Being a landlord is a happy thing, however, buying property from NRIs is a big task. As the realty transaction with an NRI is a bit tricky. The entire process comprises several legalities. But, you need not worry, as this blog post lets you know all the details for purchasing an immovable asset from a Non-Resident Indian.
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Who are NRIs?
NRIs are non-Indian residents who stay abroad for a longer tenure. Any person staying in India for less than 182 days is said to be an NRI. The individual can stay outside India for employment or business purpose.
When buying property from NRIs, take care of tax liabilities, paperwork, TDS Deductions, etc.
Tax Liability and Transactions When Buying Property from NRIs
According to law experts, the taxation amount is diverse for NRI and regular Indian sellers. As per Section 195, a buyer should have a tax deduction against property purchases from non-Indian residents. Also, the tax deduction is payable when transferring the purchase amount to the NRI. The tax applicable on owned property from NRIs stands at 20 percent. While it is only 1 percent in case, the seller is a regular citizen of India.
Property’s sale value is the basis for TDS calculation. However, NRIs intend to calculate tax on the property value. So, be cautious when buying property from NRIs and ask if the outstanding taxable amount is paid or not. If unpaid, then buyer, who is the new owner of the property is liable to pay all the outstanding amount + 12 percent interest.
TAN – Mandatory When Buying Property from NRIs
TAN is pivotal if you wish to get into a real estate deal with NRIs (non-Resident Indians). As per Section 195, a person must mandatorily have TAN i.e. Tax Deduction and Collection Account Number. If TDS is subtracted without TAN, then the Income Tax department will penalize the buyer.
Interestingly, do not forget that if joint owners are buying property from NRIs, then they all must have a separate TAN number.
Penalties on Violating Section 195
Property buying can be a seamless affair, only if rules and regulations are not broken. But, there are repercussions of not following the norms of buying an immovable property. Scroll down to know what all penalties are implacable for violating Section 195.
- Firstly, a penalty of Rs. 10,000 is implacable if the buyer fails to produce his/her TAN or PAN Number.
- Secondly, a penalty of 100 percent is implacable if the buyer fails to deduct TDS fully or even partially.
- Finally, the fine of Rs. 100 on daily basis can be in place if there is a delay in filling the TDS return.
Any irregularity caused when buying property from NRIs can bring your ownership under the scanner. If your transaction is monitored for the delay in payment, then you need to pay a hefty penalty.
Payment in NRO/NRE/FCNR Account
Usually, Non-resident Indians insist on making real estate transaction in their Indian accounts. However, focus on making monetary transaction in their NRO/NRE/FCNR account. NRO stands for Non-Resident ordinary, and NRE stands for Non-Residential External. Similarly, FCNR stands for Foreign Currency Non-Repatriable account.
Ideally, the sale deed must have the name of the account in which the payment is being transferred.
Things to Remember when Buying Property from NRIs
Other than these points, here are a few things you must keep in mind when closing a real estate deal with a Non-Resident Indian.
Firstly, it is compulsory to have the Seller’s PAN (Permanent Account Number).
Secondly, the seller should be present in India to close the deal. In case, of his/her absence, check if any other person has the authority to close the deal on his/her behalf in front of the registrar. The person must have given PoA (Power of Attorney) to someone to close the deal if he/she is unable to come for the same.
