This article is written by Paridhi Dave, a student at the Institute of Law, Nirma University. This is an exhaustive article which deals with the nuances involved in property registration for non-resident Indians.
Table of Contents
Introduction
Registration of real-estate forms a significant part of the property buying process. There are a lot of steps involved, but property registration is undoubtedly the most important. Registration ensures the prevention of fraud and provides evidence of rightful ownership. The onus is on the buyer to take extra caution while purchasing any immovable property and be aware of the legal provisions and regulations involved in the process of property registration.
This article explains all the nuances involved and serves as a basic guide for property registration by NRIs in India.
NRI: Eligibility Criteria
The term Non-Resident Indian is used for people who are residing outside India for the purposes of employment, business, vocation or any other circumstances, which clearly indicate their intention to stay out of India for an uncertain period. The Reserve Bank of India via its circular dated December 8, 2003, clarified that even students who go abroad for purposes of studying fall into the category of a non-resident Indian.
According to the Foreign Exchange Management Act, 1999, the definition of a Non-Resident India is mentioned under Section 2(w). A person resident outside India is defined as a person who is not resident in India. Similarly, the Income Tax Act, 1961 defines an NRI under Section 2(30) as a person who is not a resident.
Previously, if a citizen of India who is visiting India for less than 182 days, retains his/her status as a non-resident Indian. According to the new Finance Act, 2020 an amendment is proposed in these criteria under Section 4 of the Finance Act, 2020. In cases where the total Indian income of such visiting NRIs during one financial year exceeds INR 15 Lakhs, then the period of 120 days shall apply as opposed to 182 days.
If the total taxable income of such visiting NRIs is up to INR 15 lakh during one financial year, then they will retain their status of NRI provided that their stay does not exceed 181 days.
Nuances of property registration
Is registration of property compulsory?
According to Section 17 of the Registration Act, 1908, all transactions that involve the sale of immovable property for a value which exceeds INR 100, have to be registered. Since this is an ancient law, in contemporary times it practically means that all such transactions involving the sale of immovable property should be registered. In addition, all transactions which involve the gift of immovable property, as well as a lease which exceeds the duration of 12 months have to be compulsorily registered.
The term immovable property is defined under Section 3(26) of the General Clauses Act, 1897. It includes land, benefits arising out of the land, things attached to the earth or things which are permanently fastened to anything attached to the earth.
Procedure for registration of property in India
The procedure for property registration has been simplified over time owing to technological advancements. The introduction of a computerised property registration system has helped immensely, as it eliminates the middlemen involved. However, the manual paperwork has not been entirely replaced due to this. Some states still require submission of an application to the respective authority, which is the Sub-Divisional Magistrate or the Sub-Registrar of that area.
The process of registration involves stamp duty and paying the requisite fee required for registration of a sale deed/transfer deed and having the documents legally recorded with the concerned authority of that area.
For the registration of the documents, the authorised signatories for the seller and the buyer along with two witnesses are required. These signatories should have proof of identity, for example, Aadhar Card, PAN Card or any other document issued by the Government. The property card, original documents and proof of payment of stamp duty have to be submitted to the sub-registrar for successful registration of property.
In cases where the signatories are representing somebody else, then they also have to furnish the power of authority.
What steps should be taken before registering a property?
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Ensure there are no encumbrances
Encumbrance usually means a thing which creates difficulties in the transfer of property from one owner to another. Examples include outstanding mortgages, unpaid debt, unpaid property taxes, etc. A buyer should be vigilant and check for any such encumbrances on the property before purchasing it.
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Prepare all documents
The buyer should ensure that they have the chain of documents ready before buying a property. These documents specify how and when was the property transferred.
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Payment of dues
It should be ensured that dues such as electricity bills, property tax, water bills, etc. are paid in full before purchasing or registering the property.
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Preparing the Deed
A draft deed should be prepared which is supposed to be executed. It should include the details of the parties to the transaction, the property involved and the requisite terms and conditions.
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Calculation of the stamp duty
Stamp duty is a type of fee charged by the government. It is calculated on the basis of the market value of the property involved.
The time limit for registration of property
The documents of the property should be registered within four months from the date of execution as per Section 23 of the Registration Act, 1908. In circumstances, wherein the documents are executed abroad, then it has to be presented for registration within four months from its arrival in India.
In circumstances, wherein this aforementioned time-limit has expired – then an application for condonation of delay can be made to the sub-registrar along with payment of a fine.
What is the fee for property registration in India?
The buyer of a property has to pay some registration charges for the property. These charges vary from state to state. They are calculated as a percentage of the saleable value of the property. This calculation of stamp duty and the registration fee is based on the ‘guidance value’ which is decided by the State government based on the location of such property. The calculation of these aforementioned charges can also be based on the type of building or land.
What is Stamp Duty?
Stamp Duty is governed under the Indian Stamp Act, 1899. It is a type of tax which is levied by the government under its jurisdiction concerning the purchase of a property. This property could be land, an independent house, a commercial or a residential flat. This stamp duty is payable as per Section 3 of this Act. The duty includes in its ambit sale deeds, gift deeds, partition deeds, conveyance deeds, power of attorney, lease deeds, etc.
This duty varies from state to state and is collected during the registration, as a percentage of the saleable value of the property. It can also differ on the basis of the type of property – whether it is new or old; or on the location of the property. This functions as a legal document and can be used as a piece of evidence for the purchase or sale of any property.
What happens in case of non-registration of property?
According to Section 49 of the Indian Registration Act, 1908 if the property documents are not registered, then they would not have any stance on the property. Further, the property documents do not grant any property rights over the property. In a nutshell, the buyer would not be considered as rightful/recognised owner of the property in the eyes of the law and subsequently, he/she will not have any rights over the property.
Documents required for property registration
The following documents are required for NRIs for a successful property registration:
- A photocopy of residence proof of each owner, i.e. passport, Aadhar card, driving license, election commission card, etc. or any other identity proof issued by the State or the Central Government.
- A photocopy of PAN Card of each owner/ Form No. 60 of the Income Tax Rules
- A photocopy of the certificate of possession
- Two passport size photographs of each owner
- Overseas Citizenship of India Card, which is issued by the Indian Consulate of the country in which the NRI resides.
The NRIs also have to produce and attach the payment details concerning the residential unit with proof and have to mention the same in the receipt clause of the Conveyance Deed.
Further, for the purpose of registration, if the NRIs do not have any of the cards as mentioned above are required to seek permission from the concerned district collector.
Rules and Regulations applicable for NRIs
Acquisition and Transfer of Immovable Property
The procedure for acquisition and transfer of immovable property is laid down in the Master Direction titled Acquisition and Transfer of Immovable Property under Foreign Exchange Management Act, 1999. A non-resident Indian who holds a valid Indian passport is permitted by the Reserve Bank of India (RBI) to acquire immovable property in India, by way of purchase. Such a person can also transfer any immovable property. In such cases, the investor is not required to obtain RBI’s special permission for the same.
The NRIs also do not need to inform the RBI about buying commercial or residential property in India. A non-resident Indian can buy as many properties as they want under the aforementioned categories as per the regulations issued by the RBI and the income tax laws. Under the general permission of RBI, a non-resident Indian can buy a property individually or jointly with another NRI. They are also allowed to gift or sell such immovable properties to another NRI or any Indian resident. If the NRI investor cannot come to India, then the purchase can be executed by another person who is given a legally binding power of attorney.
The exception to the aforementioned transactions is that an NRI can neither purchase nor transfer agricultural land, plantation property or a farmhouse. But, an NRI can transfer agricultural land, plantation property or a farmhouse which is acquired by way of inheritance – ‘only’ to permanently residing citizens of India. This would mean that an NRI cannot invest in farmhouses without prior permission from the RBI. The RBI considers such applications on a case to case basis.
Funding and Other Financial Transactions
A non-resident Indian investing in a residential or commercial property in India is bound to carry out all the transactions in Indian currency via local banks. This would mean that such NRI investors should mandatorily have an NRI account in one of the authorised Indian banks.
The NRI investors are required to route their transactions through Indian banks; therefore, it becomes necessary that they have NRO/NRE accounts for all such inward remittances. An NRO account is a Non-Resident Ordinary Account, which is used for managing the income earned in India; an NRE account is a Non-Resident External Account which is used for transferring foreign earnings to India.
The Reserve Bank has granted general permission to selected financial institutions for the purpose of providing housing finance. These include HDFC, LIC Housing Finance Ltd., etc. and other authorised dealers to grant housing loans to such NRI property investors for acquiring a house for self-occupation, subject to certain provisions.
The repayment of such loan must be made within a duration not exceeding 15 years. The payment should be made out of inward remittances or out of the funds held in the NRE/NRO/FCNR accounts of such investors. FCNR account stands for Foreign Currency Non-Resident account. It is a fixed-term bank account that is opened by an NRI for transferring their foreign earnings in the same currency.
Tax benefits
Non-resident Indians have an advantage in terms of tax benefits as well. They can enjoy the same tax benefits that an Indian resident is entitled to on purchase of a property. NRIs can claim a deduction of INR 1 Lakh under Section 80C of the Income Tax Act, 1961. If the property is sold within three years of its purchase, it is counted as a short-term capital gain and the earnings through this sale are taxable. Further, if the property is sold after three years, then there is an option of reducing the long-term capital gains tax via investing in other properties.
Conclusion
The process of registration is crucial in the real-estate sector. The regulations for non-resident Indians have been simplified in the past few years. Further, the tax laws and FEMA have benefitted these NRIs immensely.
Owing to technological advancements, the process is now easier. Thus, these are the intricacies of property registration.
References
- https://www.mea.gov.in/images/pdf/acquisition-and-transfer-of-immovable-property-in-india.pdf
- https://www.propikr.com/nri_service/NRI-GUIDE.pdf
- https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8095
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