Estate Laws for Non-Resident Indian (NRI) In India

Non-Resident Indians

Non-Resident Indians (NRIs) are citizens of India or Persons of Indian origin who qualify as Non-Residents in India for the relevant tax year.

As per Indian tax laws, a ‘Non-Resident’ is defined as an individual who was present in India for less than 60 days during the relevant tax year, and in case of Indian citizens who leave India (during the year) for the purpose of employment outside India, such limit to break Indian residency is replaced by 182 days.

Additionally, when a citizen of India or a Person of Indian Origin (PIO) who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.

Estate – Non-Resident Indians

The Non-Resident Indians can hold the Estate in the following circumstances:

  1. Inherited property – A PIO resident outside India does not require any permission to acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these regulations or from a person resident in India.
  2. Property by way of gift – A PIO resident outside India does not require any permission to acquire any immovable property in India other than agricultural land/farmhouse/plantation property by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of India origin resident outside India.
  3. Self-acquired property – A PIO resident outside India does not require any permission to acquire any immovable property other than agricultural land/farmhouse/plantation property in India by purchase, from out of funds:
    1. Received in India by way of inward remittance through banking channel from any place outside India, or
    2. Held in any non-resident account maintained in accordance with the provisions of the foreign exchange law in force.

Tax Levied on Sale of Property in India

The Non-Resident Indian who intends to sell the property which is located in India is subject to Long-Term Capital Gain Tax or Short-Term Capital Gain Tax.

The Long-Term Capital Gain Tax is applicable in case the property held by Non-Resident Indian for a period equivalent or more than 36 months immediately preceding the date of its transfer. The Short-Term Capital Gain Tax is applicable in case the property held by Non-Resident Indian for a period not more than 36 months immediately preceding the date of its transfer.

Rate of Capital Gain Tax

The Long-Term Capital Gain Tax is levied at 20% (plus applicable surcharge and education cess) on capital gain, whereas Short Term Capital Gain Tax is levied at progressive slab rate (plus applicable surcharge and education cess) on the capital gain. The buyer requires to withhold the Long Term or Short-Term Capital Gain Tax at the time of sale of property and deposit the tax amount to income tax department within the due date.

Exemption of Capital Gain Tax

The Long-Term Capital Gain Tax can be exempted, subject to the following conditions:

Long Term Capital Gain – Exemption Under Section 54 Under Section 54B Under Section 54EC Under Section 54F
a. Who can claim exemption? Individual /HUF Individual /HUF Any person Individual /HUF
b. Eligible assets sold A residential House property (minimum holding period 3 years) Agriculture land which has been used by assessee himself or by his parents for agriculture purposes during last 2 years of transfer Any long-term capital assets (minimum holding period 3 years) Any long-term asset (other than a residential house property) provided on the date of transfer the taxpayer does not own more than one residential house property from the Assessment Year 2002 (except the new house)
c. Assets to be acquired for exemption Residential house property Another agriculture land (urban or rural) Bond of National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) Residential house property
d. Time limit for acquiring the new assets Purchase: 1 year back or 2 years forward, Construction: 3 years forward 2 years forward 6 months forward Purchase: 1 year back or 2 years forward, Construction:
3 years forward
e. Exemption Amount Investment in the new assets or capital gain, whichever is lower Investment in the agriculture land or capital gain, whichever is lower Investment in the new assets or capital gain, whichever is lower (maximum Rs 50
lakh in Financial Year)
Investment in the new assets/ Net Sale consideration X capital gain
f. Whether “Capital gain deposit account scheme” applicable Yes Yes not applicable Yes

Repatriation

It basically means sending the money back to one’s own country. When a person buys or draws any money from an authorised dealer in India and wants to take back to its own country through various channels like banking or crediting it to the account which is denominated in foreign currency etc., is repatriation.

Section 7 of Foreign Exchange Management Act, 1999 talks about repatriation of sale proceeds of immovable property.

7.1: If a person acquires a property according to Section 6(5) of FEMA, then he or his successor cannot repatriate the sale proceeds of such immovable property outside India, without taking the permission of Reserve Bank of India.

Exception: If the person who wants to repatriate, is an NRI or a PIO resident outside India, then s/he can take the advantage of facilities available under the Foreign Exchange Management (Remittance of Assets) Regulations, 2000 as amended from time to time, to remit the money.

7.2: An authorised dealer in the event of sale of immovable property other than agricultural land/ farm house / plantation property in India by NRI/PIO resident outside India may allow repatriation only if the following conditions are fulfilled:

  1. 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 by him or the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000;
  2. The amount to be repatriated does not exceed the amount paid for acquisition of the immovable property received through normal banking channels or out of funds held in FCNR(B) Account or NRE Account.In case an immovable property in India has been purchased by NRI/PIO out of housing loans availed in terms of Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time, and the repayments for such loans are made from remittances received from overseas through banking channels or by debit to the NRE/ FCNR(B) Account of the NRI, such repayments may be treated as equivalent to foreign exchange received.
  3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

Conclusion:

An NRI and a PIO can purchase as many as residential as well as commercial properties in India, but when the investment is to be done on an agricultural land, farm house or a plantation area, they can only be inherited or gifted to the NRI. If you are selling the property within 3 years of purchase, then it is a short-term capital gain and the earnings are taxable, but if you sell it after 3 years of its purchase then it is long-term capital gain and the concerned person has the option of reducing the capital gains tax by investing in any other property. The foreign exchange then received can be repatriated through various channels like banking in accordance with the Foreign Exchange Management Act, 1999.
Content Source – India Law Offices

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