When you are ready to buy a home, it’s not always necessary to buy a newly constructed one. The house you have your eye on is likely a resale one. A resale home was purchased and is now for sale by the initial owner or buyer. There is a certain procedure that you should follow while buying a resale home, you can read about it here. The same process is followed when you are buying a resale home from an NRI, save for a few differences, we talk about that in this article.
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Buying A House from an NRI And the Role Of POA
When you want to buy a home from an NRI and you notice that they are going to return to the country sometime soon, what happens? In this case, if the NRI still wants to go through with the sale, they will grant POA to someone they trust. POA or Power of Attorney is a legal authorisation given to a person by the NRI to represent him and act on his behalf. If an NRI is selling property in India and can’t be here, this is the only other alternative.
If the POA was granted overseas, then the document should be executed by the Grantor before The Indian Consulate Officer. The original document should also be adjudicated at the jurisdictional District Registrar’s office. To avoid tax implications, some NRIs consider buying property in their parents’ names, but this approach comes with its own set of considerations.
If you are planning to buy the home through a loan from a bank or HFC (housing finance companies), then you will need to get the POA done as per their proforma. This information is easily available when you contact the bank or when you visit their website
Read: Essential Legal Services for NRIs: A Comprehensive Run Guide
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How TDS is Calculated While Buying a House From An NRI
It’s important to note that the duty of paying TDS falls on you as the buyer, if this is not done, you can expect an inquiry made into your property purchase. The TDS is as follows –
- TDS of 22.88% – for property valued above Rs.50 lakhs to Rs.1 crore
- TDS of 23.92% – for property valued above Rs.1 crore
- TDS of 20.80% – for property valued below Rs.50 lakhs
The Importance and Procedure of Paying TDS
This deduction is made as per Section 195 of the Income Tax Act, here it states that the buyer has to deduct tax on the capital gains of the seller. Although many argue that the tax should be calculated only on the Capital Gains amount and not the full value, you as a buyer can’t do much about it.
The seller will have to go meet with an income tax official who will recalculate and maybe give the seller a rebate based on a certificate that is provided. It is not up to you to make this calculation, if you pay less than the deal value, you can expect a call from the tax department and be labelled as a defaulter. Note, the TDS can be paid by the seller as well, but if it’s not paid the seller is not the one who gets into trouble, it will be you who is held responsible. After you have deposited the TDS, you will also need to submit form 16A to the seller.
If there is a delay in paying the TDS, there is a penalty amount of 1% -1.5% of the amount that you will have to pay per month. If you file late, there is a penalty of Rs.200 per day and it could even go up to 1lakh in total.
TAN Account
It is also important to have a TAN account this is a Tax Deduction and Collection Account Number. As per section 195, you cannot deduct TDS without a TAN account. If this is missing, you might again be penalized by the Tax Department. It’s important to note that if you are buying the property jointly with another person, both of you need to have TAN accounts or you will both need to apply for accounts.
Read: NRO to NRE Transfer: Streamlining Your Finances
Transaction Through POA
Buying a resale home from an NRI seller using a Power of Attorney (POA) is possible, but there are some important precautions to take:
Validity of the POA:
- Registered POA: A registered POA is mandatory. Notarised POAs are not sufficient. The POA needs to be registered at the sub-registrar’s office in the jurisdiction where the property is located.
- NRI Execution: If the NRI seller executes the POA abroad, it must be attested by the Indian Consulate or Embassy in that country.
- Validity Period: The POA should be used within three months from the date of execution.
Payment:
- Don’t pay the POA holder: The buyer should transfer the money directly to the NRI seller’s NRE or NRO account. Even if the POA allows the holder to receive payment, it’s safer to avoid this.
Important Points to Remember
- You must insist that the deal can take place only if they accept the payment in their NRE (Non-Resident External) / NRO (Non-Resident Ordinary) / FCNR (Foreign Currency Non-Repatriable) accounts. To make the processing of selling their home easier, they might suggest making the payment to their Indian Bank account, however, this is not advised and might lead to legal complications. You will need to also mention clearly the sellers account details in your Sales Deed.
- The seller must have a PAN (Permanent Account Number)
- Double-check with OR hire professionals who deal with NRI real estate dealings. These experts will see to it that the deal goes off smoothly and there are no legal issues.
- Regulations around NRI’s immovable property can affect who they can sell to and what type of property they can hold.
Is it advisable to buy a property from NRI?
Buying from an NRI can be a good option if you find a great deal and properly manage the potential drawbacks. Here’s what to consider before making a decision:
Read: Complete Overview of ICICI NRI Account Opening Steps in India in 2024
- Have a lawyer: Involve a lawyer specialising in real estate transactions with NRIs to navigate legalities and ensure a smooth process.
- Do your research: Conduct thorough due diligence on the property and the seller’s ownership rights.
- Understand tax implications: Be clear on the TDS requirements and any potential capital gains tax for the NRI seller.
Clear communication: Maintain clear communication with the seller (or their POA holder) to avoid delays or misunderstandings.
Read: Demystifying Tax Residency Certificates for NRIs and Business Owners
These tips on buying property from NRI’s should make the buying process a little simpler. However, if you have any more questions do write to us, NoBroker will help you find, and provide you with assistance, to get the home of your dreams. When we buy property from NRIs, it might seem like a daunting task, but with the right team by your side you won’t have any problems.
