|NRI investments in real estate
Non Resident Indians are allowed to make real estate investments in India without any cap on the quantity or the number of investments. But instead of giving a preferential treatment to NRIs bringing in valuable foreign exchange, the government goes all out to make investments in real estate a difficult proposition with a set of regulations that an NRI has to follow under the Foreign Exchange Management Act, 1999.
All purchases and sales are bound by the rules and regulations under the FEMA, which replaced the earlier Foreign Exchange Regulations Act. After fulfilling the formalities stipulated by the RBI to bring in investments, the NRI faces yet another hurdle - there is a cap on returns he can repatriate out of the investments made in immovable properties in India.
Foreign direct investors in sectors where foreigners are permitted to invest are allowed to repatriate profits from businesses in India as dividends. NRIs have no dividend option for repatriation. In areas where NRIS are allowed to repatriate profits like deposits, it is estimated that NRIs have made deposits of nearly US$ 10 billion.
NRI interest is high on deposits as the interest accruals on such deposits and the deposit amount itself can be repatriated. Only preference that an NRI enjoys in commercial or capital investments like real estate, banking and civil aviation is that the investments caps for NRIs are higher than for a foreign national.
NRI Investment in real estate regulated by FEMA
All NRI investments in real estate or immovable properties are considered as transactions that gets regulated under the FEMA. This is essentially because an NRI would be dealing with foreign exchange. It is considered to be a type of transaction which is bound to have some international financial implication. The current account transactions or capital account transactions of the NRI which are used to make investments in real estate thus gets automatically regulated under FEMA. Current Account Transaction consists of payments due as interest on loans and net income from investments.
Capital Account Transactions
Capital Account Transactions means transactions which alters the assets or liabilities, including contingent liabilities outside India of an NRI. It includes transactions involving acquisitions or transfers of immovable property outside India, other than a lease not exceeding five years by an NRI or a resident, remittances outside India of capital assets of an NRI and foreign currency accounts in India of a person resident outside India. Even deposits between a person resident in India and a person resident outside India are considered as capital account transactions.
NRI regulations for purchase of property
The Reserve Bank has granted a blanket permission to NRIs to purchase property in India for their residential and commercial purposes. There is also no limit on the number of investments or the quantity of investments that can be made in real estate. The immovable property can be purchased by inward remittances from any place outside India or through funds maintained in NRI accounts in the banks within the country.
FEMA stipulates that before making a purchase a specified form called the IPI 7 needs to be filed with the central office of the RBI along with the title deed or any other certified copy of the document proving that the NRI has executed an agreement to purchase property within the country. The form has to he filed within 90 days of the purchase of property and has to be accompanied with a bank certificate stating the consideration paid for the purchase. Permissions are generally granted without undue delays if all the relevant papers are submitted.
NRI regulation for sale of property
NRI desiring to sell property within India has a lock in period of three years. That is, NRI under the FEMA regulations is allowed to sell property only after three years from the date of acquisition for the property or from the date of payment of the final installment of the consideration for its acquisition, whichever is later.
Repatriation or realty returns or sale proceeds
It is easier to bring money into the country. Getting out has a number of bottlenecks, which is a constant disappointment for the NRI community. FEMA says no matter what the proceeds of the sale may be, the amount for repatriation should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through the normal banking channels or out of funds held in foreign currency Non-Resident Accounts. The repatriation of sale proceeds is restricted to only two properties. NRIs are also restricted from repatriating returns form real estate investments in the form of dividends.