Legalities of Land Renting/ Buying for Foreign Nationals in India
The Indian real estate market offers a diverse range of property segments – residential being the largest (due to large housing needs & increasing urbanization), followed by office and commercial leasing which is emerging as the preferred investment option by institutional investors besides retail and logistics sector.
Real Estate Regulations and Policies
The current government has shown a strong focus towards improving and enhancing the existing urban infrastructure. Over the last few months, it has undertaken the following measures:
- Permitted 100% FDI in completed projects for operations and management of township, malls and business centres.
- As per recent notifications, foreign owned entities are allowed to own select property classes in India. Such property classes include IT Park / IT SEZ, Office buildings, Shopping centres, Hotels and Logistic Parks.
- The land can be for residential or commercial purpose.
- As per RBI FAQ no 8 of the Acquisition and Transfer of Immovable Property in India by a Person Resident outside India , a foreign company which has established a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity.
- The payment for acquiring such a property should be made by way of foreign inward remittance through proper banking channel. A declaration in form IPI should be filed with Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorised Dealer as a security for other borrowings.
- On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of Reserve Bank.
- Foreign companies or foreign citizens are not allowed to directly buy or own real estate in India except under certain permitted circumstances or with prior permission of the Reserve Bank of India (RBI) Non-Debt Rules.
- If the foreign company has established a Liaison Office, it cannot acquire immovable property. In such cases, Liaison Offices, can take property by way of lease not exceeding 5 years.
Taxes Associated With the Ownership and Sale of Property
- Property Taxes – An annual property tax is payable on all properties in India. It is assessed by the local tax office.
- Income Tax – Rental income from the property is subject to normal personal and corporate income tax rates, regardless of whether the owner is tax resident in India or abroad.
- Capital Gains – Any capital gain upon the sale of property is subject to capital gains tax. In case the asset is transacted before completion of three years, short term capital gains tax is applicable and beyond three years, long term capital gains tax is applicable.
NOTE: Different states and UT’s of India have different rules on properties/lands rented or bought by Foreign Nationals.
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