1. Introduction
For Non-Resident Indians (NRIs), purchasing property in India is a significant investment, often driven by personal, financial, or sentimental reasons. However, the process of property registration involves complex legal documentation and specific regulations that can be challenging to navigate. Understanding the legalities surrounding NRI property registration is crucial for ensuring a smooth and hassle-free transaction. In this blog, we’ll explore the essential documents required for property registration, key legal updates, and important factors to consider for NRIs looking to invest in real estate in India.
2. Recent Legal Updates for NRI Property Registration
In recent years, several legal updates have impacted property transactions for NRIs in India. These changes seek to simplify the complexities that NRIs confront while purchasing properties and offer clarity on the procedures:
Foreign Exchange Management (Non-Debt Instruments) Rules, 2019:
It is now permissible for NRIs and OCIs to acquire property in India, subject to certain conditions. Other Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) would require prior approval from the Reserve Bank of India unless they hold OCI status. They are also restricted from acquiring agricultural land, plantation property, or farmhouses without prior government approval.
Income Tax:
NRIs should keep in mind the tax implications regarding the acquisition of property. A charge on buying property over ₹50 lakh in value would involve a TDS of 1%. Moreover, any capital gain earned by an NRI would be subject to capital gains tax of 20% if long-term and 30% if short-term.
Repatriation of Proceeds from Sale:
NRIs have the option to repatriate the proceeds of the sale to their country after disposal; this is limited to USD 1 million within one financial year after remitting applicable taxes. There are also restrictions on repatriation regarding any number beyond two residential properties.
Model Tenancy Act 2021:
The Act greatly simplifies the hiring experience by making landlords and tenants more secure in the process. It permits the resolution of rental disputes faster, via rent courts and tribunals.
Digital India Land Records Modernization Programme (DILRMP):
Modernization of land records: In this, the access to land records and details regarding ownership of properties achieved by one query online is another step towards transparency and thus aids in reducing fraud in property transactions.
3. Key Legal Documents Required for NRI Property Registration
Once the property is purchased in India by NRIs, a host of legal documents must be submitted so that the property's registration can be done lawfully. These documents include, but are not limited to:
Title Deed: This is conclusive proof of ownership that ascertains that the seller is the lawful owner of the property and has the right to transfer the property to the buyer.
Encumbrance Certificate: This certifies that there is no legal encumbrance or dues, such as a mortgage on the property.
Sale Agreement: The sale agreement mentions all the terms and conditions involving the sale of the property, for example, the sale price and time given for payment.
Power of Attorney (PoA): In cases where the NRI cannot be present in India to oversee the property registration, he may create a PoA under which he appoints a trusted person to act as his representative. The PoA must be notarized and may also require attestation by the Indian Embassy or Consulate.
No Objection Certificate (NOC): In case the land is agricultural land being sold, a NOC from the concerned authority must be produced.
Property Tax Receipts: NRIs should submit receipts confirming that the property tax on their property is clear.
Identity and address proof: NRIs should furnish their Indian passport, PAN card, and proof of address in their country of residence for verification.
4. Verification and Due Diligence
Before proceeding with the registration of property, due diligence must first be done by NRIs. Such due diligence should include:
Title verification: Ensuring such title is indeed clear and in any event lacks a decree or order of the court upon it, lest the title to it should be tainted by claim or encumbrances.
Legal disputes or claims: NRIs must verify that the said property has not been subject to any litigation or case proceedings.
Engage in a legal expert: A property lawyer would help in the scrutiny of all documents and ensure that the property transaction is instituted according to Indian laws.
5. Registration Process for NRIs
The registration process for NRIs follows a series of steps:
For both buyer and seller, their presence is mandatory at the sub-registrar’s office to complete the registration process. In the absence of the NRI, a representative holding a valid Power of Attorney may represent the individual in the registration process.
Stamp duty and registration charges: It is mandatory to pay stamp duty for property registration. This varies from state to state, and the payment of registration charges is made at the sub-registrar's office.
Submission of documentation: The NRI buyer is required to submit all the documents for scrutiny during the registration process- title deed, sale agreement, Power of Attorney, etc.
6. Power of Attorney (PoA)
The PoA is an important instrument to be used by NRIs who cannot be present at the time of property registration in India. A PoA authorizes someone, usually someone who is trusted, to act on behalf of the NRI in legal proceedings associated with the property.
General PoA vs. Specific PoA: A general PoA allows the representative the authority to perform all acts in connection with the property, whereas a specific PoA allows only a designated transaction or action.
Legal verification: The PoA must legally be executed and attested by the Indian Embassy or Consulate if the NRI executes such PoA abroad.
7. Tax Implications and Compliance
NRIs must remain fully apprised of the tax implications of buying property in India. Here are some important details NRIs need to know:
TDS: The NRI is liable to pay 1% TDS on the sale price of a capped sale price of more than INR 50 lakhs while purchasing the property from a resident Indian.
Capital Gains Tax: NRIs are subject to capital gains tax on selling property. Long-term capital gain arrangements are taxed at a rate of 20% (held for more than two years), whereas for short-term capital, the tax rate stands at 30% instead.
Repatriation of sale proceeds: The sum amounting to up to 1 million USD per financial year can be repatriated abroad by an NRI selling their real estate after payment of taxes.
8. Common Legal Pitfalls to Avoid
NRIs should be careful to avoid these common legal pitfalls:
Property Titles: The most common cause of standstill in the real estate process is that they have dubious or fake titles, so always check for yourself that the titles on the property are legit and clear. It is prudent to have your lawyer assess the genuineness of the title documents.
Unregistered Agreements: All agreements, including sale agreements, need to be registered so that there is no legal issue later.
Missing NOCs or Clearances: Ensure that no-objection clarifications for all relevant authorities and clearances are obtained before the completion of the buying process, particularly when dealing with agricultural land.
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