Are you an overseas citizen of India and willing to invest in property? Is a volley of puzzles restricting you to invest in property in India? This article has every touch point that breeds confusion in your mind regarding property investment. Read and dispel all your doubts.
Who is an OCI?
Overseas citizens of India or OCIs are a kind of non-resident who:
- Were the natives of India at or after the formulation of constitution (in 1950).
- Were eligible to procure citizenship of India on 26th Jan, 1950.
- Were the citizens of the territory that was the part of India in 1947.
- Are the descendants of Indian natives.
- Have one of the parents or grandparents hailing from India.
- Is the spouse of OCI card holder or any citizen of India.
- Is eligible to enjoy visa-free travel to India till lifelong.
Which restrictions do OCIs follow while purchasing property?
Like NRIs, overseas citizens can invest in immovable property that can be any:
- Residential property
- Commercial property
Such card holders can have inherited property in their name. The apex funding entity called ‘Reserve Bank of India (RBI)’ does not intercept. Even, the expat needs not take permission from it. What they all require to do is to present the valid and authentic documents namely:
- Valid passport
- Address proof
- Permanent Account Number (PAN)
- Passport sized photographs of self
- OCI card
But they are barred from purchasing so called immovable land or property which includes:
- Agricultural/plantation property
- Forest land
- Farmhouse or field
What about repatriation of funds?
‘Repatriation of funds’ stands for the channelization of money from the foreign country to India or any other country of his/her origin. Suppose you send hundreds of dollars from the US to your relatives in India. This practice will be considered as repatriation of fund.
Those who apply for OCI card must bear in their mind that their right to invest in the property will be identical to NRIs. They can spend money to purchase the foretold immovable property barring the agro-land. But the amount must not exceed $1 million in a financial year.
But here, these two points must be focused before paying the amount:
- The payment should be made in Indian currency via normal channel as foreign currency is unacceptable due to FEMA tenets and RBI regulations. The overseas citizen can transfer money through his/her NRE or NRO account.
- The amount channelized through normal account or NRE account must not exceed the cost of property. For example, an OCI from UK credited his NRE account with $5000 to pay the cost of the property purchased in India. And the property amounted worth $ 4000. In this case, the amount sent would exceed the amount required. Consequently, RBI can object over it.
But if the amount sent from UK would be equal to cost of property, none of the governing bodies would intercept in that matter.
What channels do overseas citizens have to fund the property?
- NRE or Non-Residential External (Rupee) Account: This account allows OCI card holders to do monitory transactions in rupees. And the most leveraging aspect of this a/c is that the person can authorize a person via PoA to deliver cheque or other banking material for payment. The person can regulate it through post office here.
It’s inconvertible that implies the foreign currency would be converted into Indian rupees at the time of depositing money.
- NRO or Non-Residential Ordinary (Rupee) Account: The Regulation 1(vi) of Notification No. FEMA 5/2000-RB formulated on 3rd May of the year 2000 allows overseas citizens to transact money in saving, current, recurring or fixed account. But the transaction through PoA shall be unacceptable.
The foreign currency would be converted into Indian rupees in this account. But the account holder must maintain the minimum balance of INR 10,000 in it.
- FCNR or Foreign Currency Non Resident (Bank) Account: This account allows deposition of foreign currency from 1 year to 5 years. And the amount deposited in it would be convertible freely.
What if they can’t be physically present to sign the paper?
Power of Attorney delivers legitimate right of signing the deal or confidential paper. If the expat is unable to mark his/her presence for signing the papers of the property purchased, PoA holder can represent him/her. His signatures would be valid in the registration documents of the property. But the paper must be inked in the very presence of a notary or consul.
Here the PoA holder must bear in mind that the right would be valid for only 3 months from the date of assigning it. Within that stipulated period, the PoA holder should sign the paper in the registration office.
How to calculate taxability on rental income by OCIs?
The Income Tax Act of India mandates tax on property if it is rented out. The rental income would be taxable in India since it is termed as a capital gain. It can be for short term and long term.
Let’s see how the rental income would be termed short term capital gain and long term capital gain.
- Short term capital gain: Suppose the overseas citizen purchased a residential flat worth INR 50 lakhs. Within 3 years, he was offered INR 60 lakhs on being sold that property. In this case, the profit amount (50 lakhs – 60 lakhs=10 lakhs) would be taxable.
It means that the tax would be calculated on the profit earned within short interval, i.e. within 3 years. It would be calculated as per revised tax slab of that financial year.
- Long term capital gain: If the OCI card holder sells the property to earn profit but after three years of property purchased, it would be considered as the long term capital gain. In this case the indexation benefits will be of the buyer.
And when the indexation benefits are deducted from the amount of profit, the spared amount would be taxable @ 20.6%. The taxable percent can be variable, i.e. as per revised tax slab.
The person can get rid of that tax if he/she invests that amount in the bond by REC or NHAI that are specified under Section 54EC. But the time for investment is fixed, i.e. 6 months after the sale.
The profit earned through sale of the property can be exempted from the tax if it is sold after the specified years of property purchased.