Tips for NRIs Investing in Indian Real Estate

Tips for NRIs Investing in Indian Real Estate

December 1st

This is an exciting time for Non-Resident Indians (NRIs) wishing to invest in property in India. However, they should be aware of the regulations which govern the buying & selling of property & for the income they earn from the investment. NRIs from a significant segment of investors willing to put their money in the real estate sector. They either buy properties in India for investment or for an emotional connect with their country or for settling back after they retire. Real estate market in India has emerged as a lucrative opportunity & overseas investments have surged. According to some surveys, cross-border global real estate transactions account for almost 30 percent.

FEMA Rules to Keep in Mind

There are some Foreign Exchange Management Act (FEMA) regulations which NRIs should keep in mind while buying property in India. The Reserve Bank of India (RBI) has formulated some simple rules for NRI investments in real estate.

NRIs or people of Indian origin as defined by FEMA can acquire immovable property in India by way of purchase, other than agricultural land, plantation property or farm house. This is general permission given by the government of India. However, citizens of Bhutan, Nepal, Iran, China, Afghanistan, Sri Lanka, Bangladesh or Pakistan will not be able to do so. Nevertheless, they can lease property not exceeding five years without the consent of RBI.

Properties Where NRIs Can Invest

NRIs are allowed to invest in residential as well as commercial properties in India. However, they can own farmhouses, plantation properties & agricultural land only if they have inherited or gifted to them.

Financial Property Transactions by NRIs

For property transactions in India, NRIs can use the following methods.

  • Funds can be remitted into India through normal banking channels
  • Transfer funds from NRO/FCNR(B)/NRE accounts maintained in India
  • Payments by Traveler’s Cheques or foreign currency notes are not permitted
  • Payments outside India are not valid

Eligibility for Loans by NRIs

NRIs can avail home loans in Indian rupees for property purchase like any normal Indian citizen. Depending on individual eligibility, almost 80% of the property value can be paid through loans. Criteria for payment of loans can be the following.

  • Inward remittance through normal banking channels
  • Debiting to NRO/FCNR(B)/NRE accounts
  • From the rental income of the purchased property
  • Payments from close relatives defined in Section 6 of Companies Act 1956 through account holders in India

Taxation on Profits Earned by NRIs

Wondering how you would be taxed for the properties you have earned through property investments. Here is a break-up! You can earn returns through real estate investments in the form of rentals or short or long-term capital gains.

  • Rental Income – Rental income which you earn from properties in India fall under income accrued in the country & is taxable irrespective of your residential status.
  • Short-Term Capital Gain – This applies to profits earned through the sale of the acquired property within two years of purchase. These are calculated as the difference between the cost of purchase & sale proceeds. Taxation is applicable as per the slab rate for NRIs.
  • Long-Term Capital Gain – This is applicable when the purchased property is held for more than two years before selling. However, the exemption can be claimed under sections 54, 54F & 54EC for long-term capital gains, unlike short-term capital gains.

NRIs opting for under-construction properties will have to provide a power-of-attorney to a trusted associate in order to complete the deal. It is also crucial to hire a lawyer for preparing the document so as to ensure to avoid surgery & make sure that the investment is secure.

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