NRIs buying property in India: what to settle before you sign

The regulatory position for a non-resident Indian buying residential or commercial property in India is settled and, for most purchases, straightforward. Under the foreign exchange rules, an NRI or a person of Indian origin may acquire residential and commercial immovable property in India without prior approval from the Reserve Bank of India.

The exceptions are firm. Agricultural land, plantation property and farmhouses cannot be purchased. They may be inherited or received as a gift, but not bought. A property marketed as a 'farmhouse' in the Delhi periphery deserves a careful look at what it actually is on the revenue record, because the description used in the listing is not the description that governs.

• Payment must be made through normal banking channels: an inward remittance, or funds held in an NRE, NRO or FCNR account. Payment in foreign currency, by traveller's cheque, or in cash is not permitted.
• Home loans from Indian banks and housing finance companies are available to NRIs, with repayment routed through the same permitted channels.
• Keep the remittance advices and bank statements. When you eventually sell and want to repatriate the proceeds, you will be asked to evidence how the purchase was funded, and reconstructing that years later is unpleasant.

Most NRI purchases run on a power of attorney, because the buyer cannot be present for execution and registration. It is also the document most often drawn too loosely, and the one that causes the most damage when it goes wrong.

Make it specific

Name the property, name the transaction, and enumerate the acts the holder may perform. A general power of attorney authorising your attorney to deal with 'all my properties in India' is an unnecessary risk.

Execute it correctly from abroad

Sign before the Indian consulate or embassy in your country of residence, or have it notarised and apostilled where that route applies. It then generally needs to be adjudicated and stamped in India within the prescribed period after receipt.

Register it where required

Where the power authorises the execution of a registrable instrument, it will itself generally need to be registered. An unregistered power in that situation can invalidate what was done under it.

Give it an end date

A power of attorney with an expiry, or one revoked in writing once the transaction completes, is far safer than one left standing indefinitely.

A power of attorney generally terminates on the death of the person who granted it. Where a seller is transacting through an attorney, confirm the grantor is alive at the date of execution. This is a real and recurring defect, not a theoretical one.

This runs in the opposite direction and catches buyers badly. Where the seller is a non-resident, tax must be deducted at source on the sale consideration at the rates applicable to non-residents, which are substantially higher than the flat rate that applies when buying from a resident seller. The obligation sits on you as the buyer, and deducting at the resident rate by mistake leaves you liable for the shortfall along with interest.

Establish the seller's residential status early and in writing, and take advice on the correct deduction before any payment is made. Where the seller has obtained a lower deduction certificate from the tax authorities, ask for it and deduct in accordance with it.

Everything above is procedure, and procedure is the easy half. The harder problem is that you are making a large decision on the basis of photographs, a video call and the account of people whose income depends on the transaction closing.

• Have someone independent physically visit the property. Floor, facing, approach road width, actual construction against the sanctioned plan, and the condition of the neighbourhood do not survive a video walkthrough.
• Have the price checked against comparable closings rather than asking prices, since you have no feel for the local market from abroad.
• Have the documents read by someone whose fee does not depend on you buying. This is the single largest structural disadvantage an overseas buyer has, and it is the one most easily corrected.

This is a general explanation, not advice on your property. Procedure, rates and thresholds differ by state and municipality and change over time. Kabir Real Estates provides advisory and due-diligence assistance and does not issue title certificates or formal legal opinions. Where a matter needs one, we will tell you so.