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Real Estate FAQs

As you buy a new home, these questions will answer all common queries about buying and owing a property in India. Use this guide to acquaint yourself with rules, laws and important information.

Who can invest in real estate in India?

Apart from Indian citizens and corporates, investment in real estate is permitted, under specific conditions, to the following

Non-Resident Indians (NRIs)
Persons of Indian origin or citizens of India not presently residing in India due to reason of employment outside India or carrying on a business outside India. Persons of Indian origin include those persons who at any time have held an Indian passport or who have at least one parent or grandparent who were citizens of India. A spouse of an Indian citizen is also treated as a person of Indian origin. NRIs require general or special permission of the RBI to purchase and hold immovable property in India.

Overseas Corporate Bodies (OCBs)
OCBs are overseas companies, partnership firms, societies and other corporate bodies predominantly owned by NRIs, directly or indirectly, to the extent of at least 60%. This includes any overseas trust in which not less than 60% beneficial interest is held by NRIs, directly or indirectly but irrevocably. OCBs are permitted to invest up to 100% in six specific areas of real estate development.

Foreign Companies And Foreign Nationals
Foreign companies and foreign nationals are required to obtain permission of the RBI to acquire, hold, transfer, or dispose of in any manner (except by way of lease for a period not exceeding 5 years) any immovable property in India.

What forms of real estate investment can foreign nationals and companies invest in?

Investments in real estate may be direct as well as through purchase of shares/debentures of companies engaged in the business of real estate. NRIs and OCBs are permitted to invest in residential property in India, however, it must be for bona fide use. The property may be rented out if it is not immediately required for the purchaser's own residential use. NRIs (and OCBs) are also permitted to invest up to 100% in a new issue of equity shares or convertible debentures of Indian companies engaged in the following areas:


By its notification (No. FERA 133/93 date April 26 1993), the RBI has granted general permission to foreign companies (other than banking companies), which are not incorporated under any law in force in India, to acquire or hold immovable property which is necessary for or incidental to any activity permitted by the RBI under section 28 or 29 of FERA. This general permission is not applicable to foreign companies which have been permitted to open liaison offices or post representatives in India.

The acquisition, sale, etc. of immovable properties in India by foreign banks operating in India is governed by section 9 of the Banking Registration Act, 1949 which states that "no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years".

Foreign citizens (whether resident in India or not) and foreign companies are permitted to acquire residential property in India upon specific application to the RBI provided that the consideration for purchase of the property is met out of foreign exchange remitted from abroad in any convertible currency through normal banking channels.

Neither foreign nationals or companies nor NRIs and OCBs are permitted to invest in agricultural land, farmhouses and plantation property in India.

Are specific approvals required prior to investing in real estate?

As mentioned earlier, NRIs (and OCBs) require general or special permission of the RBI to purchase and. hold immovable property in India. Applications by NRIs a and OCBs for the purpose of making investments through purchase of shares/debentures are to be made to the RBI.

Although the RBI has granted general permission to foreign companies to acquire and hold immovable property, (under its notification No. FERA 133/93) a declaration must be made in Form IPI 5 to the RBI within 90 days from the date of the acquisition of the immovable property, except where acquisition is made by way of lease for a period not exceeding 5 years.

Specific applications under section 31 (1) of FERA for purchase of immovable property in India by foreign nationals/companies have to be in Form IPI 1 along with the requisite documents to the RBI. As mentioned earlier, the consideration for purchase of the property is met out of foreign exchange remitted from abroad in any convertible currency through normal banking channels.

According to the Income Tax Act 1991 any property sold for a value in excess of a specified limit (US$31,750) cannot be transferred without the vendor first submitting Form 37 (1) to the Income Tax Authorities.

Varying floor limits have been defined as follows:

MumbaiRs 7.5 million
DelhiRs 5 million
BangaloreRs 2.5 million
MadrasRs 2.5 million

The Income Tax Dept. has the ability to acquire the property for the stated purchase price if in their opinion the price does not reflect current market (thereby implying an non declared payment). Properties acquired under these provisions are resold by public auction.

What are the regulations governing the income generated from real estate investment in India?

Investment by NRIs

Income from investments in residential property is not repatriable outside. India but must be credited to the owner's Ordinary Non-Resident Rupee ("NRO") account. In case of properties purchased after 26 May 1993, RBI considers applications for repatriating the sale proceeds of such property up to the maximum of the original amount brought into India for purchasing the property. This is currently permitted for a maximum of two such properties and provided the property has been held for at least three years.

Repatriation of original investment in housing and real estate development through shares/debentures is permitted only after a lock-in period of three years from the date of issue of the equity shares/convertible debentures.

By its notification (No. FERA 155/93-RBI dated 16 September 1993) issued under section 29(I) of FERA, the RBI has granted permission to NRIs and foreign citizens of Indian origin to let out any immovable property in India. The rental proceeds or income of any investment of such income is not repatriable outside India at any time in future and such funds may be credited into the owner's Ordinary Non-Resident Rupee ("NRO") account maintained with a bank in India.

Investment by OCBs

Income from investment by OCBs in housing and real estate development through shares/debentures can be repatriable on the following escalating basis:


Also OCBs will be permitted to repatriate net profit (up to 16%) arising from sale of investment in housing and real estate development after the lock-in-period of three years

Investment by foreign citizens (non-Indian origin) and foreign companies

Income accruing by way of rent from the property purchased by foreign citizens (non-Indian origin) and foreign companies or the sale proceeds of such properties must be credited to the NRO account and cannot be repatriated outside India.

Currently, the Indian rupee is convertible only on the current account.It is expected that it will be made fully convertible within a couple of years.If this change is effected, the conditions relating to non-repatriability, as mentioned above, would automatically cease to apply.

What are the taxation laws pertaining to real estate investment in India?

Corporate income tax is levied at differing rates depending on the nature of company ownership. "Widely-held" companies, which are publicly listed companies of companies with a large shareholding by the government sector, are subject to the lowest rate. The following corporate tax rates apply;

Domestic Companies 40 percent
Foreign Companies55 percent

A surcharge of 7.5% of the tax is levied on domestic companies if taxable income exceeds Rs. 75,000 (US $ 2,400). This does not apply to foreign companies.

All zero tax paying companies will have to pay a Minimum Alternate Tax (MAT) of 12.9% effective.

India has tax treaties with a number of countries for the purposes of avoiding double taxation.

Depreciation allowances are, normally calculated by the declining balance method with varying rates as follows :

Building5 - 20
Furniture and fittings10 - 15
Plant and machinery25 - 100

Withholding tax applies to interest, dividends, salaries, contractor payments to non-residents at either the domestic rate or the applicable tax treaty rate, whichever is lower. For non-resident individuals and foreign companies the following rates apply :

Dividends20
Interest20
Royalties 30
Technical services fees 0
Rent 15 (w.e.f. July, 95)

The rent, as defined by law, is comprehensive and covers any income received by exploitation of any building or land together with amenities like furniture and fittings.

Stamp duty levy depends on the asset being transferred. The duty levied varies from state to state and from city to city and there is no uniform stamp duty on transfer of immovable property or a lease agreement.

The table below, however, details the indicative stamp duty rates asprevailing in the cities of Mumbai, New Delhi and Bangalore.

Buying Tips

The first step towards buying a property starts from being able to identify the one that suits your needs and fits your budget. With best rates and best quality homes, every developer offers you a perfect home. However, it is important to select the property depending on following criteria:

Parameter

Questions to be asked

Location Of Site

While choosing the location, you need to keep the following parameters in mind like proximity to the main roads, bus stops,railway lines, transportation services, civic amenities like educational institutions, park, police station, temples,community hall, hospitals, and auditorium within reach.

Affordability

Does the location fit your budget?

Place of work

How far is the office from the desired location?

Market place

Where is the nearest market?

School

Where is the nearest school?

Public transport

Are buses/trains easily available from the location?

Builder

Does the builder have a good reputation in the market?

Availability of water and electricity

Is there a steady supply of both?

Residential/ commercial

Commercial areas face traffic jams during working hours and level of noise is rather high

Hospital/ Medical services

Are they available easily?

Society expenses

Is the monthly outgo on the society and maintenance a strain on your budget?

Security

Are the security systems in place, like a professional guard or electronic systems?

Parking

If you own a vehicle, you will need space to park it

Type of ownership

In some areas, property is available only on a power of attorney or "pugree" basis. Getting funding for such properties is a problem.

Self constructed property (SCP)

SCP is a situation where you buy a plot of land and construct a house there. All banks may not fund such projects.

Under construction property at an
early stage

Many banks may not prefer to fund such projects. But if the builder is well reputed then it should not be a problem.



In case of a ready / resale property, you need to bear the following additional points in mind while selecting a property

Parameter

Questions to be asked

Chain of title

It is important to have all the proper registered documents from the proposed seller that declares his ownership. These documents are important for you to garner a loan from the bank.

Maintenance

Check the internal as well as the external condition of the building

Water leakages

A flat with water leakages should be strict no as it adversely impacts the overall condition of the building.

Condition of the flat

Is the paint peeling off or concrete crumbling?

Neighbours

Grumpy neighbours can make life very unpleasant.

Society transfer charges

If they are too high then you need to factor that in your budget.


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