Can NRIs Purchase Joint Property With Resident Indians?

Yes, NRIs can purchase a joint property with a resident Indian, subject to FEMA compliance. The property must be residential or commercial and not agricultural land, a farmhouse, or a plantation property. There are various types of joint ownership in India, such as joint tenancy and tenancy in common, and an NRI must choose the one that best suits their needs.

NRIs must complete all transactions for property purchase through authorized banking channels and clearly state the proportion of ownership. Additionally, each co-owner must comply with FEMA rules. A resident co-owner's bank account must not be used by an NRI, as this may violate FEMA rules. Moreover, the tax liability for a joint property is shared among the co-owners in proportion to their ownership shares. In this blog, we will learn more about an NRI purchasing joint property in India. 

Why NRIs Choose Joint Property Ownership?

Here are some reasons why NRIs choose joint property purchases:

• To buy a property jointly with a resident spouse. 
• Share financial responsibility for a high-value asset
• Have a local co-owner to manage paperwork and coordination
• Ensure family security by purchasing property with parents or siblings.

What are the Types of Joint Ownership in India? 

In India, joint ownership can be structured in various legal forms. You must choose the right type as it affects ownership rights, inheritance, and the ability to sell or transfer the property. The main types of joint ownership in India are as follows:

• Joint Tenancy: All co-owners have equal rights over the property. When one owner passes away, their share is transferred to the surviving owner automatically. This structure may not be ideal for NRIs who wish to pass their share to their legal heirs. 

• Tenancy in Common: Each co-owner has a specific and defined share in the property. If one co-owner dies, their share is inherited by their legal heirs. It is the most preferred option for NRIs as ownership shares and inheritance rights are defined clearly. 

What are the Payment Rules NRIs must follow?

When making payments to purchase property, NRIs must ensure their portion is paid from an NRO or NRE account or via a direct inward remittance. It must be clearly stated in the sale agreement and bank trail, and it must match the ownership percentage reflected in the documents. You must not use a resident co-owner's account, as it can lead to FEMA violations and ownership disputes later. 

Common Risks NRIs Face with Purchasing Joint Property

Here are some common risks that NRIs face in purchasing a joint property:

Unauthorized or Wrong Use

It is very common that a resident co-owner may occupy the property without consent, permit their extended family to use it, make changes without seeking approval, etc. NRIs often learn about misuse after the damage has already been done while they are staying abroad.

Issues With Sale or Exit

The process might become legally complicated if one co-owner wishes to sell the property and the other does not. Many NRIs often find exiting a joint property easier than entering. 

Conflicts Related to Inheritance & Succession 

Succession laws apply separately to each owner's share in joint ownership. After the owner's death, disputes might arise in the family, and verbal family understandings often fail legally. Additionally, while securing the rights, NRIs living abroad may face delays and issues. 

Decision-Making and Control Issues

Resident co-owners often manage the access to property, maintenance decisions, society interactions, local documentation, etc. NRIs may end up losing practical control over their own property shares if they don't possess clear agreements. 

What is the Importance of a Clearly Defined Ownership Share?

Clearly defining the ownership share is important for NRIs to protect their legal and financial interests. Any uncertainties in the ownership structure can create conflicts, issues with taxation, and even loss of control over the asset. NRIs must always ensure the following:

Payment Ratios Must Match Ownership Ratios

The payment percentage made by each co-owner must match their ownership share. In case an NRI pays 50% of the property cost, but the deed reflects only 30% ownership, the extra 20% may be treated as a gift or loan. This situation can lead to potential tax and legal complications. 

The Sale Deed Must Reflect the Ownership Percentage 

Each co-owner's share must be clearly reflected in the sale deed, like 70: 30, or 50:50. The law may treat all owners as equal if the share is not mentioned. This will be a drawback for the NRI who has invested more capital but has no documented proof. 

Correct Ownership in Stamp Duty and Registration

Stamp duty and registration details must be calculated and recorded according to each owner's share. Incorrect reporting can lead to issues during resale, inheritance, or while computing capital gains tax. 

Ambiguity Affects the NRIs Negatively 

Any uncertainty in the terms will benefit the resident co-owners as they will have easier access to the local authorities, courts, and the property itself. They may get more control over possession, rent, or sale decisions, which will put the NRI at a disadvantage. 

Using Power of Attorney with Caution

While granting power of attorney (PoA) to resident co-owners offers additional convenience for NRI property management, it carries significant risks. It includes:

• Potential misuse of broad PoAs
• Loss of transaction visibility
• PoA revocation from abroad may become difficult

To avoid these issues, NRIs must use specific, time-bound, and professionally drafted documents.

Tax and Compliance Requirements 

The tax liability for a joint property is shared among the co-owners according to their ownership share. Each co-owner must adhere to their respective tax obligations and comply with all the guidelines under FEMA and RBI.

Additionally, NRIs can repatriate the sale proceeds earned from such properties abroad, subject to FEMA regulations. NRIs must keep separate financial records and keep every document safe for future sale or repatriation. 

Things to Consider for NRIs in Joint Property Purchases

To avoid any kind of issues in the long-run, NRIs must keep the following things in mind:

• State the ownership percentage clearly
• Do not use informal or family-only agreements
• Review the property status at regular periods 
• Each co-owner must maintain independent documents 
• Use written agreements for usage and responsibilities

Bottom Line

As specified under the FEMA regulations, an NRI can legally purchase joint property in India with a resident Indian. The property must be residential or commercial and not agricultural land, plantation property, or farmhouses. Joint property purchase offers various benefits to the NRIs, like shared financial responsibility; it carries some risk as well, which NRIs must be aware of. To ensure a smooth process, the ownership share of both NRI and resident Indian must be clearly mentioned in the sale deeds. 

Moreover, for expert assistance and ensuring legal compliance, seek assistance from an expert at Savetaxs. We have a team of experts who can assist you in ensuring you comply with the FEMA regulations and have clearly drafted documents. They will ensure everything is done right to help avoid future disputes and confusion about the ownership status. Contact us right away, and get tailored guidance as per your needs.