What a person should keep in mind while buying a property from an NRI ?
March 18, 2020
Investment in real estate for any purpose is considered to be very prospering for the future, be it for the use of living, or for commercial benefits. However, purchasing a property in India can be a bit tricky if your seller is a Non Resident Indian, NRI, as compared to the rest of the sellers. The process becomes complex because of the additional legal formalities involved. The multiplicity of rules and regulations involved make the purchase a complicated affair. Hence, if you are planning to buy a property owned by an NRI, here are our few tips that might come handy to sail you through the process smoothly. Have a look.
The Foreign Exchange Management Act (FEMA) allows the Nonresident citizens of India to sell their property to the people of Indian Origin (PIO) and citizens of India.
However, while buying the property from an NRI, don’t forget to check if the foreign nationals are currently residing in Afghanistan, Bangladesh, Bhutan, China, Pakistan, Nepal, or Sri Lanka. If the answer is a “yes,” check if they have the approval from the Reserve Bank of India (RBI). If you are planning to buy a farmhouse or an agricultural land from an NRI, the support from RBI is mandatory.
Power of Attorney
Generally, to avoid the complexities of the procedure and legal formalities, the foreign nationals prefer to sell their properties through a third party. This procedure requires them to hand over the Power of Attorney to the third party, which gives them the authority to sell the land on behalf of NRIs. If you are buying a property owned by an NRI through a third party, make sure that you check the legal papers of Power of Attorney, duly signed by an officer in the Indian Embassy.
The buy-sell agreement
The agreement made between the buyer and the seller of the property must be written in Rs. 50 stamp paper, where both the parties must sign the documents in the presence of two witnesses, one from each side.
The agreement includes the exclusive details of the property such as the actual cost of the property, the advance amount paid (if any), the duration in which the sale would be completed and most importantly, a clause mentioning how to proceed in case of any default from either parties. Check the original title deed, previous deeds, receipts of property tax and the Torrance Plan of the seller. Once all the documents are verified, register the property.
TDS, Tax Deducted at Source, is a prevalent term used in daily business. However, while buying a property from an NRI, some buyers are unaware of Section 195 of the Income Tax Act, 1961. It says that you will have to pay the tax before making the payment to the NRI.
The TDS is charged at the rate of 20.6% for the property priced under INR 1 crore. The property exceeding the price is charged with 22.66 percent of TDS.