Legal due diligence for NRIs in Indian real estate

Investing in Indian real estate offers NRIs both emotional value and potential returns, but it requires navigating complex legal processes from afar. Legal due diligence—verifying all legal aspects of a property—is essential to ensure a safe, compliant investment. This guide focuses on residential real estate, with insights on commercial property, and is structured into clear, easy-to-follow sections for better understanding.

 

Introduction to NRI real estate investments

Buying property in India as an NRI offers opportunities and involves specific legal and regulatory challenges. While NRIs have ownership rights similar to residents’ rights for residential and commercial properties, distance and lack of familiarity with evolving real estate, tax, and foreign exchange laws increase the risk of fraud and non-compliance. Since many NRIs depend on developers or intermediaries, verifying all claims and documents independently becomes crucial. Proper legal due diligence ensures informed decisions and a legally secure investment.

 

Importance of legal due diligence for NRIs

Legal due diligence is essential for NRIs as they are often targets for fraud due to their distance from the property. Verifying titles, approvals, and encumbrances helps avoid disputes and protects the investment. With multiple property, municipal, and FEMA-related laws involved, NRIs must also ensure compliance to avoid regulatory issues. Due diligence isn’t just about checking documents; it’s about securing full legal ownership and avoiding future legal or financial complications.

 

Common legal risks in real estate transactions

Real estate transactions in India can carry a variety of legal risks if proper checks are not performed. Some common legal risks NRIs should watch out for include:

• Title disputes and ownership issues: The property might have an unclear title, multiple claimants, or pending inheritance disputes. Many NRIs have faced situations where a purchased property’s ownership was later challenged because of past unresolved issues​. Buying a property without a clear, marketable title can result in lengthy legal battles or even property loss.
• Encumbrances and outstanding dues: There may be mortgages, loans, or liens on the property that the buyer would inherit. If the seller has used the property as collateral for a loan or if there are unpaid taxes or maintenance dues, these encumbrances need clearing. An NRI buyer must ensure that no financial or legal burdens are attached to the property.
• Regulatory non-compliance: The property or project might violate local building regulations, zoning laws, or environmental norms. For instance, a building constructed without municipal approvals or violating zoning (e.g., residential property built on land meant for agriculture or without conversion) can be subject to demolition or penalties​.
  
  Similarly, if a housing project isn’t registered under the Real Estate (Regulation and Development) Act (RERA) when it should be, that’s a red flag indicating possible non-compliance.
• Fraudulent documentation or misrepresentation: Unfortunately, cases of forged documents or sellers misrepresenting facts are uncommon. Examples include fake title documents, selling a property by impersonating the actual owner, or concealing essential facts like an ongoing litigation on the property. NRIs must be cautious, as being abroad can make it harder to verify facts on the ground.
• Delayed or failed project delivery: If investing in an under-construction property, there is the risk that the developer delays possession or the project stalls. This has legal implications because the buyer’s money is stuck, and they may need legal action. RERA has provisions to help buyers in such cases, but due diligence on the developer’s track record can forewarn of this risk.

Title verification and ownership history

Vеrifying thе propеrty’s titlе is thе foundational stеp in lеgal duе diligеncе. A clеar titlе mеans thе pеrson sеlling thе propеrty has thе full lеgal right to do so and that thеrе arе no hiddеn claims or disputеs ovеr ownеrship. For NRIs, еnsuring a clеar titlе is crucial – it еstablishеs that thе invеstmеnt is lеgitimatе and that thеy will truly own what thеy pay for​. 

 

Key aspects of title verification include

• Reviewing title deeds (sale deeds):  Check that the seller’s name matches the current title deed and trace past ownership for at least 12–30 years through previous deeds to ensure a transparent chain of ownership.
• Checking for undisputed ownership:  Verify there are no joint owners or pending inheritance claims unless all parties agree to the sale and legal heirs (if any) have released their rights.
• Encumbrance certificate (EC): Obtain an EC for the past 12–30 years to check for mortgages or legal claims; only proceed if it shows a clear record or all listed encumbrances are resolved.
• Mutation and tax records: Ensure the mutation and latest tax records list the seller as the owner and confirm that all property taxes are fully paid to avoid future legal or financial liabilities.
• Physical survey and boundaries: Verify that the physical property matches its legal description in documents; NRIs should consider hiring a surveyor to confirm the area, boundaries, and layout.

 

RERA compliance and project approvals

RERA protects buyers by ensuring that developers follow transparency and accountability norms. NRIs should invest only in RERA-registered projects (if applicable), as it confirms legal approvals and provides a grievance mechanism. Ask for the RERA registration number and verify project details on the respective state’s RERA website. If the builder claims exemption, double-check if it qualifies; lack of registration when required is a red flag.

Apart from RERA, project approvals from various authorities are a critical part of legal due diligence:

• Land use and zoning approvals: Confirm that the land is legally approved for residential or commercial use, and if initially agricultural, ensure proper conversion with a valid certificate.
• Building plan sanction and permits: Verify that local authorities sanction the building plan and that it matches actual construction; any deviation could lead to penalties or demolition.
• Commencement and Occupancy Certificates: A CC allows construction to begin; an OC confirms legal completion and fitness for use. Always ensure the property has a valid OC before buying.
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• Environmental and other NOCs: Check if the project requires and receives environmental clearance and essential NOCs like fire safety, aviation, and pollution board approvals, especially in significant developments.

Tax implications for NRIs

• TDS on property sales: When an NRI sells a property, the buyer must deduct TDS. As of July 2024, TDS is 12.5% for long-term assets (held over 2 years) as LTCG tax is now 12.5% without indexation. Earlier, it was 20% with indexation. For short-term holdings (2 years or less), TDS remains 30%. NRIs can apply for a lower TDS certificate to avoid excess deductions and later refunds.
• Capital gains tax: NRIs pay 12.5% LTCG tax (post-2024 rules) or 20% with indexation for older cases. Short-term gains are taxed at slab rates, up to 30%. Fundamental exemption limits don’t apply to NRIs for capital gains. However, Sections 54 and 54EC exemptions are available if reinvested as per rules.
• Rental income tax: Rental income is taxable in India, with TDS at 30% deducted by the tenant. NRIs can claim a 30% standard deduction and municipal tax relief and file returns to adjust tax liability or claim refunds. Under DTAA, taxes paid in India may be credited in the NRI’s resident country.
• Property taxes and stamp duty: NRIs pay the same stamp duty and registration fees as residents—typically 5% to 8% of the property value, with possible rebates for women. They must also pay annual property tax, as non-payment can lead to penalties or legal issues.
• Tax filing and compliance: NRIs need a PAN for property transactions and must file tax returns in India for sale or rental income. Banks require Form 15CA/CB to confirm that taxes are paid for repatriation.

 

FEMA regulations on NRI property ownership

The Foreign Exchange Management Act (FEMA) and its regulations govern what NRIs can or cannot do regarding property investments in India. FEMA is crucial because it ensures that foreign exchange rules are followed and that only permissible transactions are carried out by NRIs/OCIs (Overseas Citizens of India).

 

Key FEMA guidelines for NRI property ownership:

• Types of property NRIs can buy:  NRIs and OCIs can freely buy residential and commercial properties in India but cannot purchase agricultural land, farmhouses, or plantation property unless inherited or gifted by a relative, with specific RBI permissions.
• Mode of payment and financing:  Payments must come through banking channels via NRE/NRO accounts or inward remittance. Cash, traveller’s cheques, or foreign currency payments are not allowed. NRIs can also take out home loans from Indian banks, and EMIs must be paid through NRE/NRO accounts.
• Repatriation of sale proceeds: NRIs can repatriate up to USD 1 million per financial year from NRO accounts for properties bought under FEMA rules. This is allowed for sale proceeds from up to two residential properties; exceeding this may require spreading the transfer or RBI permission.
• Holding property jointly: NRIs can sometimes co-own property with other NRIs or resident relatives. Special conditions apply when co-owning with a resident spouse or inheriting property jointly with a resident, especially for restricted categories like agricultural land.

 

Avoiding Benami transactions

NRIs must be cautious to ensure that property purchases comply with the Prohibition of Benami Property Transactions Act, 1988. This law prohibits buying property in someone else’s name (a “benamidar”) if the beneficial owner is not disclosed or documented.

• Always register the property in your name or jointly with a legally permitted co-owner such as a spouse, child, or parent, where ownership and financial contribution are transparent. 
• Avoid purchasing property in the name of a resident relative (e.g., sibling or friend) unless they are a legitimate co-owner with a documented financial contribution. Even if you trust the person, it may still be considered a benami transaction if not legally structured. 
• Power of Attorney (PoA) must clearly mention that the representative is acting on your behalf and that the property is being acquired for your benefit, not theirs. 

Violations of the Benami Act can lead to property confiscation, penalties, and prosecution. NRIs should consult a legal expert to ensure compliance when structuring ownership, financing, and registration.

 

Due diligence on builder credibility and construction approvals

• Builder/developer credibility: Always research the builder’s past projects to check for timely delivery and quality. Look for complaints on RERA portals, forums, and news sites. Financially unstable developers may delay or compromise on construction. Don’t rely on ads—verify independently, and if possible, visit an existing project or have someone do it for you.
• Litigation and fraud checks: Check if the builder or company is involved in fraud, insolvency, or litigation using the MCA site and news searches. A little caution now can prevent more enormous losses later.
• Construction and layout approvals: Ask for sanctioned plans, commencement certificates, fire safety, and environmental clearances. Ensure what’s being sold matches what’s officially approved—unauthorised constructions are a serious red flag.
• Quality of construction: Hire an engineer or inspector to assess structural safety, especially for standalone houses. For flats, focus on finishing quality. This adds practical assurance beyond legal checks.
• Occupancy/completion certificate: Never skip verifying the OC or Completion Certificate. It confirms the building is legally fit for occupancy; possession can lead to compliance issues without it.

 

Encumbrance certificate and litigation check

An EC from the Registrar confirms if the property has any registered financial or legal claims, like mortgages or sales. A clean EC (typically covering the last 15–30 years) means no unknown transactions. If a mortgage appears, ensure it’s released before purchase. However, ECs may not show unregistered encumbrances like unpaid taxes or court orders, so NRIs should verify those separately as part of due diligence.

• Check with the local municipality or society for any dues (ask for a letter that no dues are pending).
• Do a litigation check: Have a local lawyer search court records using the seller’s name or survey number to check for disputes. You may also issue a public notice or ask neighbors or the society for any known legal issues.
• Check for legal notifications: Verify with the local land revenue office if the property is under government acquisition notice—especially for infrastructure projects like roads or highways.

 

Power of Attorney (POA) and its legal implications

Power of Attorney (POA) for NRIs:
For Non-Resident Indians (NRIs), a Power of Attorney is a crucial legal instrument that allows a trusted representative in India to perform specific acts—such as buying, selling, leasing, or managing immovable property—on their behalf. Since NRIs often cannot be physically present for key processes like registration or possession, a POA helps avoid procedural delays and ensures seamless execution of property-related decisions.

However, not all POAs are the same. Broadly, there are two types:

• General POA (GPA): Grants extensive powers, including management and financial control.

• Special or Specific POA (SPA): Limits authority to a particular transaction or property.

NRIs should always prefer a Specific POA that clearly outlines the property details, permitted acts, and time duration of authority. Vague or overly broad POAs increase the risk of misuse and can be legally contested. It’s also advisable to get the document drafted and vetted by an Indian property lawyer to ensure compliance with the Registration Act, 1908 and the Power of Attorney Act, 1882.

 

Execution process: The validity of a POA depends heavily on how it is executed and authenticated.

• If issued abroad: The document must be signed before a Notary Public and then attested by the Indian Embassy or Consulate in that country. Once sent to India, it must be adjudicated (i.e., stamped and validated) within a specified period—usually three months of receipt—at the local registrar’s office where the property is situated, under Section 18 of the Indian Stamp Act, 1899.

• If executed in India: The POA should be stamped and registered with the local Sub-Registrar of Assurances under Section 32 of the Registration Act, 1908. For property dealings, registration is mandatory, as an unregistered POA will not be accepted for property registration or mutation.

NRIs should retain copies of embassy attestations, courier acknowledgments, and registration receipts for future verification or disputes.

 

Risks and precautions: A POA, while convenient, can also create serious legal vulnerabilities if misused. Under Indian law, the acts of the attorney are binding on the principal (the NRI), and any fraudulent sale or mortgage made under an active POA can only be challenged through litigation. Therefore:

• Choose your attorney carefully—preferably a close family member or professional property manager with a proven track record.

• Avoid General POAs that enable unrestricted sale, mortgage, or leasing powers.

• Include revocation clauses and specify clear expiry terms to limit misuse.

• Once the intended transaction is complete, formally revoke the POA through a registered Deed of Revocation, and notify the Sub-Registrar as well as all relevant banks or authorities.

• When buying property through a POA-holder, verify:
  • That the POA is specific, not general.

  • It has been duly attested, adjudicated, and registered.

  • The transaction falls within the validity period of the POA.

Importantly, a POA does not transfer ownership—it only authorizes representation. Legal ownership transfers solely through a registered Sale Deed executed between the buyer and the original owner. This distinction is critical, as the Supreme Court in Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana (2011) held that property cannot be legally transferred via POA, emphasizing the need for registered sale deeds for ownership rights.

 

Repatriation of funds and financial compliance

After selling property or earning rent, NRIs can repatriate funds abroad under FEMA and tax rules.

Repatriation sale proceeds: Up to USD 1 million per financial year can be repatriated from an NRO account for up to two residential properties after paying taxes and submitting Form 15CA/CB.

Rental income: Rent can be repatriated post-TDS and tax compliance. It’s usually routed through an NRO account, with some banks allowing full repatriation if taxes are cleared.

Compliance: Ensure capital gains tax is paid, buyer has filed Form 26QB (if applicable), and NRO/NRE accounts are used correctly for legal and smooth remittance.

 

Repatriation process summary:

1. Sale property and ensure TDS is done by buyer.
2. Compute capital gain and pay any additional tax (or plan for exemption).
3. Get a CA certificate (15CB) for the amount to be repatriated.
4. Fill out Form 15CA (an online form informing the tax department of the transfer).
5. Submit a request for foreign transfer.
6. Bank checks documents and transfers the money abroad (to your overseas account).

Keep all paperwork, as future scrutiny is possible. Also, if you are in a country that taxes worldwide income, you may have to declare the sale and pay some tax there (with credit for Indian tax), but that’s beyond the scope of Indian compliance.

Lastly, ensure you have an NRO account if you plan to sell because an Indian resident buyer cannot directly send you sale proceeds in foreign currency; they will pay in rupees. The rupees will go into your NRO account. Only from NRO can you convert to USD and repatriate as per the rules.

 

Role of legal experts and property consultants

Real estate lawyers / legal experts:  Hiring a propеrty lawyеr is crucial for NRIs. Thеy vеrify documеnts, rеviеw agrееmеnts, handlе rеgistration, and еnsurе compliancе with laws likе FEMA and TDS. Thеy also guidе you on NRI-spеcific lеgal nuancеs and pеrform duе diligеncе on your bеhalf. Whilе thеrе’s a cost involvеd, it’s minimal comparеd to thе potеntial risks and protеcts you from lеgal complications. 

Property consultants / real estate agents: A good consultant can help identify properties, provide local insights, preview sites, and assist with essential paperwork. For NRIs, they bridge the gap between distance and on-ground execution. Choose reputed, preferably RERA-registered agents. Remember, consultants are facilitators—not legal advisors—so don’t rely on them for document verification.

Chartered Accountants/tax experts: Tax professionals help structure the deal efficiently, manage compliance, and assist with repatriation. They also ensure proper filing and documentation to avoid future tax issues. Some law firms offer in-house CAs, or you can hire one separately.

Why professional help matters: Laws change frequently, and professionals stay updated. They can represent you, advise on crucial decisions, and ensure the entire process is smooth and compliant. If needed, a lawyer might act via POA, and a consultant can manage practical tasks like inspections or society formalities.

Choosing the right experts: Seek referrals, verify credentials, and confirm experience with NRI clients. Ensure clear communication, responsiveness, and transparency on fees and scope of work. Having the right professionals by your side can make all the difference in a safe and successful property deal.

 

Due diligence checklist for NRIs

Navigating a property purchase in India from abroad can be complex. A structured checklist helps NRIs ensure no critical step is missed during legal verification. Below is a quick-reference due diligence checklist for NRIs:

• Title deed and ownership history: Review sale deeds for the past 12–30 years to confirm clear title and trace the chain of ownership. 
• Encumbrance certificate (EC): Obtain an EC covering at least 15–30 years to confirm there are no mortgages, loans, or other registered claims on the property. 
• Mutation records and tax receipts: Check that the seller’s name appears in mutation records and ensure property taxes are paid up to date. 
• RERA registration number: For under-construction projects, verify the project is registered under RERA and confirm details on the state RERA portal. 
• Sanctioned building plan and layout approval: Cross-verify approved plans with the actual layout to ensure there are no unauthorized constructions. 
• Commencement Certificate (CC) and Occupancy Certificate (OC): Confirm legal start and completion of construction with valid CC and OC from local authorities. 
• Environmental and fire NOCs: For large developments, check for required clearances from pollution control boards and fire safety departments. 
• Sale agreement and payment schedule: Review the sale agreement for clarity on price, deadlines, default penalties, and possession timelines. 
• Verification of seller documents: Collect and verify the seller’s identity proof (ID and PAN) and Power of Attorney (if used), including attestation and registration where required. 

This checklist should be reviewed with the help of a qualified property lawyer before committing to any transaction.

 

Common pitfalls NRIs should avoid

Even with all the information and resources, there are some common pitfalls that NRIs, in their excitement or trust, sometimes fall into. Being aware of these can help you steer clear:

• Skipping document checks: Never rely solely on brochures or verbal promises—always verify original documents and approvals. If a seller hesitates to share them, it’s a red flag.
• Trusting exaggerated claims: Don’t fall for unrealistic returns or area growth promises. Cross-verify claims independently or through local contacts, especially if the deal sounds too good.
• Delaying registration is risky—an unregistered sale isn’t legally valid. Use a POA if needed, and promptly transfer utility and tax records to your name.
• Ignoring hidden costs: Budget beyond the purchase price—factor in stamp duty, GST, registration, society charges, interiors, etc. Plan for at least 10% extra to avoid shortfalls.
• Overlooking tax compliance: NRIs must file tax returns in India, even if TDS is deducted. Non-compliance can lead to penalties or block repatriation. Also, formally revoke POAs post-use.
• Falling for scams: Avoid unverified agents or schemes targeting NRIs. Always deal through bank transfers, verify credentials, and watch out for phishing or fake listings online.
• Neglecting property post-purchase: Leaving property unattended invites squatting. Arrange regular oversight through family, a manager, or trusted contacts to protect your assets.

Housing.com POV

Purchasing real estate in India as an NRI can be deeply fulfilling, but it demands careful legal due diligence to ensure the property is transparent, compliant, and secure. With Indian laws, market practices, and compliance norms differing from those abroad, NRIs must verify titles, approvals, tax rules, and FEMA compliance—ideally with expert help. Researching and verifying each step can turn a complex process into a confident investment and protect your money from becoming a legal burden.

 

FAQs

Can NRIs purchase any type of property in India?

NRIs can buy residential and commercial properties but cannot purchase agricultural land, farmhouses, or plantation properties.

What taxes do NRIs need to pay when selling property in India?

NRIs pay TDS on sale proceeds (12.5% for long-term, up to 30% for short-term) and are liable for capital gains tax on profits.

How can an NRI repatriate sale proceeds from India after selling a property?

NRIs can repatriate up to USD 1 million annually from an NRO account after tax compliance and submitting forms 15CA/CB.

Is it necessary to have a Power of Attorney (POA) to buy or sell property in India as an NRI?

A POA is only needed if the NRI cannot be physically present to complete the transaction and must be legally executed and registered.

How can an NRI verify if a real estate project is RERA-registered?

Using the builder or project name, NRIs can check the project’s RERA registration on the respective state’s RERA website.

What key documents should an NRI check before buying a property in India?

NRIs should verify the title deed, encumbrance certificate, approvals, occupancy certificate, tax receipts, and RERA registration.

Do NRIs face higher stamp duty or registration charges than resident Indians?

NRIs pay the same stamp duty and registration charges as resident Indians based on state rates.