Do’s and Don’ts for Buying a Property from an NRI

There is no doubt in saying that Covid-19 has affected the real estate market. Now people have understood the importance of owning a home at a posh area. Due to this pandemic, the demand for good residential property is expected to rise soon as it serves the purpose of providing secure living as well as a good investment option to gain benefits in the future.

Prior to this many NRI (Non resident Indians) have seen the potential in Indian real estate and have invested in it. With these unprecedented crises, many people are moving back into their home town, while some are selling their property to settle in another country.

It may look like a golden opportunity to buy property from an NRI, as the property is generally as good as new and is also pocket friendly. But it is not as easy to buy a property from an NRI as it is to buy it from a local resident.

Many people also get scammed because they lack the proper knowledge or information necessary to purchase a house from non-resident Indians.

The NRI’s role in the transaction will require a range of legal and financial obligations for the buyer. If you considering making such a deal, we will fill you up with all the necessary information.

• Special Power of Attorney: The foremost requirement is the presence of the seller at the time of sale or registration of the document. But if an NRI seller cannot be present for the transaction, he must assign a Special Power of Attorney (PoA) to his representative in India for the execution of the deal.
• TDS on Property: When the seller is a local, only 1% of the sale value is deducted by the buyer as TDS. In addition, if the cost of sales is less than Rs 50 lakh, no requirement for TDS deduction exists in respect of these transactions. When the seller is an NRI it is as follows:

As per Section 195 of Income Tax Act:

• Long Term Capital Gain Tax – 20%; or
• Short Term Capital Gain Tax – as per the income tax slab of the seller

In general:

• If the property is worth between Rs 50 and Rs 1 crore, the TDS limit is 22.88% of the contract value.
• If the property crosses rs 1 crore, the buyer shall subtract 23.92% of the value of the contract as TDS.
• 80% TDS shall be deducted, even if the amount of the contract is less than Rs 50 lakh.

The rates are high and they still include the tax on the offer on capital gains. Since the retailer needs to pay a flat fee of 20% of the real profits as capital gains tax, the customer has to deduct 20% of the transaction amount. To have the money refunded, the seller must contact the tax authorities. On its portion, the seller shall subtract TDS from the overall value of the deal. The buyer must give Form 16A to the seller after the TDS is submitted.

Usually, the duty to collect the TDS and send the sum to the authority, irrespective of the nationality of the purchaser, rests with the consumer. Thus, the taxing authorities will ask the buyer and not the seller if the TDS has not been deposited.

• Penalty: If the TDS is not received and forwarded, 12% of the outstanding amount would be drawn by interest. You will also be penalised by the I-T Department.
• Money Transfer: An NRI seller might ask you to deposit the proceeds of the sale into his Indian saving bank account in order to make it easier. The amount of sale should only be deposited in their Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) or Foreign Currency Non-Repatriable (FCNR) accounts. You should never deposit any amount in NRI’s account that they hold in India.
• Requirement of TAN & PAN Card: There’s another point where things change if you buy a non-resident ‘s house. If you purchase a property from the NRI, you would require a Tax Deduction and Account Number (TAN). In compliance with Section 195, the customer needs to have a TAN to subtract the TDS.

In absence of TAN, the IT Department can penalize you. When more than one purchaser is interested, they would also need to get a TAN. On the other side, the seller must have an Indian PAN card. However, they don’t have a TAN requirement.

Besides these following things will also help you while purchasing property:

• Since such deals are difficult, chartered accountants and attorneys should be employed to perform the business and escape any potential problems.
• The property to be procured should have to be purchased according to the FEMA (Foreign Exchange Management Act) or the Foreign Exchange Rule upon acquisition.
• When you apply for home loans to make a payment, the bank can even help with the tax deductible.
• When the property is shared by many owners, buyers have to pay according to their share of the house. The full pay out to one party could possibly lead to legal action in the future.
• TDS Document is very essential, you need to submit it to the sub registrar along with other documents, so make sure it is held carefully.

Owning a house is a big investment & you should always do proper research before using your hard earned money to buy any property. SBP group is always ready to help you with any kind of query related with real estate investments.

We intend to provide everyone with a safe & secure investment in residential property & because of that we have been able to earn trust of thousands of people and also earned the title of being No. 1 Housing Company in Punjab. You can get best residential property in Zirakpur, Derabassi & Mohali with modern amenities at affordable prices only with SBP Group.