An NRI (non-resident Indian) according to RBI
- An NRI is an Indian citizen or a foreign citizen of Indian origin, residing abroad (please check for exceptions).Students also come under this category. They are eligible to freely acquire and transfer immovable properties in India—residential, commercial or industrial—subject to certain restrictions laid down in the Foreign Exchange Management Act, 1999 (FEMA). An NRI is permitted to operate an NRE/FCNR account in India by the RBI.
The PIO (person of Indian origin)
- The PIO is an Indian citizen who has opted for citizenship of another country. The Foreign Exchange Management Act, 1999 (FEMA) considers a citizen of any country, other than Pakistan or Bangladesh, a PIO provided:
- The person has held an Indian passport at any time
- His/her parents or any grandparents were citizens of India
- The person is a spouse of an Indian citizen
- The person is a spouse of a person who has help an Indian passport ant any time
- The person is a spouse of a person who was either a citizen of India or had parents or grandparents who were citizens of India
Are NRIs/PIOs/foreign nationals permitted to acquire immovable residential property in India?
- Yes, if the acquisition is by way of purchase, gift, or inheritance, the RBI allows acquisition of immovable residential property in India.
- In the case of gift, the property has to be from a person in India, or an NRI, or a PIO
- In the case of inheritance, the property should have belonged to a resident of India as per the Provisions of Section 6(5) of the Foreign Exchange Management Act, 1999
- With the specific approval of RBI, an NRI/PIO/ foreign national of Indian origin can also acquire residential property by way of inheritance from a person who is a resident outside of India, provided the person bequeathing the property had acquired such property in accordance with the provisions of foreign exchange law in force at the time of acquisition or under FEMA regulations.
Is RBI permission required for NRIs to transfer or rent out their properties in India?
- No, RBI rules do not have any provision that necessitate NRIs to take its permission for either of the above actions.
Are there any restrictions in India on the number of residential property an NRI/PIO can purchase?
- No. There is no such restriction.
Can an NRI transfer his residential property by way of sale or gift?
- Yes, it is possible for an NRI to do both of the above to an Indian resident/NRI/PIO.
Can NRIs execute a Power Of Attorney (POA) to authorize a person in India to complete loan and related formalities on their behalf? What conditions apply for POAs executed outside India?
- Yes, NRIs can authorize a third party to act on their behalf by enabling him/her with a Power of Attorney to complete loan and related formalities.
- Ideally, the POA should be executed in favor of a resident Indian.
- In cases where the POA has to be executed outside India, certain procedures apply:
- Depending on the laws of individual countries where a POA is being executed, it must drawn out either on stamp or plain paper
- An official of the Indian Embassy, Indian Consulate, or Trade Commissioner of the country where the executants reside has to attest the signatures of the executants
- The Power of Attorney becomes valid only when the POA holder's signature has been verified by anIndian notary, his/her employer or banker on a separate paper and attached with POA document
What are the types of bank accounts that NRIs/OCBs can open and operate in India?
- In India, NRIs/OCBs have various options in terms of the type of accounts that they are allowed to operate. Accountholders can hold Indian Rupee and Foreign Currency accounts:
- NRO or Non-Resident (Ordinary) Account
- NRE or Non-Resident (External) Rupee Account
- NRE or Non-Resident (External) Rupee Account
- FCNR or Foreign Currency Non-Resident Accountsin Pounds Sterling, US Dollars, Japanese Yen, and Euro
- Under the Exchange Earners Foreign Currency Account (EEFC) Scheme, RBI rules also permit an Indian earning in foreign currency to maintain a foreign currency account in India to the extent of 50% of such foreign exchange earnings, with a bank authorized to deal in foreign currency.
- It is important to note that all the above accounts can only be operated with banks in Indiathat hold authorized dealer licenses, or those banks, specifically authorized by the Reserve Bank to maintain accounts in the names of NRIs/OCBs.
What are the special features of NRO, NRE, and FCNR accounts?
- NRO: Funds, standing to the credit of this account, cannot be repatriated outside India in foreign exchange, without prior permission of the Reserve Bank of India. However, interest earned on these accounts, net of Indian taxes, iseligible for repatriation outside India, via the authorized dealer where the account is maintained.While RBI permission is not required, the accountholder has to make an application in the prescribed form to the authorized dealer.
- NRE: The funds, standing to the credit of this account, as well as interest earned thereon, can be remitted outside India in free foreign exchange, without RBI permission. The interest income is not liable to be taxed under Indian income tax laws. Remittances to the accounts should be from outside India in foreign exchange as well as other funds eligible to be remitted outside India, in free foreign exchange. Funds, emanating from local sources, are not eligible to be credited to these accounts, unless, under the existing Exchange Control Regulations such funds can otherwise be remitted outside India.
- FCNR: Regulations permit opening of accounts in four foreign currencies, namely, Pound sterling, US Dollar, Japanese Yen, and Euro. For opening an account in a particular currency, the remittance to India must be in the same currency. Only fixed deposit accounts can be opened with a minimum term of one year , and a maximum maturity of three years. The account holder has the option of remitting both the principaland interest earned on these accountsoutside India, in the same or any other convertible currency. The interest earned on these deposits is not liable to be taxed under Indian income tax laws.
Is there any difference between NRE and NRO accounts?
- Yes, there are some differences between the two. While funds held in NRE accounts can be repatriated abroad freely, funds in an NRO account are not generally repatriable. However, subject to certain conditions funds held in NRO accounts can be repatriated.
- Also, NRE accounts can be credited with funds remitted from abroad, or with local funds which would otherwise have been remitted to the accountholder abroad. Under the Exchange Control regulations,funds due to non-resident accountholders which do not qualify for remittance outside India are required to be credited to NRO accounts and any interest income is liable for deduction of income tax at source.
Can NRO/NRE accounts be jointly held by NRIs with Indian residents?
- Rules permit NROs to maintain NRO accounts jointly with Indian residents. However, NRE accounts can be held jointly held only with NRIs.
Can NRIs obtain loans from authorized dealers/financial institutions,and housing finance companies for acquisition of a house or flat for residential purpose?
- Subject to certain conditions,RBIpermits certain housing finance companies like HDFC, LIC Housing Finance Ltd., etc., and authorized dealers to grant housing loans to NRIs for buying a house or flat for self-occupation. The purpose of the loan, margin money and quantum of loan will be on a par with those applicable for Indian residents. The maximum tenure of such a loan should not exceed 15 years,and the repayment will have to be made from inward remittances or out of funds held in the investor's NRE/ /NRO/FCNR accounts.
What is the maximum home loan entitlement of an NRI or PIO?
- The maximum home loan entitlement of an NRI or PIO isnot more than 85% of the total value of the property.
Can NRI/PIO remit the sale proceeds of immovable property held in India outside India?
- An authorized dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied:
- The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition
- The amount to be repatriated does not exceed:
- The amount paid for acquisition of the immovable property in foreign exchange was received through normal banking channels, or
- The amount paid was paid out of funds held in a FCNR account, or
- The foreign currency equivalent (as on the date of payment) of the amount paid, where such payment was made from funds held in an NRE account for acquisition of the property; and
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
- In case the property was paid for in Indian Rupees and/or the loan is repaid by close relatives in India (as defined in Section 6 of the Companies Act, 1956), the amount can be credited to the NRI/PIO's NRO account. In case of capital gain accrualsfrom the sale of the property, if any, the same can also be credited to the NRO account. Authorized Dealers also allow NRIs/PIOs to repatriate an amount up to USD 1 million per financial year out of the balance in the NRO account / sale proceeds of assets / the assets in India acquired by way of inheritance / legacy. The remittance would have to be supported by the remitter with documentary evidence of such acquisition, inheritance, or legacy of assets, and a tax clearance / no objection certificate from the Income Tax Authority. Remittances exceeding USD1 million in any financial year would need to be approved byRBI.
- For the purpose of repatriation an application in Form IPI 8 must be made to the Central Office of RBI within 90 days of the sale of property.
Is there a tax liability for NRIs on the purchase, sale, and renting of properties?
- In India, NRIs do not have any tax liability on the purchase of property.There is however a tax liability on the following:
- Income earned from rental of a residential property is taxable under the head Income from House Property, of the Income Tax Act of 1961.
- Income earned from the sale of a property is taxable under the head Capital Gains of the Income Tax Act of 1961.
Can a NRI purchase a property with borrowed money from a close relative outside India?
- Yes! An NRI can purchase a property with money borrowed from a close relative outside India provided the borrowed amount does not exceed USD 250,000 or its equivalent.The following conditions will apply:
- The minimum tenure the loan should one year;
- The loan is interest free; and
- The loan is received as inward remittance in free foreign exchange through normal banking channels or by direct debit of the NRI lender's NRE/FCNR account.
- "Close Relative," as per RBI guidelines is as defined in Section 6 of the Companies Act, 1956:
- A person shall be deemed to be a relative of another if, and only if:
- They are members of a Hindu undivided family; or
- They are husband and wife; or
- The one is related to the other in the manner indicated in Schedule IA.