Laws in India allow multiple vistas for an NRI to participate and invest in common financial instruments, as well as in property. Investing in real estate property is quite lucrative for long-term investments. Current provisions of FEMA (Foreign Exchange Management Act), as well as government schemes, make real estate investments possible for NRIs.
Guidelines for an NRI to Invest in Property in India
As per rules, an NRI cannot purchase agricultural land, farmhouses, or plantation property in India. They can purchase any other immovable property.
Many times, for buying property, you may not have immediate liquid funds. The Reserve Bank of India has granted permission to banks in India to provide home loans for NRIs to buy a residential property in India.
Indian banks and housing finance institutions registered with the National Housing Bank can help you. Of course, your bank account will not receive the loan amount. Institutions will disburse it to the seller’s or developer’s bank account directly.
You can use funds in your NRO and/or NRE accounts to repay the loan. You can even use your FCNR deposits. Remember that you will need to use Indian currency for any payments and can’t repay using a foreign currency. Also, do not use traveller’s checks.
From an investment perspective, NRIs who inherit or are gifted property can rent it out to create a regular stream of income from the investment.
Commercial property is also an attractive avenue for NRI investment. However, timing the market is important. Seek advice from your private banker or wealth manager on likely slumps and upticks in the economy, the location of the property, long-term lease avenues, yearly yield, the returns, and property appreciation.
- You can jointly own property with any other NRI.
- You cannot buy property in joint ownership with a resident Indian.
- NRIs, while doing a property sale, within two years of acquisition will be deducted short-term capital gains tax (at 30%) and, beyond 2 years, will have to pay 20% of long-term capital gains tax. This is an important point, as unlike for resident Indians, the tax is deducted at the source, which unfortunately is calculated based on the sale value and not based on your actual gains (you have to claim the refund of excess tax payment from income tax department later). It is recommended that you speak to the right tax consultant who will help you calculate the gains based on purchase value, sale value, cost of inflation index, etc. Tax consultants can also help you with the right advice for saving tax. For example; if, as an NRI, you invest in another property within two years of selling, what portion of TDS can be waived off? Or how can capital gains bonds can help save you on taxes?
- Please check the prevalent rates at the point of the transaction, as they get revised often.
- Also, note income from rentals, as the taxation rules are on par with Indian nationals.
Often, you cannot be present during the purchase or sale transaction. You can use power of attorney (PoA) to appoint a representative to act on your behalf. Visit the Indian Embassy or the Consulate of the country where you reside, and sign the document in front of the consulate officer. The documents will require a photograph, your left thumb impression, and your signature. Now, you can send this PoA document to India to be adjudicated. Ask your PoA to maintain all the required documents and send them to you. Alternatively, at the time of your visit to India, you can get the notarized PoA and get it registered at the sub-registrar’s office so that your representative can execute the sale or purchase whenever the opportunity arises.
While selling, do follow important FEMA guidelines for repatriation of funds back to the foreign country.
In a nutshell, the property market is still unregulated. So, please seek professional help. They will assign you a relationship manager and help with sale-deeds. They will do the property verification, home inspections, encroachment checks, etc. The brokerage charge is a small price to pay for peace of mind.
At the end of the day, it is still simple for an NRI to own property in India.
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