Things to Consider Before Purchasing Property from NRI

Several NRIs possess ancestral estates in India or have bought real estate in India with their own money. With the government enabling the automatic rule for investment in India, the Reserve Bank’s clearance is no longer required, and NRIs are no longer obliged to seek approval from the Foreign Investment Paper Board for NRI investment in India.

These NRIs can also sell the property to other NRIs or Indians who live in the country. However, there are a few things to keep in mind while buying property from an NRI. These points are outlined below, and the buyer must guarantee that he adheres to all of them.

Purchase of Property by Resident Indian from NRI

The procedure for purchasing a property from an NRI is the same as that for purchasing a property from a resident Indian. Once you’ve decided on a property to buy, you’ll need to register it with the municipal authorities and pay the registration fees.

However, in addition to the usual checks, extra caution should be exercised when purchasing a property from an NRI. Here’s a quick checklist of things to keep in mind before buying property from an NRI.

PAN Card of the NRI

Some non-resident Indians (NRIs) have PAN cards, while others do not. As a result, it is critical to confirm whether the NRI has a PAN Card number before proceeding with the transaction. If the NRI does not have a PAN Card No., he must apply for one because the PAN Card No. is necessary at the time of property registration for a change of ownership.

TDS on Property

TDS is deducted on property purchased from a Resident Indian as well, but the TDS Deduction rules for property purchased from an NRI differ from those for property purchased from an Indian Resident.

TAN No. of the Buyer

After subtracting TDS from the purchase price, the buyer must deposit the difference with the government. The buyer must additionally provide his TAN number while depositing the TDS. If the buyer does not already have a TAN number, he must apply for one.

If the property is purchased from a resident Indian, a TAN number is not necessary for a TDS deposit, but a TAN number is required if the property is purchased from a non-resident Indian.

TDS Return and Form 16A

Following the TDS deposit, the buyer must file a TDS Return and subsequently send Form 16A to the property’s seller. The TDS return is filed every quarter.

Option for Lower Deduction of TDS

The seller can request a lesser TDS deduction from the income tax officer. The buyer will deduct TDS at a lesser rate based on the certificate of lower deduction given by the income tax officer.

Important Points

• Before beginning the purchase and sale, they need both to sign a valid written agreement (which includes the terms, conditions, and understanding).
• Hire legal specialists to carry out the proceedings by the law, rather than relying on real estate brokers who may not be aware of the legal and tax ramifications.
• To deduct TDS, a buyer should obtain a TAN (Tax deduction and collection account number).
• On or before the due dates, a buyer shall deduct TDS, deposit it with the government, make a TDS return in Form 27Q, and issue Form 16A. Failure to complete any of these steps will result in heavy penalties.
• NRI Sellers should apply for the certificate before entering into a sale agreement to receive a lower tax deduction.
• NRI Sellers must ensure that a registered sale deed is executed and that capital gains tax is paid.
• Because the NRI seller is not available in India, he or she may ask someone present in India to carry out the selling transaction on his or her behalf by issuing a Power of Attorney to that person. Make sure the Power of Attorney is just to sell the property and not for any other reason. It should also explicitly include the names of both parties so that it cannot be misused at any time.

Final Thoughts

Buying a property from an NRI has a lot of legal and tax formalities, so the buyer should be aware of TDS regulations, while the seller should be aware of tax obligations and registered paperwork to verify the source of income in the event of a problem. Income tax officials have the authority to close bank accounts in cases of tax evasion.