About legal nitty-gritty of investing in Indian realty for NRIs

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Though the Indian real estate environment has once again become conducive for investments by non-resident Indians (NRIs), they often hesitate to take the plunge because of uncertainty about legal implications. Here are answers to some of the questions that NRIs in the Gulf often ask.

Bequeathing property: NRIs ask whether they can use a Will to bequeath property in India. The answer is that NRIs can certainly bequeath property to their legal heirs, or anyone of their choice, via a Will. An NRI can also inherit any immovable property in India, whether it is residential or commercial — and even agricultural land or a farmhouse (which he is not entitled to purchase). An NRI is also free to inherit property from another NRI or resident. However, the Reserve Bank of India’s permission is necessary if the property is inherited by a citizen of a foreign state resident outside India.

Gifting real estate: NRIs also ask whether they can gift a property, and the statutory charges that are levied on such a property. An NRI can gift residential and commercial property to a person residing in India, or to another NRI. However, if the property is agricultural land, a plantation or a farmhouse, it can only be gifted to a citizen of India residing in India.

A gift received from a relative (as defined under the Income Tax Act) is not taxed, but one has to pay the prevalent stamp duty and registration charges at the time of registration. 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. A gift received on the occasion of marriage or from a registered trust is exempt from tax.

Investment by overseas companies: Some NRIs are interested in investing in Indian real estate via companies they have formed abroad. Some also work for foreign companies interested in establishing a footprint in India. Such people ask whether an overseas company or a subsidiary company outside India can invest in Indian real estate.

The Indian real estate sector is eligible for 100 per cent foreign direct investment (FDI) under the automatic route in the construction-development segment, which includes townships, housing, and 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.

Repatriation of funds: Many NRIs wonder how they can repatriate rental income and proceeds from sale. There is no restriction on NRIs 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. However, there are a few conditions. The property sold should have been acquired in compliance with foreign exchange regulations. The amount being repatriated cannot exceed the sale proceeds from the transaction. 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. And funds can be repatriated only after settling all the applicable taxes and other charges. If the property was purchased with money received through inward remittance, or debiting of 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 repatriate, the NRI must get a certificate from a chartered accountant (CA) in India, issued in a form called 'Form 15CB'. This form can be downloaded from the Indian government’s tax department website. It verifies that the money was acquired via legal channels and all due taxes have been paid. The CA verifies and signs the form.

Next, the NRI must fill another form called ‘Form 15CA’ which can also be downloaded from the same website. It 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.

Finally, he needs to take the signed undertaking along with the CA certificate on Form 15CB to the bank where he has an NRO account. The bank will check the forms and transfer the money abroad (up to $1 million in a financial year). It will also ask for a copy of the property’s sale document. If it is an inherited property, the bank will ask for a copy of the Will, legal heir certificate, and death certificate of the person on whose death the property was inherited.

Key issues NRIs should be aware of

• NRIs can bequeath a property via a Will to whomsoever they please
• They can also inherit property from both residents and non-residents
• NRIs can gift residential and commercial property to both residents and non-residents
• Agricultural land, plantation or a farmhouse can only be gifted to a citizen of India residing in India
• If an NRI receives a gift from a relative, he will not have to pay tax on it, but will have to pay stamp duty and registration charges

Legal and compliance issues: NRIs must pay attention to factors like the legitimacy of land title, compliances to be followed during construction, environmental clearances, etc. As real estate is a state subject, laws may differ from one state to another. NRIs should ideally consult a lawyer to examine all the legal documents and verify their authenticity. They must also check whether the project is registered with the respective state RERA and is fully RERA-compliant. However, many Indian states and union territories still do not have a functional RERA website. This is where a reputed real estate consultancy’s services can be invaluable.

Complaint forums: NRIs should file property dispute cases in the jurisdiction where the property is located. Only a court in that jurisdiction can try a property-related case. Delays in construction beyond the extension period mentioned in the agreement fall under the purview of consumer courts as this amounts to ‘deficiency in rendering service’ under the Consumer Protection Act of 1986, if the project is not registered under state RERA. If it is registered under RERA, buyers can file a complaint against the builder under Section 31 of the regulation with the appointed regulatory authority within that state.

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

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