What are the dos and don’ts of buying property from an NRI

Few things NRIs should understand what should you do and what you shouldn’t. Make sure to understand these effectively.

Dos When Buying a Property from an NRI

1.Verify the Seller’s NRI Status

First, make sure the seller is really an NRI. An NRI is someone of Indian origin living outside India for more than 182 days in a year. Checking the seller’s status is important because the rules for selling property are different for NRIs and resident Indians.

Tip: Ask for a copy of the seller’s Overseas Citizen of India (OCI) or Person of Indian Origin (PIO) card. Also, check their residential address and passport stamps to confirm their status.

2.Check Property Ownership Documents

Before proceeding, ensure that the NRI seller has clear ownership of the property. You should:

  • Inspect the title deed to verify whether the seller is the rightful owner.
  • Cross-check with the local municipal records for any outstanding legal disputes related to the property.
  • Ask for previous sale deeds, especially if the property has changed ownership multiple times.

Important: Title verification is very important. A legal expert can check if the property's title is clear and marketable, helping avoid ownership disputes in the future.

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3.Know the Tax Deduction at Source (TDS) Requirement

According to tax laws, when buying property from an NRI, the buyer must deduct Tax Deducted at Source (TDS) before paying the seller. The TDS rate depends on the property's value and the capital gains for the NRI.

  • If the property value exceeds ₹50 lakhs, the buyer is required to deduct TDS at 20% of the sale consideration (plus surcharge and cess) for long-term capital gains. For short-term capital gains, the TDS rate is higher.
  • The buyer must deposit the TDS with the Income Tax Department and issue a TDS certificate (Form 16A) to the NRI seller.

Note: Failing to deduct the correct TDS amount can result in penalties from the Income Tax Department, so it's an important step to get right.

4.Obtain RBI Clearance if Required

For certain properties like agricultural land, plantations, or farmhouses, NRIs need special permission from the Reserve Bank of India (RBI) to sell. As a buyer, make sure these approvals have been obtained.

5.Register the Sale Deed Properly

After buying the property, make sure the sale deed is registered at the sub-registrar’s office. For registration, make sure:

  • You pay the applicable stamp duty and registration fees based on the property’s location and value.
  • Both parties (buyer and seller) are present with witnesses during the registration.

A registered sale deed is crucial to make the property legally yours.

Don't When Buying a Property from an NRI

1.Don’t Skip Legal Assistance

When buying property from an NRI, the process can be complex. A real estate lawyer can help with title verification, tax implications, and ensure everything goes smoothly.

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2.Don’t Make Full Payment in Cash

Did you know? In India, paying or receiving more than ₹2 lakh in cash for property transactions is illegal. Payments above this amount must be made through bank transfers like NEFT, RTGS, or cheques.

  • Insist on making payments through official banking channels to maintain proper records of the transaction.

Important: Make sure that the payment is made to the NRI’s NRO (Non-Resident Ordinary) account, which is used for managing income earned in India.

3.Don’t Ignore Capital Gains Tax Implications

When buying a property from an NRI, the sale might trigger capital gains tax for the seller. The Capital Gains Tax for NRIs differs from that for resident Indians:

  • Long-term capital gains (if the property is held for more than 2 years) are taxed at 20% with indexation benefits.
  • Short-term capital gains (if the property is held for less than 2 years) are taxed at the applicable slab rate of the NRI.

As the buyer, you must ensure the NRI pays capital gains tax. If you don't deduct TDS at the correct rate, you might be responsible for paying the unpaid tax.

4.Don’t Overlook Power of Attorney (PoA)

If the seller uses a Power of Attorney (PoA) because they can’t visit India, make sure:

  • The PoA is valid and properly attested by the Indian Embassy or Consulate in the NRI’s country of residence.
  • The PoA document is specific to the property in question and authorizes the representative to sell on behalf of the NRI.

Warning: Avoid using a General Power of Attorney (GPA) with broad, unspecified rights, as it can cause complications later.

Factors to Consider When Buying from an NRI

1.Location of the Property

When dealing with NRIs, property transactions often involve prime real estate in cities or hometowns. Before finalizing the deal, think about the property's location. Is it in a growing area or a low-demand one? The location impacts the property's resale value, rental potential, and future appreciation.

2.Market Value

Before making any payment, assess the property's market value. It's a good idea to hire a property evaluator or check current market rates to avoid overpaying. You can also compare the circle rate with the market rate to negotiate better terms with the NRI seller.

3.Existing Loans or Liabilities

Sometimes, an NRI seller might have a loan on the property. As a buyer, ask for a No Objection Certificate (NOC) from the bank or financial institution to confirm that there are no outstanding loans or liabilities on the property.

Documentation Checklist for Buying Property from an NRI

Here’s a list of documents you need to check and collect when buying property from an NRI:

  1. Title Deed: To confirm ownership and transferability of the property.
  2. Encumbrance Certificate: To check for outstanding loans or liabilities.
  3. Power of Attorney (if applicable): Validated PoA in case the NRI is represented by someone else.
  4. TDS Payment Receipt: Proof of TDS deducted and deposited with the Income Tax Department.
  5. Sale Agreement: A detailed agreement that outlines the terms of the sale.
  6. NOC from Society: In case the property is part of a housing society, a No Objection Certificate (NOC) is required.
  7. Registered Sale Deed: Once the property sale is finalized, ensure it’s duly registered.

Conclusion

Buying property from an NRI can be complicated with extra-legal and tax details. To make the process smooth and clear, follow these tips: do thorough checks, get advice from legal and financial experts, and follow tax rules carefully. This will help ensure your transaction is straightforward and legal.

At Legal Verifier, we know that verifying, inspecting, drafting, and registration of legal-related things can be stressful and confusing for many individuals and businesses. That's why our team of legal experts handles these processes for you, ensuring you're legally protected and supported every step of the way.

Need help? Reach out to support@legalverifier.com
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Frequently Asked Questions (FAQs)

1.What is the rate of TDS when buying a property from an NRI?

●When buying property from an NRI, you are required to deduct TDS at 20% on the sale amount if the property value exceeds ₹50 lakhs and the NRI incurs long-term capital gains.

2.Can an NRI sell property in India without visiting the country?

●Yes, an NRI can sell property in India through a representative by executing a Power of Attorney (PoA). The PoA should be specific to the property and must be attested by the Indian Embassy or Consulate.

  1. What is the significance of Tax Deducted at Source (TDS) in property transactions with NRIs?
  • The buyer must deduct TDS on the sale price before paying the NRI seller, as per Indian tax laws. Ensure to deduct the correct amount to avoid penalties.
  1. Do I need special permission to buy certain types of properties from NRIs?
  • Yes, for agricultural land, plantations, or farmhouses, special permission from the Reserve Bank of India (RBI) is required.
  1. Why is title verification important when buying property from an NRI?
  • Title verification ensures that the property is legally owned by the seller and free from any legal disputes or claims.

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