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5 Legal Tips for NRIs Buying or Selling Property in India (FEMA, TDS & Capital Gains)

By NyayKart Legal Team - Experts in RERA, consumer disputes and property law across India.

This Article Written by Tuba Nisar.


Introduction

The growth of NRI property investment in India still continues because the Non - Resident Indians want to invest in Indian property to get appreciation over the long run, rental returns and family security. Non-Routine Operations Buying or selling property in India as an NRI is however not a usual business. 


It has to do with strict adherence to:

The rules and regulations regarding FEMA in the NRI property transaction, TDS in NRI property sale, capital gains tax and repatriation limits are crucial in the signing of any agreement.


Any small compliance failure will lead to penalty, increased tax deduction or even postponement in sending money overseas. We shall first define who an NRI is before talking about the 5 legal tips under the Indian law.


Who Is an NRI?

The term “NRI” is defined differently under FEMA and the Income Tax Act.

NRI Under FEMA

Under the Foreign Exchange Management Act, 1999, an NRI is an Indian citizen who resides outside India for:

  • Employment

  • Business

  • Education

  • Any purpose indicating an intention to stay outside India for an uncertain period

This definition focuses on the intention and purpose of stay abroad.


NRI Under the Income Tax Act

The residential status is settled under the Income Tax Act, 1961 in regards to the number of days an individual spends in India.


An individual qualifies as a resident when he or she:

  • Stay in India 182 days or above in a financial year

  • Be in India at least 60 days that financial year and 365 days that previous 4 financial years


In case these conditions have not been fulfilled the individual is subjected to tax as a non-resident. An individual can be considered an NRI under FEMA but be considered differently under the Income Tax Act as regards to taxation.

Can NRIs Buy Property in India?

Yes. NRIs are legally permitted to purchase property in India.

NRIs Can Buy:

  • Residential properties (flats, apartments, houses)

  • Commercial properties (shops, offices, commercial units)

NRIs Cannot Buy:

  • Agricultural land

  • Plantation property

  • Farmhouses

Payments must be made strictly through banking channels such as NRE, NRO or FCNR accounts or through loans from Indian banks. Cash transactions are not permitted under FEMA regulations.


Can NRIs Sell Property in India?

Yes. NRIs can sell:

  • Residential property

  • Commercial property

  • Agricultural land (only if inherited or received through gift)

NRIs Can Sell To:

  • Resident Indian

  • Another NRI

  • Person of Indian Origin (PIO)

The transaction must comply with FEMA regulations and applicable income tax provisions.

5 Legal Tips for NRIs Buying or Selling Property in India

1. Understand FEMA Rules for NRI Property Transactions

FEMA regulates all property transactions in the UAE among NRI.


The most important compliance requirements include:


  • No RBI consent on the purchase of residential or commercial property.

  • Purchase of agricultural land banned (except by inheritance/gift)

  • The payments have to be channeled through NRE/NRO/FCNR

  • Correct documentation needed to be repatriated


Under NRI, there is a general limit of USD 1 million that can be repatriated on a financial year in case of tax clearance and other records.

The failure to comply with FEMA can be punished with fines.


2 . Conduct Thorough Title Verification and Legal Due Diligence

A good number of NRI depend solely on the brokers or family members - and this is dangerous.


Prior to making a purchase of property, one should make sure that:


  • Clear and marketable title

  • Valid chain of ownership

  • No pending litigation

  • Checking of the Encumbrance Certificate.

  • Proper building approvals


Under-construction projects registration by RERA. Independent legal due diligence minimizes the risk of fraud and disputes to a great extent.


3. Understand TDS and Capital Gains Tax on NRI Property Sale

Taxation is the most critical aspect of NRI property transactions.

When Buying From an NRI:

The buyer must deduct TDS at applicable rates - not 1%.

When an NRI Sells Property:

  • Long-term capital gains (held more than 24 months) are generally taxed at 20% with indexation

  • Short-term capital gains are taxed as per applicable income tax slab rates

  • TDS is typically deducted at 20% (plus surcharge and cess) on long-term gains


NRIs must file income tax returns in India when taxable income arises.

Benefits under Double Taxation Avoidance Agreements (DTAA) may reduce tax liability in the country of residence.

Proper tax planning before sale can significantly reduce capital gains tax.


4. Execute a Properly Drafted Power of Attorney (If Residing Abroad)

In case the NRI is not able to visit India physically, then a Power of Attorney (PoA) can be signed.


The PoA must:


  • Be notarized abroad

  • Be certified by the Idian Embassy or Consulate

  • Registered/imprinted in India

  • Well spelled out specific powers

  • Do not entrust uncontrolled authority


The cause of NRI property transactions disputes are usually caused by poorly written PoA documents.


5. Maintain Proper Documentation and Repatriation Compliance

Proper documentation ensures smooth ownership transfer, resale and fund repatriation.

Maintain:

  • Registered Sale Deed

  • Purchase agreement

  • TDS certificates

  • Capital gains computation

  • Bank remittance proofs

Repatriation of funds is permitted only after full tax compliance and FEMA documentation.

Incomplete paperwork can delay remittance approvals.


Common Mistakes NRIs Make in Property Transactions

  • Suppose that 1 percent TDS is applicable (not in the case of NRI transactions)

  • Inability to plan capital gains before sale

  • Failure to check title in isolation

  • Carrying out blanket Power of Attorney

  • Lack of planning of repatriation


These errors can be avoided and bring massive financial loss.

Frequently Asked Questions (FAQs)

Q1. Can NRIs buy agricultural land in India?

No. NRIs generally cannot purchase agricultural land, plantation property or farmhouses except through inheritance or gift.


Q2. Is RERA registration mandatory?

Yes. Most new real estate projects must be registered under RERA.


Q3. Is TDS applicable when buying property from an NRI?

Yes. The buyer must deduct TDS at applicable rates before making payment.


Q4. Do NRIs need to be physically present for registration?

No. A properly executed and attested Power of Attorney can be used.


Q5. Can NRIs repatriate sale proceeds outside India?

Yes. Repatriation is permitted subject to FEMA compliance and tax clearance.


Conclusion

India NRIs are allowed to buy or sell property but this is a highly controlled activity. To protect your investment, it is necessary to understand FEMA regulations, TDS liability, capital gains tax, RERA and documentation.

A minor compliance failure can lead to severe financial effects, particularly under the FEMA or even the tax law. Good legal due diligence and structured tax planning are not the optional ones but the necessary ones. Prior to implementing any property transactions in India, NRIS are advised to obtain professional legal and tax advice in order to be compliant, minimize taxes and facilitate easy repatriation of the money.


How NyayKart can help

If you are facing delayed possession, refund issues or unfair settlement offers, NyayKart provides end-to-end assistance: drafting legal notices, filing RERA complaints, representing you before consumer courts, negotiating settlements and executing refund recovery.

Book a free consultation to evaluate your case and get a tailored action plan.



 
 
 

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