The depreciating value of rupee and the respite in property market in several cities are attracting Indians settled abroad to consider real estate investment in India. On the other hand, there are lots of NRIs who own ancestral properties in India or have contributed an additional amount to the existing property in India. Basis the automatic investment rule stated by the government, having an approval from the Reserve Bank of India is no longer required as the NRIs do not need to go to the Foreign Investment Paper Board for approval of investment.
Besides this, NRIs can also sell one of their properties in India to the other NRIs or the resident Indians as well. While purchasing a property from an NRI, the procedure remains similar to any purchase made from a Resident Indian. Immediately after finalizing on the property to be bought, it needs to be registered with the Municipal Authorities, followed by paying the registration charges for the same.
Though purchasing a property from an NRI can be a little tricky at times due to the TDS rules that differ depending up on the fact that the property is being purchased from a Non Resident or a Resident of India. The TDS rules such a case are governed by section 195 of the Income Tax act 1961. This is very crucial since the tax is required to be deducted at 20% for the property purchased from a non-resident, as against 1% where the seller is a tax resident. The TDS obligations in case of the purchase made from a resident kicks in is the property valuation is above Rs. 50 lakh. On the other hand, if the purchase has been made from a non-resident, TDS obligations are applicable in all cases under section 195.
Buyers often confuse themselves between the residency stated as per the tax laws and nationality. In clear terms, a non-resident is someone who owns a property, say, in Mumbai but does not reside there. The communication with the probable buyers takes place over telephone or e-mails. In some cases, the seller shares the property documents along with an identity proof and Aadhar or PAN card, post which a date is decided to meet for completion of the sale. These cards play a huge role in misleading the buyers, which even otherwise is unclear unless cleared by the property seller, backed by proofs.
Identifying the seller’s residential status
One way of determining the seller’s residential status is by directly asking if he is a non-resident. Further to this, another way of probing the authenticity is by asking for the seller’s passport details or I-T returns to determine the number of days stayed in India during the relevant period. There’s a high possibility that the seller might be reluctant on sharing these documents, in this scenario the buyer could ask for a certificate from the seller’s chartered accountant stating his tax residency in India. The tax residency in India gets determined basis the number of days the individual has stayed in India in the relevant financial year as well as in the past four consecutive financial years.
It is advised to get the agreement copy verified by an advocate as a precautionary measure arising out of arrears of tax liability.