How to Buy a Resale Property from an NRI in India

Buying a resale home from an NRI in India is allowed for Indian citizens, OCI, or PIO cardholders. Purchasing property from an NRI involves verifying title documents, checking if the NRO has legal ownership, and ensuring that the NRI does not have any legal disputes or any kind of loan. The payment is made in Indian rupees only through proper banking channels and not in any foreign currency. The NRI seller must obtain a Tax Deduction Certificate (TDS) under Section 195 of the Income Tax Act. Buyers should consult the lawyers to check all the documents, including the power of attorney, if someone else is representing the NRI. Also, ensure the sale agreement is registered. Buying property from an NRI in India requires due diligence for a secure and legal transaction.

Eligibility Criteria for Buyer (Resident Indian)

Indian citizens can legally buy properties from NRIs in India. However, they must meet certain eligibility criteria for a valid and hassle-free transaction. Below are a few eligibility criteria to keep in mind before buying:

• Residential Status: To purchase property from an NRI, the buyer must be a resident of India, a Person of Indian Origin (PIO), as defined under FEMA regulations.
• Valid PAN Card: The buyer must have a Permanent Account Number (PAN) for tax-related formalities, including TDS deduction and registration of the property.
• Tax Dedication at Source(TDS): Buyers must deduct TDS (20% or more) on the sale amount and deposit it with the Income Tax department. This is the key step for buying property from NRI TDS compliance. 
• Mode of Payment: The payment of the property is made through Indian rupees only, using a regular banking channel, and not via foreign currency or cash.
• Legal Documentation: Before purchasing, the buyer must check the proper ownership verification documents, the Encumbrance Certificate, and legal clearance. 
• Power of Attorney (If Required): If the NRI seller is not physically present, then the buyer must verify the validity and authenticity of the power of attorney used for the transaction.

Documents Required for NRI to Buy Property in India 

NRIs can easily buy property in India, but they need to provide specific documents to complete the process. The right paperwork ensures the process is smooth with legal work and proper ownership transfer. Below is the list of documents required:

• Valid Passport: A valid passport or VISA is needed to prove the identity of the NRIs and their nationality when buying a property.
• PAN Card: A Permanent Account Number( PAN) is required to register property and handle tax-related matters.
• Address Proof: NRIS must provide address proof for their current overseas residence and, if they have an Indian residence, it should be provided during the purchase.
• Photograph: A recent passport-size photograph is needed for official documentation, registration and legal identification during the property purchase. 
• Power of Attorney: If the NRI is not available in India, the power of attorney is given to a trusted person who can deal with the property on their behalf.
• Bank Account in India: An NRO/NRE must have a bank account in India to make payments for the property and handle financial transactions. 
• Sale Agreement or Allotment Letter: This document confirms the terms of the property sale or allotment and is essential for verifying the deal. 
• Income Proof: Some banks ask for proof of income or job details to ensure that the buyer has a legal and stable source of income.

Buying A House from an NRI And the Role Of POA

When you want to buy a home from an NRI and you notice that they are going to return to the country sometime soon, what happens? In this case, if the NRI still wants to go through with the sale, they will grant POA to someone they trust. POA or Power of Attorney is a legal authorisation given to a person by the NRI to represent them and act on their behalf. If an NRI is selling property in India and can’t be here, this is the only other alternative.

If the POA was granted overseas, then the document should be executed by the Grantor before the Indian Consulate Officer. The original document should also be adjudicated at the jurisdictional District Registrar’s office. To avoid tax implications, some NRIs consider buying property in their parents’ names, but this approach comes with its own set of considerations.

If you are planning to buy the home through a loan from a bank or HFC (housing finance companies), then you will need to get the POA done as per their proforma. This information is easily available when you contact the bank or when you visit their website

How TDS is Calculated While Buying a House From An NRI

It’s important to note that the duty of paying TDS falls on you as the buyer; if this is not done, you can expect an inquiry to be made into your property purchase. The TDS is as follows –

• TDS of 22.88% – for property valued above Rs.50 lakhs to Rs.1 crore
• TDS of 23.92% – for property valued above Rs.1 crore
• TDS of 20.80% – for property valued below Rs.50 lakhs
• TDS of 20.80% – for property valued below Rs.50 lakhs

Example: If a house is sold for ₹1 crore and is a long-term capital asset, then the TDS of around ₹23 to ₹24 lakh is applicable. The buyer must deduct this amount and deposit it with the Income Tax Department. It is advisable to consult a tax expert for accurate calculations

TDS Applicability

Tax Dedication at Source (TDS) applies when buying a property from an NRI, under Section 195 of the Income Tax Act. The buyer must deduct TDS before making the payment to the NRI seller. Generally, the rate is 20% for a long-term capital gain, plus a surcharge and cess. The short-term rules apply if the property is sold within 2 years. The TDS must be submitted to the Income Tax Department to ensure property tax compliance and to avoid penalties for the buyers.

Procedure for NRI to Sell Property in India

NRIs are eligible to sell property in India but must follow certain procedures and RBI rules to avoid any penalties or delay. Below are a few steps to keep in mind:

•  Verify Ownership Documents: Make sure to have a clear title, a sale deed, and an Encumbrance Certificate available to prove the ownership and avoid any kind of dispute.
• Appoint a Reliable Power of Attorney: If the NRI is not in India, then the power of attorney is given to a trusted person to make the deal and sign the documents legally.
• Find a Buyer and Finalise the Deal: Find a buyer, negotiate with them, sign the formal agreement and make the payment.
• Pay Capital Gain Tax: It is important to pay the capital gain tax and make sure that the buyer deducts the TDS and submits it to the Income Tax Department.
• Penalty: If you delay paying the TDS, the penalty is 1 to 1.5% of the amount that needs to be paid per month. If you file late, the penalty will be ₹200 per day, which could be up to ₹1 lakh.

Registration & Stamp Duty

Registration and Stamp Duty are necessary when buying or selling a property in India. The buyer must pay the stamp duty, usually 4 to 7%, and registration charges, typically 1% based on the property’s value. These charges vary from state to state. Registration is done at the nearest sub-registrar’s office to transfer ownership legally, and both parties and two witnesses sign the sale deed. Registration is compulsory for the transaction to be completed.

TAN Account

It is also important to have a TAN account, which is a Tax Dedication and Collection Account Number. As per section 195, you cannot deduct TDS without a TAN account. If this is missing, you might again be penalised by the Tax Department. It’s important to note that if you are buying the property jointly with another person, both of you need to have TAN accounts, or you will both need to apply for accounts.

Transaction Through POA

Buying a resale home from an NRI seller using a Power of Attorney (POA) is possible, but there are some important precautions to take:

Validity of the POA:

• Registered POA: A registered POA is mandatory. Notarised POAs are not sufficient. The POA needs to be registered at the sub-registrar’s office in the jurisdiction where the property is located.
• NRI Execution: If the NRI seller executes the POA abroad, it must be attested by the Indian Consulate or Embassy in that country.
• Validity Period: The POA should be used within three months from the date of execution.

Payment:

• Don’t pay the POA holder: The buyer should transfer the money directly to the NRI seller’s NRE or NRO account. Even if the POA allows the holder to receive payment, it’s safer to avoid this.

Important Points to Remember

•  You must insist that the deal can take place only if they accept the payment in their NRE (Non-Resident External) / NRO (Non-Resident Ordinary) / FCNR (Foreign Currency Non-Repatriable) accounts. To make the process of selling their home easier, they might suggest making the payment to their Indian Bank account. However, this is not advised and might lead to legal complications. You will also need to mention clearly the seller’s account details in your Sales Deed.
• The seller must have a PAN (Permanent Account Number)
• Double-check with OR hire professionals who deal with NRI real estate dealings. These experts will see to it that the deal goes off smoothly and there are no legal issues.
• Regulations around NRIs’ immovable property can affect who they can sell to and what type of property they can hold.

Is it advisable to buy a property from an NRI?

Buying from an NRI can be a good option if you find a great deal and properly manage the potential drawbacks. Here’s what to consider before making a decision:

• Have a lawyer: Involve a lawyer specialising in real estate transactions with NRIs to navigate legalities and ensure a smooth process.
• Do your research: Conduct thorough due diligence on the property and the seller’s ownership rights.
• Understand tax implications: Be clear on the TDS requirements and any potential capital gains tax for the NRI seller.
• Clear communication: Maintain clear communication with the seller (or their POA holder) to avoid delays or misunderstandings.

How NoBroker Can Help?

These tips on buying property from NRI’s should make the buying process a little simpler. However, if you have any more questions do write to us, NoBroker will help you find, and provide you with assistance, to get the home of your dreams. When we buy property from NRIs, it might seem like a daunting task, but with the right team by your side you won’t have any problems.

Frequently Asked Questions