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Month: October 2022

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Tips for NRIs to Follow When Buying Property in India

Tips for NRIs to Follow When Buying Property in India

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Recently, RBI has permitted non-residents of India to invest in agricultural or plantation land and a farmhouse. This is an addition to the rights for NRI who want to buy a property here. Earlier, they were able to purchase a residential or commercial property only.

Governing Law

A few years ago, investing in real estate in India was no less than an uphill battle. But over the years, the legal reforms have made NRI property management and buying way easier. This process is now hassle-free.

Thanks to some specific legal reforms the Reserve Bank of India (RBI) in the Foreign Exchange Management Act (or FEMA)!

  • Sole Acquisition of Property

Its actual beneficiary is an NRI. A non-resident (NRI) is one who has spent more than 182 days in India but living abroad as a temporary resident. They can now buy agricultural land under the 1999 FEMA.

However, the NRI can acquire any immovable property in India as a gift from a resident of India or an Overseas Citizen of India (OCI). The Companies Act, 2013 allows it.

  • Joint Acquisition of Property

A person resident who lives outside India is considered an NRI or an OCI. He may acquire a piece of immovable property, which should not be agricultural land/ farmhouse/ plantation property. He can jointly acquire it and the acquirer can be his/her NRI spouse. Here, a condition is applied. This joint acquisition is possible if the consideration for transfer shall be made from the following method:

  1. It can be funds sent through inward remittance in India from any place, except India, using any banking channel.
  2. Funds transferred or maintained in any non-resident account to comply with the provisions of the FEMA and different regulations regulated by the RBI.
  • Transaction Guidelines

The Act states that a traveler’s cheque or foreign currency notes shall not be accepted to pay for any transfer of immovable property. Any mode other than those specifically permitted can be the following:

  1. Through a marriage that has been registered for a minimum of two years immediately preceding the acquisition
  2. furthermore is that the NRI spouse is not otherwise prohibited from such acquisition.

How to Pay?

For the payment against the property in India, it is a must to transact in Indian currency. Non-residents may use their NRI account of an authorised Indian bank. This is compulsory to use Non-Resident Ordinary Account (NRO), Non-Resident External (NRE), or Foreign Currency Non-Resident account (FCNR).

There is also a provision for loans. The RBI allows them to lend money for investing in property in India. In this case, EMIs can be paid in these ways:

  • Remit the amount from NRIs foreign bank account by using a regular banking channel
  • Issue post-dated cheques or use NRE, NRO, or FCNR account’s electronic clearance service (ECS). Alternatively, you may pay through rental income.

Power of Attorney

Power of Attorney empowers a solicitor or any other person to undertake transactions for immovable property in different places in India. It’s legally valid and compulsory to have a registered version of a Power of Attorney. This legal document authorizes another person to carry out transactions, or attend the registration or documentation procurement related to the sale or purchase of a property on behalf of the actual buyer.

It is legitimate to provide a special or specific power of attorney to any trustworthy adult Indian native. This option helps the authorised person to complete the necessary paperwork or intended formalities on behalf of the NRI when he is not physically present here to sign the deal.

Verify the Real-Estate Project & Company

Take into account that an under-construction property should be bought if it’s a part of a project registered with the Real Estate Regulatory Authority.  Also, find out if the National Banks for loans have pre-approved the project. It ensures that the due diligence about that real-estate project and the construction company has already been executed.

 

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FEMA Tax Rules for OCI Holders Who Return from the US

FEMA Tax Rules for OCI Holders Who Return from the US

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Over 85K Indians apply for the visa of the US. This number of visa applicants is increasing year after year.

The taxation rules for Indians living in the USA are applicable as per the residency status. Like goers, there are non-residents of India, including OCI card holders & PIOs who return temporarily or permanently.

This blog defines how taxation rules are applied to them.

NRIs, including OCIs and PIOs in the USA Vs NRIs in India

According to US tax laws, migrants or non-residents are classified as aliens. A migrant who is not a US citizen becomes a “Resident Alien” if he or she attains permanent residency or successfully appears through the substantial presence test.

Here in India, Foreign Exchange Management Act (FEMA) recognises a person resident in India (who stays here for 182 days or more) and a person resident outside India, covering NRIs, OCIs, and PIOs.

Treatment of Person Resident Outside India in India

Those who have obtained a green card in the US are categorised as a Person Resident Outside India.

Since they stay outside India for an uncertain period, their existing Indian bank accounts (covering joint accounts) are turned into Non-Resident (Ordinary) or NRO accounts. This status enables them to remit foreign income into this bank account to receive it in Indian currency, i.e. INR.

But, they won’t allow repatriation to accounts overseas. On the flip side, NRIs have a right to remit up to $1 million overseas every FY from this account.

There is another account called Non-Resident (External) Account or NRE, which NRIs can have for depositing their income to use in India or abroad.

How does the Indian Taxation Act Treat Indian Migrants?

According to Indian Taxation rules, any India shifting to the USA is treated as a Resident & Ordinarily Resident (ROR), a Resident but Not Ordinary Resident (RNOR), and Non-Resident (NR).

The NR is the one who has been here for 182 days or more in India. Or, he should have been here for 365 days in the immediate four preceding years. Or, it can be 60 days more in the relevant financial year.

Once it is confirmed that the person is a Resident, further categorization (which is into ROR or RNOR) takes place under the law.

If one is categorised as ROR, his global income shall be taxable. On the other hand, RNOR and NR can enjoy the benefit of paying tax on only India-sourced income. Out of these two, only NRI can file for an Income tax return if being taxed on India-sourced income.

A person shifted to the US will be treated as a non-resident, supposing that his stay in India does not exceed 182 days. In this case, he shall have to pay tax in India only. It will be on the Indian-sourced income.

If an Indian migrant receives a salary in an Indian bank account while working in the US, no tax will be applicable. It is clearly because he received it in India.

Different Treatment of Status as per Domestic Law

This happens when the person attains citizenship in both countries. Typically, the tax shall be paid to the resident country. But technically, both countries impose a tax on international income.

But, this may arise the problem of double taxation. It can be administered through a “Tie Breaker Rule”. India and US Double Taxation Avoidance Agreement allow it.

If a person returns to India and remains a resident alien, the US rules will be applicable. It won’t matter if he lives here or in the USA because his income will be treated as global income. It is subject to the US income tax.

If the returned person from the US holding its citizenship and have a financial interest in or signatory or any operating authority over multiple financial accounts located outside the USA, plus the aggregate amount in all foreign financial accounts is $10,000+ at any time during the financial year, he has to file FBAR (Report of Foreign Bank and Financial Accounts) in addition to the FATCA (Foreign Account Tax Compliance Act) requirements.

The exchange control requirements in India ensure designating NRO, NRI accounts to those who want to stay here for an uncertain period.

In that case, he will have to file an ITR upon being here in India. In the case of ROR, only the global income is taxable. Such residents shall claim the foreign tax credit for the tax paid in the USA. To get this benefit, the ROR (but not RNOR and NR) has to share detailed reports of foreign bank accounts and assets in the ITR. In case he does not share, he shall be penalized worth INR 10 lakhs under the Black Money & Imposition of Tax Act 2015, which is for undisclosed foreign income & assets.

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