of the property. If the property has been inherited, the bank will ask for the Will copy, legal heir certificate, and death certificate of the person on whose death the property was inherited.

Another common doubt that NRIs who have been settled abroad for long and are out of touch with developments on the Indian real estate market have is

How to verify whether an Indian property is legally compliant in all respects?

It is obviously very important for an NRI to pay attention to factors like the legitimacy of land, compliances to be followed during construction, environmental clearances, etc. at the time of a property purchase. As real estate is a state subject, laws may differ from state to state and there is, therefore, no one-size-fits-all response.

Before buying such a property, the NRI should ideally consult a lawyer to examine all the legal documents and verify their authenticity. They must also check whether the project is registered under the respective state RERA and whether or not it is fully RERA-compliant. However, many Indian states and Union Territories still do not have a functional RERA website, and this is where the services of a reputed real estate consultancy can be invaluable to save on time and effort, and ensure that all the boxes are ticked.

Finally, many NRIs have doubts related to

What is the jurisdiction of any dispute related to property investment in India?

This is indeed a very important question to ask, especially given the massive burden of litigations on the Indian property market.

It is not advisable for NRIs to file property dispute cases anywhere else other than the jurisdiction where the property is located. Only the court in that particular jurisdiction can try a property-related case.

Delays in the construction process beyond the extension period mentioned in the agreement fall under the purview of consumer courts concerning ‘deficiency in rendering of service’ under the Consumer Protection Act of 1986 if the project is not registered under state RERA. If project is registered under RERA, buyers can file a complaint against the builder under Section 31 of the regulation with the appointed regulatory authority within the respective state.

Interestingly, there may soon be a law in place in the state of Punjab to protect NRIs against property-related frauds. The state government is planning to bring the NRI Property Safeguards Act to resolve issues of NRI buyers effectively and transparently. An ombudsman for resolving issues would also be set up under the law. If this happens, it would indeed be a worthy precedent for other states to follow.