Property in India can only be purchased by a Person of Indian Origin (PIO), including Non Resident Indians (NRls), along with residents of India.
NRIs are those people who hold an Indian passport and nationality, but are not resident in the country.
Purchasing an off-plan property in India is a step-by-step process which is regulated by respective state laws and by local practice through three stages:
1. Reservation Contract
2. Preliminary Contract (Agreement to Sale)
3. Final Contract
Each stage will require that you make a deposit; the developer may also require additional periodic deposits in a staged manner which will be agreed contractually with the purchaser.
Financing is available in India for NRIs or PIO for off-plan purchases. Typically, up to 85% of the property can be financed by local banks.
A full guide to purchasing property in India can be found below:
Residential Property Investment
Off-plan Purchasing Process
Mortgages
NRI & PIO Bank Accounts
Purchasing Fees & Expenses
Legal information & Documentation
Taxes & Costs
Residential Property Investment
In recent years the Government of India has introduced more liberal policies to enable NRls to invest in India, with no limitations on the number of properties that can be owned. However, since property transactions and holdings count as dealing with foreign exchange, all investment must abide by the legalities set out in the Foreign Exchange Management Act (FEMA) of 1999.
Investors are permitted to acquire any form of property in India with the exception of agriculture, plantation property or a farmhouse without the need of formal permission from the Reserve Bank of India (RBI).
A declaration of purchase of any property must be made to the RBI.
A declaration of purchase of any property must be made to the RBI.
Residential properties can be purchased using inward remittances from anywhere outside India or through funds maintained in NRI bank accounts in India.
Non Resident Indians are permitted to sell a property to any person resident in India or to another Non Resident Indian or to any Person of Indian Origin. A Person of Indian Origin is free to sell their property to any person resident in India or to a Non Resident Indian but may only sell to another Person of Indian Origin who is not resident in India or an NRI with the strict approval of the Reserve Bank of India.
NRls are permitted to transfer the ownership of any property to a resident Indian without any approval or restrictions.
NRls may inherit property owned by other NRls if the property was bought within the provisions of the foreign exchange law in force at the time of the property acquisition.
A POI may acquire any immovable property in India by way of inheritance from a person resident outside India provided that the property was bought within the provisions of foreign exchange law in force at the time of the property acquisition.
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The Off-plan Purchasing Process
1: Property Search
Your Hamptons Sales Negotiator will assist you to choose your preferred Indian property or register your interest for upcoming projects.
Hamptons India provides some of the best properties available in the market and a will give you full assistance throughout the purchase process.
2: Pre-sales Priority Form
For upcoming projects, Hamptons India’s procedure is to issue a pre-sales priority form which allows you to register your interest. This will help you secure your property whenever it comes to market. Pre-Sales Priority Forms are given the choice of properties on a first come first served basis at time the properties are brought to the market.
3: Reservation Contract and Mortgage Agreement in Principle
Once you have chosen which property you are interested in, Hamptons India can assist you to get your mortgage agreed in principle. We recommend processing your mortgage as early as possible and getting a pre-approved loan based on your documentation to progress your purchase in India. At this stage you will also need to open a bank account in foreign currency.
4: Preliminary Contract and Mortgage
Hamptons will arrange signing of the Preliminary Contract with the developer and follow-up with your bank. The Preliminary Contract is the stage when your property can be financed because it starts to have a legal existence.
5: Construction Progress and Additional Payments
Hamptons will liaise regularly with the developer to provide you with status updates on the progress of constructions. During the construction cycle of your property, additional payments are usually required by your developer. In most situations these payments will be covered by your mortgage.
6: Final Contract
Hamptons will arrange signing of the Final Contract with the developer of your property and follow-up with the administrative paperwork to confirm that your property is legally recorded and that everything is in working order. Hamptons will also liaise with the developers to ensure relevant stamp duty is paid the Final Contract (Sale Deed) is registered as per law.
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Mortgages
When purchasing a property through Hamptons International we can assist you with your Mortgage arrangements. We can:
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Request an Agreement in Principle with local banks at the time of the Reservation Contract.
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Work to get you the best possible deal, matches your individual requirements.
Many Indian banks offer specialised home loan and mortgage schemes specifically for NRI investors. In some cities such as London or Dubai there are also Indian banks that can further help simplify your property purchase.
Investors are permitted to acquire mortgages without prior approval from the Royal Bank of India (RBI) and can repay the loans through inward remittance via normal banking channels, via Non-Resident External Rupee Account (NRE) or Foreign Currency Non Resident account (FCNR) accounts or directly out of rental income.
We recommend you seek both personal tax and legal counsel prior to purchase of property in India.
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NRI & PIO Bank Accounts
A Non Resident Ordinary Rupee Account (NRO) may be maintained by any person resident outside India. These accounts can be maintained for savings, current accounts and recurring or fixed deposits. The account can be credited with remittances received in any permitted currency from outside India or legitimate dues in India. All local payments in rupees and remittances outside India of current income are permitted to be made from a NRO account subject to the necessary compliances.
Non-Resident External Rupee NRE accounts may be opened without any approval if the funds for the account are transferred in freely convertible foreign currency. These accounts can also be maintained for savings, current accounts and recurring or fixed deposits. Balances held in this account and any interest earned on this account are exempt from tax. NRls may jointly open this account with another NRI.
A Foreign Currency Non Resident account (FCNR) is a deposit only account which may only be held in Pounds Sterling, US Dollars or Japanese Yen. The deposit is accepted for a period of not less than six months and not above three years. Remittance from abroad has to be made in the foreign currency in which the account is nominated to be maintained. The balances and the interest on this account are also exempt from tax.
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Purchasing Fees & Expenses
Consecutive expenses and rights to an acquisition of a real estate will be your responsibility as a purchaser. Expenses generally include; property taxes, stamp duty, registration fees, legal fees and administrative charges.
Administration Fees
When you purchase a new development property through Hamptons International, the process is free of charge for you, the purchaser. We are here to provide a genuine added value service to assist you during the entire purchase process. No commissions are requested from you, despite the market practice.
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Legal Information & Documentation
Home Loans
Loans can generally be obtained for around 80 to 85% of the property value. A number of personal documents are required for your home loan applications. Disbursement will happen only when purchase of the property is confirmed.
Documents required by salaried Non Resident Indians
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Loan application form completed and signed.
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Two photographs of both the applicant and the co-applicant with signature on front and back.
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Copy of passport. (Along with latest visa stamp and date of entry stamp), Proof of residence in India. (Electricity / Telephone bill / Ration card / Society maintenance bill / LIC Policy / Mobile bill / Utility bill like Gas Supply bill), Proof of residence in Abroad (Electricity / Telephone Bill / Mobile Bill / Utility Bill e.g. Gas Supply bill / Driving License), Copy of Identity card / Social Security card / Work permit (Hikama) Copy of credit card. Last six months bank statements of all the NRE / NRO account in India.
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Bank statements for the last six months from bank account held abroad where salary is deposited. Copy of Contract / Employment Certificate Copy of Annual Salary Certificate specifying the mode of payment (If payment is fully or partly received in cash) Salary Slips for the immediately past six months.
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Copies of Sanction Letter of Loans availed in India and abroad. Self Declaration of Residential Status Initial Processing fees.
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Please note that all the above documents need to be certified by the Indian Embassy abroad. Documents relating to income / salary needs to be attested as true by your employer.
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All documents in foreign language need to be translated in English.
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Taxes & Costs
Income Tax
Investors must pay income tax in India on any rental income received from their Indian property holdings. However, a flat rate deduction of 30% of rental income is applicable before assessing the level of taxable rental income. If a property is purchased out of borrowed funds, the interest payable qualifies for deduction against rental income.
If more than one property is owned, which is used for self-occupation or is vacant, an investor is liable to pay tax on the notional rental income on any additional property. An investor is eligible for a 30% reduction on the notional rental income when calculating the notional property income for tax purposes.
Investors do not have to pay tax on any interest earned from the proceeds of both rental income and capital gains as long as these proceeds are placed in specialist non resident bank accounts, an NRE or a FCNR account.
Wealth Tax
Investors are also liable for wealth tax annually on certain assets including immovable properties. However, one residential house is unconditionally exempt from wealth tax while residential property which is let out for a minimum period of 300 days during the year is also not liable to wealth tax. In computing the wealth, the borrowing specific to the purchase of a property which is subject to wealth tax is deductible. Wealth tax is levied on all taxable properties at 1% of the value exceeding INR 1.5 million.
Capital Gains Tax
Investors are permitted to repatriate any proceeds from the sale of residential property (restricted to a maximum of two properties) in India although the amount to be repatriated must not exceed that originally paid for the property either in foreign exchange by debit to a NRE or a FCNR account.
Capital gains may be credited to an NRO or FCNR account from where an investor may repatriate up to US$ 1 million per financial year. Investors have to pay capital gains tax in India on their capital gains from the sale of any property. Capital gains on properties held for more than 36 months is calculated by indexing the cost of acquisition and is taxable at 22.66%.
An exemption may be available against capital gains for any re-investment of sale proceeds of the property into another residential property or if the funds are locked into government bonds for at least three years. Capital gains on properties held for less than 36 months are subject to tax at 33.99%.
As capital gains tax in India is higher than in the UK, investors would have no UK capital gains tax liability as a result of the double taxation relief agreement between the governments of India and UK
Other Costs
Investing in Indian property also attracts following costs:
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When buying, these include stamp duty, registration charges, legal charges and mortgage related costs such as processing and valuation fees.
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When selling the main costs include brokerage and solicitors fees.
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When renting out a property the main cost is payment to a managing agent and/or brokerage.
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For more information on purchasing in India please email our India Sales team on indianinfo@hamptons-int.com.
Disclaimer
No warranty or representation is made by HIIPL or any other person in relation to the information outlined above or any of the Information contained herein and no information set out herein shall form the basis of any contract. Any contractual arrangements between the parties shall be set out in a separate contract. The information contained herein does not purport to be comprehensive or complete and may be subject to change from time to time upon notification by HIIPL.