Important rules for NRIs investing in Indian Real Estate.
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14 November 2018 - 14:00, by , in NRI, No comments

An NRI who desires to buy a property in India should have in mind the rules that govern the purchase & sale of property, as well as income made from the property.

NRIs have been a significant division of investors, in the Indian real estate market. Non-Resident Indian (NRIs) usually buy properties in India for investment intentions or out of their emotional connection with the country & for settling back, once they retire. According to Amit Wadhwani (director of Sai Estate Consultants), India has appeared as a conducive spot for global capital. Overseas investments have surged 137 percent, from USD 3.2 billion during 2011-13 to USD 7.6 billion during 2014-16. According to a survey, almost thirty percent of the total global real estate transactions in India is going to be cross-border.

Important FEMA Edicts that NRIs Must Keep in Mind

To attract additional international investment, the RBI has made the rules simple & easy for NRI investments. Real estate transactions come under the purview of the FEMA (foreign exchange Management Act).

An NRI or PIO (person of Indian origin), as defined in FEMA, can acquire by the method of purchase, any immovable estate in India, apart from agricultural land/farm house/plantation property. This is under general permission that has been given by the government of India. However, no individual being a citizen of Pakistan, Sri-Lanka, Bangladesh, Afghanistan, China, Nepal, Bhutan or Iran, shall acquire or transfer the immovable estate in India, apart from the lease, not exceeding five years, without former permission of the reserve bank.

Types of Properties in Which NRIs can Invest

An NRI is allowed to invest in both residential & business properties in India. However, any agricultural land, farm house & plantation property can be owned, given that it’s gifted or inherited to the NRI.

Financial Transactions by Non-Resident Indian

Property transactions in India – NRIs/ PIO can make payments through:

  • Funds remitted to India through traditional banking channel.
  • Funds held in NRE/ NRO/ FCNR (B) account maintained in India.
  • No payment can be made by travelers’ cheque or by foreign currency notes.
  • No payment to be made outside India.

Loan Eligibility for NRI

Like regular Indian citizens, NRIs/PIOs can also avail of home loans in Indian rupees for his/her property purchases, up to 80 percent of the property worth, depending upon person eligibility. Such a loan can be repaid:

  • Using inward remittance through traditional banking channels.
  • By debit to his NRE / FCNR (B) / NRO account.
  • Out of rental income from such property.
  • By the borrower’s close relatives, as defined in Section 6 of The Companies Act, 1956, through their account in India, by crediting the borrower’s loan account.

How NRIs Taxed, for Profit Earned from Real Estate Investments

NRIs can make returns from their investments in real estate, in the rental income & short or long-term profit.

Short-term capital gains

Short-term capital gains apply on the profit earned by the sale of a property, within two years of its purchase. The capital gains for such property calculated as the difference between the sale proceeds & the value of an acquisition. It’s taxed as per the applicable slab rate for the NRI.

Rental income

The rental income earned from a property asset in India falls under the income accrued in India and is taxable, irrespective of residential status.

Long-term capital gains

Long-term capital gains (applicable when the property is held for more than 2 years) are taxed at twenty percent. However, in contrast to short-term capital gains, an exemption can be claimed under sections 54, 54 F and 54 EC.

If an NRI opts for an under-construction property, they may need to give a power of attorney to a trustworthy associate, for completing the deal. Hiring an attorney to prepare the document, is also crucial, to confirm that there’s no forgery and the investment is secure.

 

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