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The Good News
With the prices of property in Delhi and Mumbai - be it commercial or residential - spiraling higher than those in the US and the UK, this may be the best time for all Non-Resident Indians (NRIs) to consider investing in the country. And the boom times aren't limited to just the metros. The concept of ultra-modern private integrated townships and world class infrastructure has taken wing in a big way in practically all cities and satellite townships in the country, thereby making investments in property in India most lucrative.

Amendments to the Foreign Exchange Regulation Act (FERA) now allow NRIs to acquire residential and commercial properties without prior permission from the RBI. You can even let out the property and credit the Income to your NRO account. A certain percentage of that income may be even repatriated abroad. The best part: there is no limit on the number of properties an NRI can buy.

If the property is for residential use and purchased after May 26, 1993, you are allowed to repatriate the "original investment" after a lock-in period of three years (that is, three years from the date of final sale deed or date of last payment whichever is later). You would, of course pay capital gains tax on the profit you make on the sale. For NRIs who are foreign citizens of Indian origin, repatriation is limited to two residential properties.

CAUTION 1 :
Repatriation is allowed only if payments for the purchase of the flat have been made through banks in India and from repatriable accounts (NRE/FCNR) - even if the purchaser pays through an NRE account you will not be able to take the funds out of India if you had not originally purchased it from an NRE/FCNR account.

CAUTION 2 :
Prior permission of the Income Tax department is necessary if the value of property being sold is more than certain limits (usually Rs. 10 lakhs for most cities. The ascribed value is more for the metros). Permission is to be obtained by Filling Form 37-I with the IT department.

CAUTION 3 :
Application for repatriation has to be made to the RBI within 90 days of the sale of the property. If you wish to avoid capital gains tax on the sale of property, (20% for long term) you could use the funds from the sale of the property to purchase new property within two years from the date of sale of the first property. Don't use those funds! All you need to do is to keep the proceeds in a separate account with a nationalized bank till you purchase the new property. However, this exemption is applicable only with regard to residential houses and will not be applicable for sale of a plot of land or commercial property.

The Indian economy continues to be on a robust growth trajectory. The projected economic growth in 2007-08 is estimated at 8.7 percent as compared to 9.67 percent in 2006-07. The average Gross Domestic Product (GDP) growth rate during the years 2004-07 was 9 percent per annum. At disaggregated level the percentage growth in key sectors was 2.6 percent in Agriculture & Allied Industries, 9.2 percent in Industry and 11.2 percent in Services.

The Planning Commission's Approach Paper for the 11th Five-Year Plan has set a growth target of 10 percent in the final year of the plan (2011-12).

The Trade Openness Indicator (that is, the Trade to GDP ratio) has increased from 22.5 percent in 2000-01 to 34.8 percent in 2006-07, thereby reflecting greater integration with the world's economy.

The globalization of Indian Enterprises and Indian Multinationals has propelled and increased outbound investment as compared to earlier years.

Despite fears of a global economic slowdown, recessionary fears in the US, rising oil prices and slowing down of industrial production and deceleration in exports from India, the ET-NCAER Business Confidence Survey (BCI) reinforces the belief that India Inc's confidence levels continue to rise. The business confidence index (BCI) has risen 5.5% (8 points) to 154 for the quarter ended December '07, compared to the previous round held in October'07. A remarkable feature is that upbeat sentiment persists in this round after a smart recovery in the previous round. If this sentiment remains resilient, the BCI is likely to touch January'07's peak level of 157.3. The BCI, which had fallen for two consecutive quarters since January last year, is now showing signs of robust recovery.

India's foreign exchange reserves ((excluding Gold and SDRs) stood at US$ 180 billion during 2006-07

The Indian Rupee appreciated against Japanese Yen, US Dollar, Pound Sterling and Euro in 2006-07. In fact, the Rupee has appreciated by 8.9 percent against the U.S. Dollar in 2007-08.

India has improved its position by two places in the World Economic Forum's Global Competitiveness Index (GCI) rankings for 2006-07 coming in 43rd, well ahead of Brazil (66), China (54) and Russia (62). The report measures the steps taken by the economies to encourage companies to set up shops also lauded efficiency gains made by India in labor and financial markets.

The size of the Indian Economy at market exchange rate is estimated to exceed US $1 trillion in the current fiscal year.

The number of registered Foreign Institutional Investors (FIIs) rose to 1,219 at the end of 2007 from 1,044 in the corresponding period of last year. The number of sub-accounts also increased to 3,644 from 3,045, over the same period.

Increased foreign investment is continuing and spreading over a range of economic activities. There has been a 150 percent increase in net foreign inflows in 2006-07 to US $23 billion. The trend has continued in the first six months of the current financial year with the gross foreign investment reaching US $11.2 billion.

The flow of investments into the Indian capital market and developing countries has increased, potentially due to the sub-prime mortgage situation in the United States. For the longer term, the problem of excess capital inflows is proposed to be addressed by deepening productivity gains, interest differential and build up on the expectations on the rupee.

Trade deficit rose to US $42.4 billion equivalent to 8.1 percent of GDP.

Owing to pressure on domestic prices by global commodity prices and supply constraints in some essential commodities - consequently the average inflation in 2006-07 was estimated at between 5.2 and 5.4% in India Union Budget 2007- 2008, although the figure is closer to 8 percent currently.


Sources: Summary of India's Economic Survey 2007-2008 and ET-NCAR Business Confidence Index

Huge investment potential exists in the Indian retail industry. According to the estimates by the consultancy firm KSA Technopak around $25 billion will flow into the retail sector in the next five years taking the organized portion of the business from a measly 3 percent to 14 percent.

The Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms. The industry is poised to experience a landscape change and the key trends that will shape the business in the next three to five years are enlargement of project size with focus on product differentiation and quality, expansion in geographical coverage from metros to smaller cities, shift from regional developers to national developers, movement of construction giants up the value chain and the emergence of strong real estate capital market. According to a study done by FICCI and E&Y, the demand for office space is set to expand significantly in the next few years. The demand will primarily be driven by the IT and ITeS industry, which according to the Ernst and Young estimates would require an additional office space of more than 367 million sq. ft. up to the year 2012-13. The domestic real estate sector may emerge a US$ 50 billion industry by 2010 and prove one of the most attractive sectors for foreign investments. An industry research by financial services firm India Infoline (IIL) said the real estate sector, which was growing at 33 per cent CAGR (compound annual growth rate), could be a $50 billion industry in the next four years, if the institutional participation supported its growth.

According to Investment Commission of India, investment opportunity of US $ 500 billion would emerge in India in the next 5 years in major economic sectors, of which US $ 250 billion investment opportunities exist in the infrastructure sector alone.

The Infrastructure sector including roads, power, railways, aviation require an enormous amount of $320-350 billion by 2012 to raise rate of investment in key areas at par with economic growth and 20 per cent of which will have to be chipped in by the private sector. Huge private sector funding is required since public investment in the area is constrained by limitations on the government-borrowing programme imposed by the FRBM Act and demand for investment by other growing sectors of the economy.

NRIs holding Indian passport do not require prior permission of Reserve Bank of India to buy residential or commercial immovable property in India.

The purchase consideration may be paid either by remittance of funds from abroad through normal banking channels or out of NRE/ FCNR/NRO account.

NRIs of Indian nationality do not require any permission for acquisition, transfer or disposal by way of gift of immovable property which is not a farmhouse or agricultural land or plantations property. Declaration on form IPI 7 for acquisition of commercial property for carrying on any industrial, commercial or trading activity by their proprietary/partnership firm in India is required to be filed with RBI within 90 days from date of purchase.
Under the general permission to NRIs holding a foreign passport, the RBI has allowed them to acquire, hold, transfer or dispose off by way of sale or inheritance, immovable properties situated in India.

The general permission has been granted provided:

The property is for the purchaser's bona fide residential use; The purchase consideration is met either by remittance from funds abroad through normal banking channels or out of NRE/FCNR.
Income accruing by way of rent from the properties purchased or acquired by inheritance will not be allowed to be repatriated abroad even if the purchase consideration was met out of NRE/FCNR account.

It is however, necessary for foreign citizens of Indian origin to declare such property to RBI within a period of 90 days from the date of purchase in the prescribed IPI 7 to the Chief General Manager, Exchange Control Department, Foreign Investment Division, Central Office Department, Foreign Investment Division, Central Office, RBI Bombay.
General permission has been given to non-residents holding Indian passports and foreign citizens of Indian origin, whether resident in India or not, to dispose of by sale or inheritance immovable properties situated in India subject to certain conditions.

Non-residents holding Indian passports and foreign citizens of Indian origin have been allowed to repatriate original investment in equivalent foreign exchange in residential/commercial properties after obtaining prior approval subject to a maximum of two houses under certain conditions.

No transfer of any immovable property exceeding the specified value for different cities can be effected unless particulars are filed with the appropriate authority of the Income Tax department within 15 days of signing the agreement.

As per a new scheme of capital gains tax with effect from 1993-94, instead of deducting from the proceeds of transfer, actual amount spent to acquire the asset or the amount spent on improvement or addition thereto, the inflation index adjusted cost will be deducted. Brokerage, legal fees and other expenses incurred in selling the property would be allowed as a deduction from the taxable capital gains.
Capital gains arising on transfer of a residential house, comprising buildings or land appurtenant are exempt if the amount of capital gains is utilized in acquiring another residential house, either by purchase or by construction. The exemption cannot be claimed for vacant land as it is not categorized as `residential\' and no income accrues from there.

The conditions required to be fulfilled to claim exemption here are:
1. The capital asset being transferred is a residential house, including self-occupied house
2. Income from the house is chargeable under the head - Income from house property
3. The house is a long-term asset
4. The tax payer purchases or constructs a new residential house within the time specified

Letting out of Immovle Property

The RBI has granted general permission to NRI's and foreign citizens of Indian origin, to let out their residential properties acquired for their bona fide residential purpose but which on account of their residence abroad, are not required for their immediate residential purpose.

However, there are restrictions regarding the repatriation of the rental income earned from such letting out of the property. The rental income is on a non-repatriation basis. Thus funds (rental income) must be credited to the NRO Account/ Resident Accounts in India.

Q. Do non-resident Indian nationals require permission of the Reserve Bank of India to acquire residential/commercial property in India?
Ans. No permission is required by non-resident Indian nationals to acquire immovable property in India.

Q. Are foreign nationals of Indian origin allowed to purchase immovable property in India?
Ans. Yes, foreign nationals of Indian origin, whether resident in India or abroad, have been granted general permission to purchase immovable property in India.

Q. What should be the method of payment for purchasing residential immovable property in India by foreign nationals of Indian origin under the general permission?
Ans. The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/FCNR accounts maintained with banks in India.

Q. Are there any formalities to be completed by foreign nationals of Indian origin for purchasing residential immovable property in India?
Ans. They are required to file a declaration in Form IPI 7 with the Central Office of the Reserve Bank of India at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration alongwith a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

Q. Can such property be sold without the permission of the Reserve Bank of India?
Ans. Yes. The Reserve Bank of India has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts. Top

Q. Can the rental income from such property be remitted outside India?
Ans. No. Such income cannot be remitted abroad and will have to be credited to the ordinary non-resident rupee account of the owner of the property. Restricted remittances are, however, now permitted.

Q. Can such property be sold without the permission of the Reserve Bank of India?
Ans. Yes. However, such property can be sold to other foreign nationals of Indian origin provided funds towards the purchase consideration are either remitted to India or paid out of balances in NRE/FCNR account.

Q. Can sale proceeds of such property if and when sold be remitted out of India?
Ans. In respect of residential properties purchased on or after May 26, 1993, the Reserve bank of India considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to May 26, 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property. The Reserve Bank of India also considers repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for acquisition of commercial properties.
Q. What are the conditions required to be fulfilled for repatriation of sale proceeds?
Ans. Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed or from the date of payment of final of consideration amount, whichever is later.

Q. What is the procedure for seeking such repatriation?
Ans. Application for necessary permission for remittance of sale proceeds should be made in Form IPI 8 to the Central Office of the Reserve Bank of India at Mumbai within 90 days of the sale of the property.

Q. Can foreign citizens of Indian origin acquire or dispose of residential property by way of gifting it?
Ans. Yes. The Reserve Bank of India has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid. Top

Q. Can foreign citizens of Indian origin acquire commercial properties in India?
Ans. Yes. Under the general permission granted by the Reserve Bank of India properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchaser's NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of the Reserve Bank of India in Form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.

Q. Can they dispose of such properties?
Ans. Yes

Q. Can sale proceeds of such property be remitted out of India?
Ans.Yes. Repatriation of original investment in respect of properties purchased by foreign citizens of Indian origin on or after May 26, 1993 will be allowed to be remitted up to the consideration amount originally remitted from abroad provided the property is sold after a period of three years from the date of the final purchase deed or from the date of payment of final of consideration amount, whichever is later. Applications for the purpose are required to be made to the Central Office of the Reserve Bank of India within 90 days of the sale of property in Form IPI 8.

Q. Can the properties (residential/commercial) be given on rent if not required for immediate use?
Ans. Yes. The Reserve Bank of India has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income has to be credited to NRO account.

Q. Can NRIs obtain loans for acquisition of a house/flat for residential purpose from financial institutions providing housing finance?
Ans. The Reserve Bank of India has granted general permission to certain financial institutions providing housing finance. HDFC, LIC Housing Finance Ltd., etc., to grant housing loans to non-resident Indian nationals for acquisition of a house/flat for self-occupation subject to certain conditions. Top

Q. Can an dealer grant loans to NRIs for acquisition of a flat/house for residential purposes?
Ans. Dealers have been granted permission to grant loans to non resident Indian nationals for acquisition of house/flat for self-occupation on their return to India subject to conditions. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance though banking channels or out of funds held in the investors’ NRE/FCNR/NRO account.

Q. Can Indian companies grant loans to their NRI staff?
Ans. The Reserve Bank of India permits Indian firms/companies to grant housing loans to their employees deputed abroad and holding Indian passport subject to certain conditions.


Q. Can an dealer grant housing loan to non-residents of Indian nationality where he is a principal borrower with his resident close relative as a co-obligate/guarantor, or where the land is owned jointly by such NRI borrower with his resident close relative?
Ans. Yes. However, in such cases the payment of margin money and repayment of the loan installments should be made by the NRI.

Email: sales@edenprojects.in
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