Acquisition and Transfer of Immovable Property in India
India has always been a country with rich human talent who have conquered various positions globally. Indians have settled across the world and most of them continue to or wish to hold / own property in India. Further many of them invest in Indian commercial / residential properties as a good investment option.
However, owning or transferring property in India is governed under various regulations in India and failure to comply with those regulations can attract monetary as well as other penal actions. One should be aware of the various provisions pertaining to the purchase or owning of immovable property in India under the Foreign Exchange Management Act (FEMA) as well as the Income Tax Act.
- Non-Resident Indian (NRI): NRI is a person resident outside India who is a citizen of India.
- Overseas Citizen of India (OCI): OCI is a person resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1995.
ACQUISITION OF IMMOVABLE PROPERTY
Various modes of acquisition of Immovable property can be summarized as follows:
- NRI's and OCI's cannot purchase or acquire by way of gift any agricultural land/farmhouse and plantation property in India.
- Specific conditions are given in the FEMA regulations for acquisition of immovable property
- By Foreign embassies / diplomats / consulate generals,
- By Branch / Ofice for carrying out the permitted activity and
- By long-term Visa Holders residing in India who are citizens of Afghanistan / Bangladesh/ Pakistan belonging to minority communities in those countries i.e. Hindus, Sikhs, Buddhists, Jains, Parsis and Christians.
- As per section 6(5) of FEMA, a person resident outside India can hold, own, transfer or invest in any immovable property situated in India if such property was acquired, held, or owned by him/her when he/she was resident in India or inherited from a person resident in India.
MODE OF PAYMENT
- Out of funds received in India through normal banking channels by way of inward remittance
- Non-Resident Account (NRO/NRE/FCNR) maintained in accordance with the Act
- No payment can be done by traveler's cheque or by foreign currency notes or any other mode except those specifically mentioned above.
JOINT ACQUISITION OF PROPERTY BY THE SPOUSE OF A NRI OR AN OCI
A person resident outside India not being an NRI or an OCI, who is aspouse of an NRI or an OCI may acquire one immovable property (other than agricultural land/farmhouse/plantation property), jointly with his/her NRI/OCI spouse subject to below conditions:
- The consideration shall be paid as per mode of payment mentioned above.
- Marriage has been registered and subsisted for a continuous period of at least 2 years immediately preceding the acquisition of such property.
- The non-resident spouse is not otherwise prohibited from such acquisition.
PROHIBITION ON ACQUISITION AND TRANSFER BY CITIZENS OF CERTAIN COUNTRIES
- No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic people's republic (DPRK) without prior permission of the Reserve Bank shall acquire or transfer immovable property in India.
- No such prohibition id applicable if the above person is an OCI.
- The above persons can take a lease for period not exceeding 5 years.
MODE OF TRANSFER OF IMMOVABLE PROPERTY
NRIs/OCIs can transfer/gift any agricultural land/farmhouse and plantation property in India only to Residents of India.
REPATRIATION OF SALES PROCEEDS OF IMMOVABLE PROPERTIES
PROPERTY ACQUIRED OUT OF REPATRIABLE MODE-INWARD REMITTANCE/NRE/FCNR
PROPERTY ACQUIRED BY WAY OF NON-REPATRIABLE MODE - NRO:
- In case the property was acquired by way of inward remittance, out of funds held in FCNR/NRE account and in compliance with foreign exchange laws in force, sale proceeds can be freely repatriated outside India without any RBI permission.
- However, in case of a residential house, repatriation is restricted to maximum for 2 properties.
- The funds cannot be freely repatriated outside India.
- However, NRI can repatriate funds lying in his NRO Account on account of sale proceeds up to USD 1 Million per financial year subject to conditions and completion of procedural compliance prescribed in the scheme.For remittance exceeding USD 1 Million in an FY, RBIapproval is required.
- If remittance is in installments, all installments should be from a single AD bank.
COMPLIANCE UNDER PROVISIONS OF INDIAN INCOME TAX
A. WHEN NON-RESIDENT (NR) IS SELLER
As per provisions of section 195 of Income Tax Act, any person making payment to a non-resident needs to deduct tax at source as per rates given in force. Accordingly, it is essential to take care of the below points while acquiring property from NR:
- Any person buying property from another NR needs to deduct & pay tax as per rates in force from the sale consideration.
- In case lower/nil deduction application is filed by NR, deduct & pay tax as per rates given in Order issued by Assessing Officer. NR should make sure that his PAN is trying with International Tax ward while applying for such an application. In case the jurisdiction of the PAN is not with International Tax Ward, PAN migration needs to be carried out.
- Person deducting lower tax as per the said certificate should ensure:
- Online Certification is obtained from Tax Department having 10 digit certificate number. The said certificate number needs to be quoted in TDS Return to be filed.
- Certificate obtained will be applicable only for payments made after date of issuance of the certificate. Accordingly, TDS should be deducted at rates prescribed in the Act for the payments made prior to obtaining the certificate.
- Buyer also needs to file TDS Return in Form 27Q disclosing details of taxes deducted at source for which it is mandatory to hold TAN (Tax Deduction Number).
- For remitting sale proceeds outside India or transferring to NRE Account of such NR seller, Form A2, Form 15 CB need to be submitted to the bank along with other supporting documents as may be prescribed by the AD Bank.
- NR needs to file his return of Income in India.
B. WHEN NON-RESIDENT (NR) IS BUYER
- Any person making payment to person resident in India an account of purchase of immovable property, TDS @ 1% is required to be deducted if sale consideration of the property exceeds Rs. 50 Lakhs.
- If the NR is purchasing property form another NR, then TDS should be deducted at rates as mentioned above in Part A.
- Accordingly, whenever NR purchases immovable property in India, it is essential for him to deduct TDS if applicable while making payment of the said property.
- Tax deducted needs to be paid within 30 days from date of deduction by filing Form 26QB which is Return cum Challan
- There is no requirement of applying for TAN by the NRI buyer. Form 26QB can be filed based on PAN of NR.
C. CONSEQUENCES OF NON-DEDUCTION/NON-PAYMENT AND NON-FILING OF TDS RETURN
- Interest @ 1% per month or part thereof for non-deduction of TDS
- Interest @ 1.5% per month or part thereof for delay in payment of TDS after due date
- Fees of INR 200 per day for late filing of TDS Return. The fees is restricted to the TDS amount.
26th February, 2020
GBCA & Associates LLP
The information contained in this write-up is to provide a general guidance to the intended user. The information is based on our interpretation of various prevailing laws, rules, regulations, pronouncements as on date mentioned. The information should not be used as a substitute for specific consultations. The information has been provided in simplified manner for general reference of the public which can lead to interpretation not intended under law. No part of this document should be distributed or copied by anyone without express written permission of the publisher.