A Non-Resident Indian’s (NRI) Guide To Buying Property In India
Topics Covered:
Introduction
NRI’s Property Buying people dwelling outside India that is Non Resident Indians (NRIs), Person of Indian Origins (PIOs) and foreign nationals have been procuring immovable properties like Bungalows, flats, luxury villas, and commercial properties in India. The other major group that invests in real estate in are non-resident Indians (NRIs). Besides high-net-worth individuals (HNIs) who reside in the country, the other major group that invests in real estate in are non-resident Indians (NRIs).
8 Things NRIs Should Consider Before Investing in Real Estate in India
- Nature of Property: A real estate investment is an immovable property. While NRIs have every right to own an immovable property – be it residential or commercial – there are certain restrictions regarding the type or nature of the property. NRIs are eligible to buy both residential and commercial properties in India. Agricultural land, farmhouses, and plantation properties, however, are not allowed to be purchased by NRIs.
- Taxation and Tax Benefits: Like an average citizen of the country, an NRI is liable to pay taxes on the income they earn from an immovable property, be it rental income or short-term or long-term capital gains. However, a key benefit they enjoy is the Double Taxation Avoidance Agreement (DTAA), which India has signed with more than 85 countries. If an NRI holds a property for 2 years or more, it is considered a long-term capital gain, and the same will be taxed at 20.6%. An NRI can be exempted from wealth tax on the first property if it is empty and declared to be for own use. They can apply for a refund of the TDS or tax exemption under sections 54, 54 EC, and 54 F.
- Home Loan: Like any Indian resident, NRIs are eligible to get a home loan of up to 80% of the value of the property. It is mandatory that the loan sanctioned is disbursed, and later repaid by the borrower, in Indian currency. When they take a home loan, the amount is not directly transferred to their account. Instead, the loan amount is credited to the developer’s account. Repayment can be done through various methods such as inward remittance, rental income, or crediting the money to a close relative’s account.
- Power of Attorney (PoA): The power of attorney is a powerful legal tool that authorizes another person, usually a trusted individual, to act on the owner’s behalf. As an NRI, when you buy an under-construction property in India, giving a power of attorney to a trusted individual will make the entire process of owning the property smooth and hassle-free. NRIs can appoint a trusted representative in India through a Power of Attorney (PoA) to complete property transactions on their behalf.
- Repatriation of Funds Back to the Foreign Country: The term ‘repatriation’ refers to the transfer of funds across countries. For an NRI, repatriation means transferring funds from their bank account in India to the account in their country of residence. As an NRI, when you repatriate your money obtained from the sale of an immovable property in the country, it needs to be done in adherence to certain conditions. The property must have been purchased as per FEMA directives. The amount repatriated should not exceed the amount used to purchase the property, if the purchase is made using money remitted through banks or funds in FCNR account. An NRI can repatriate USD 1 million in a financial year, based on certain conditions.
- FEMA Rules Regulated by the Reserve Bank of India (RBI): The RBI has eased the Foreign Exchange Management Act (FEMA) to make it easier for NRIs to own residential as well as commercial properties in India. With a valid passport, they can own property, except the types of property mentioned above. If you are an NRI planning to buy a property in the country, being familiar with the latest FEMA directives will help you greatly.
- Modes of Payment: NRIs are eligible to get up to 80% of the value of the property they intend to purchase. Just like the loan is disbursed in Indian currency, the repayment should also be made in the same. However, you can overcome such possible financial mishaps by opting to pay the EMI using your rental income from the property. NRIs can make payments through normal banking channels using funds remitted from abroad through regular banking channels or from NRE/NRO/FCNR accounts.
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Documents Required:
- Valid passport
- PIO/OCI card, if applicable
- PAN card
- Address proof
- Passport-sized photographs
- Sale agreement
- Title deed
- NOC from the builder/society
- Bank statements
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Legal Requirements:
- NRIs need to have a valid Indian passport.
- They should also possess the Overseas Citizen of India (OCI) card or Person of Indian Origin (PIO) card, if applicable.
- Tax Implications: NRIs are subject to certain tax implications in India, such as property tax and capital gains tax. They should also be aware of the tax implications in their country of residence.
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Tips for a Smooth Purchase:
- Conduct thorough research on the property market and legal requirements.
- Hire a reliable real estate agent or lawyer to assist with the purchase process.
- Ensure all transactions are done through legal channels and all necessary documents are in order.
Frequently Asked Questions
Investing in real estate in India is quite easy for an NRI. In fact, except for a few mandates, the procedures are same as an Indian resident. An NRI is eligible to obtain a home loan – up to 80% of the value of the property – from an Indian bank or financial institution. However, the money doesn’t get credited to the borrower’s account, but to the developer’s. If it’s an under-construction property, it is ideal to transfer the power of attorney to a trusted friend or relative. Finally, and most importantly, before investing in a property, do a thorough check of the developer’s track record and reputation. This will help in ensuring that the money remains safe.
RBI has clearly defined the rules for NRIs for investing in real estate in India. When it comes to the types of property, they can invest in all types except agricultural land, farmhouse, and plantation property. They are eligible for home loans as well as tax benefits, just like any resident Indian. They can repatriate the funds in their bank account in India obtained through the sale of their property to their country of residence. These are the most important RBI guidelines applicable to an NRI while investing in real estate in India.
The RBI has issued several relaxations for NRIs investing in a property in India. As per these, an NRI can benefit in various ways while investing in a property in the country. A few of them are as follows: tax benefit under 80 C of the Income Tax Act 1961. If the property bought is for self-use, an NRI can enjoy tax exemption. High returns from rental income – with cities growing rapidly, there’s a higher demand for housing. India has a stable real estate market which is poised to grow exponentially in the coming years. Quite naturally, a real estate investment is likely to grow multifold, offering NRIs high return on investments.
Yes, the RBI allows NRIs to take home loans for buying property in India. You can also take a loan for repairs and renovations of your home. You can pay EMI’s in any one of the following ways:
- By remitting the money from your foreign bank account through regular banking channels.
- By issuing post-dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO, or FCNR account.
- Out of the rental income that this property earns.
- Cheques issued from your local relative’s bank account.
Conclusion
Buying property in India as an NRI can be a lucrative investment, but it’s essential to understand the legal requirements, tax implications, and other considerations to ensure a smooth and hassle-free purchase process.