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Better Financial Planning, NRI Investments & FAQs

Repatriation of Sales Proceeds of Real Estate Assets in India by NRIs

Repatriation of NRI Investments in Indian Real EstateIn this article, we talk in brief about basic rules of repatriation of both sale proceeds and rental income accrued from selling or renting out residential and commercial properties in India by NRIs (Non-Resident Indian) and PIOs (Person of Indian Origin).

To make it easier to understand, we will talk separately about repatriation of Principal amount (i.e. the original funds invested) and repatriation of the capital gains (profits earned on the sale of property).

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Repatriation of Principal Amount (original amount of investment / capital invested) :

1. If property was purchased entirely with funds brought into India through banking channels (i.e. external funds that were either directly transferred to seller’s account or were transferred to the NRI’s own NRE/FCNR account first and then paid to seller through issue of a cheque from this account) or through funds already available in NRE/FCNR accounts, the entire principal amount can be repatriated without any restrictions for a maximum of 2 residential properties and an unlimited number of commercial properties in the lifetime of the NRI.

Restriction : Incase of residential property, unrestricted repatriation of principal is allowed only for first 2 properties purchased and sold by an NRI in his lifetime. From the 3rd property onwards, the principal portion has to be deposited in an NRO account from which a maximum of USD 1 Million (approx Rs.5 crores) can be repatriated per financial year per person. This annual limit is explained in detail in the following paragraphs. Incase of commercial property, there is no restriction on number of properties who’s principal amount can be freely repatriated.

2. If property was purchased entirely with funds existing in NRO account, the entire sale proceeds (both principal and profits) must first be deposited in an NRO account and then a maximum amount of USD 10,00,000 (approx Rs.5 crores) can be repatriated per person per financial year. This limit of USD 1 million per person per financial year also applies to repatriation of sale proceeds of property acquired through inheritance.

3. If property has been purchased with a combination of existing funds in NRO account and fresh funds remitted from outside India or from balances existing in NRE/FCNR accounts, then the respective rules explained above apply in proportion of funds invested. Which means, the principal invested out of NRO account can be repatriated only to the extent of USD 1 million (approx Rs.5 crores) and the principal invested from external sources or NRE/FCNR funds can be repatriated completely without any limit (but subject to restriction on number of residential properties as explained in point number 1).

 

Repatriation of Profits/Capital Gains :

Irrespective of source of principal investment (i.e. whether investment was made using existing funds in NRO account (rupee funds) or through funds paid out of NRE/FCNR or external remittances, the entire capital gains / profit must be deposited in an NRO account. From here, you can repatriate upto USD 1 Million (approx Rs.5 crores) per financial year per person AFTER paying applicable capital gains taxes. For more information on capital gains taxes applicable on real estate transactions, read our article titled “Taxation of Real Estate Investments in India”.

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Repatriation of Rental Income :

NRI/PIOs can freely rent out their immovable property, whether purchased through domestic funds (rupee funds available in NRO account) or foreign funds (funds remitted into India or funds existing in NRE/FCNR accounts), without seeking any permission from the RBI. The rental income being a current account transaction is fully repatriable outside India, only if proper tax is paid or provided for and total repatriation is subject to overall limit of USD 1 Million (Rs.5 crores) per financial year per person.

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Limit on Number of Properties where Funds can be Freely Repatriated :

As explained in point number 1 under Repatriation of Principal Amount, there is a restriction on the number of residential properties who’s sale proceeds can be FREELY repatriated. In case of residential units purchased out of foreign funds, free and complete repatriation of the PRINCIPAL PORTION is allowed only for first 2 properties in the lifetime of an NRI. (the repatriation of capital gains/profits earned however, will be subject to annual limit of USD 1 million).

However, this does not mean that NRIs can repatriate capital of only 2 properties in their lifetime as from the 3rd residential property onwards that an NRI purchases using either foreign or domestic funds, entire sale proceeds (both principal and profits) can be deposited into an NRO account out of which a total of upto USD 1 Million (approx Rs.5 crores) can be repatriated per person per financial year – this limit is explained in detail below.

For commercial properties, there is no limit on number of units whose sale proceeds can be repatriated in an NRI’s lifetime.

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Overall Limit of USD 1 Million Per Person Per Financial Year

NRIs are permitted to repatriate a total of only/upto USD 1 Million or approx Rs.5 crores per financial year per person (April to March) out of total balance held in their NRO account (which basically refers to income that is not freely repatriable i.e. income that is repatriable but is subject to certain restrictions). This is the limit that we have been referring to in above paragraphs and it includes all and any kind of repatriable income of the NRI such as sale proceeds (principal + profits) of immovable property purchased through NRO/rupee funds or acquired through inheritance, profits from sale of properties acquired through funds remitted into India or funds existing in NRE/FCNR accounts (i.e. foreign funds), rental income from residential or commercial property, dividends from shares, pension, interest on loans, etc. Hence, any income that is not freely repatriable (as explained in opening points) is subject to this limit.

This limit of USD 1 million is the limit upto which you can repatriate without any permission from RBI. If you have a genuine need to repatriate above this limit, you can make a specific application to RBI for increasing the repatriation limit.

Since this limit is applicable “per person per financial year” – it means that incase of a married couple, both husband and wife get an individual limit of USD 1 Million, effectively giving them a total repatriation limit of USD 2 Million per financial year. Incase the couple have a major child (above 18 years of age), a further sum of USD 1 Million is allowed, hence giving them an effective total repatriation limit of USD 3 Million (approx Rs.15 crores). *1

 

To Sum It Up

To condense all the above rules into a simple sentence, it suffices to say that these limits pose no real restrictions or practical impediments to NRIs who want to make substantial and regular investments in India, and below explains why :

i)  NO REAL RESTRICTION on the number of residential properties whose sale proceeds an NRI can repatriate in his lifetime. Although only first 2 residential properties are freely repatriable, you can still purchase and repatriate sale proceeds (both principal and profits) of unlimited number of residential properties as the average investment size incase of residential units is today between Rs.1 to Rs.3 crores – which is well below the annual repatriation limit of USD 1 million or approx Rs.5 crores. Hence keeping in mind today’s real estate prices, in 9 out of 10 cases, NRIs can easily repatriate the entire principal amount and profits earned and they can infact repatriate sale proceeds of multiple properties within a single financial year through proper planning.

ii)  NO RESTRICTIONS on number of commercial properties who’s sale proceeds can be repatriated : As there is no limit on this, NRIs can freely buy and sell unlimited number of commercial properties without bothering about repatriability of funds.

iii)  Rental income from any number of residential and commercial properties is freely repatriable (only amount of rent is subject to annual limit of USD 1 Million but there is no restriction on number of rented properties who’s income can be repatriated).

iv)  Very High Repatriation Limit of USD 1 Million Per Person Per Financial Year : This high limit of approx Rs.5 crores per year per person means that an average investor can easily repatriate almost entire sale proceeds in a year as average investment size is Rs.1 to 2 crores. Hence this limit is not an actual concern.

Hence it is easy to see why NRIs can continue to invest regularly and in a number of properties simultaneously without having to worry about whether or not their original capital and profits can be repatriated to their home country (country of residence). And considering the fact that India has Double Taxation Avoidance Agreement (DTAA) with close to 84 countries, any amount repatriated from India will not be taxed again (i.e. no double taxation) in the country of residence of the NRI and hence this becomes another motivating factor for NRIs to invest in the Indian real estate market.

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How to Repatriate :

Repatriation is a fairly simple process today with the advent of modern banking and online filing provisions provided by the income tax department of India.

Funds in NRE or FCNR account are freely repatriable and hence there is no need for any approval from regulatory authorities.

Funds in NRO account however can be repatriated only upto a maximum of USD 1 Million (approx Rs.5 crores) per financial year per person. You must first fill out and submit Form 15CA – an online application form with IT Department of India. You must then obtain form 15CB from a Chartered Accountant – this form certifies that you have paid necessary taxes on the amount that is going to be repatriated. You must then submit both Form 15CA and 15CB to an authorized agent or bank who will help you obtain foreign currency and repatriate the same to your overseas bank accounts.

 

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By Jhashank Roy Chowdary (About the Author)

© 2013 | G&C Global Consortium ™
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Disclaimer
These are the broad guidelines meant for ready reference with respect to acquisition and transfer of immovable property in India by NRI/PIO and in each case prospective buyer or seller of property in India must consult his/her own legal/finance/tax adviser and obtain suitable advise for their specific transaction. G&C Global Consortium Private Limited assumes no responsibility or legal liability for transactions entered into by placing reliance on these FAQs/guidelines. These guidelines are as applicable as on 1st January 2013 and are subject to amendment by the regulatory authority. G&C Global Consortium Private Limited assumes no responsibility for updating these FAQs/guidelines.
 
*1 – This limit is allowed only if the spouse or child has ownership rights in the property that has been sold. I.e. only if the spouse or major child has ownership in the asset that has been sold, will they be eligible for additional repatriation limit of USD 1 million per person per financial year. 
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Discussion

2 thoughts on “Repatriation of Sales Proceeds of Real Estate Assets in India by NRIs

  1. I found these articles on NRI Tax matters as VERY informative and many issues related to NRIs are addressed in a clear manner. Thanks for the details.
    Aurupal, Melbourne-Australia.

    Posted by aurupal | September 12, 2013, 6:14 AM

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