Real Estate has been a lucrative investment option for Non-Residential Indians (NRIs). Many NRIs would like a place back in India. The rules relating to NRI property investments fall under the Foreign Exchange Management Act (FEMA) which is administered by the Reserve Bank of India (RBI). The monetary transaction must be in Indian Rupees (INR) and through normal banking channels using an NRI account. RBI has provided their own FAQs in this regard. You are requested to read our responses below in conjunction with the responses provided in RBI’s FAQs as per link below:
Below are a list of questions that NRIs have on buying and selling India property. If you still have further questions, please do not hesitate to contact us and we will respond to your query an include it in the FAQ below if necessary.
A NRI or Person of Indian Origin (PIO) can own both residential as well as commercial properties in India and there is no restriction on the number of properties you can buy. However, you cannot purchase any agricultural land, farm house and plantation property. You can have ownership of such property only if they’ve been inherited or gifted.
As per recent notification issued by RBI, you would require prior approval of the Reserve Bank for acquisition and transfer of immovable property in India. Such requests are considered by the Reserve Bank in consultation with the Government in India. Please contact firstname.lastname@example.org to see if we can help in obtaining these approvals.
Under the FEMA rules, if you are an NRI, you can sell any residential or commercial property you have bought or inherited to anyone you want. There are specific RBI guidelines on the repatriation of sale proceeds which need to be adhered to. You need to decide whether you want money as repatriable or not. If you want to repatriate, it needs to be come in foreign currency from an overseas account, NRE or FCNR account. One can repatriate up to the amount invested in the property.
Also, it must be noted that an NRI cannot repatriate proceeds of more than two properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account upto USD 1 million per financial year.
If the property was acquired by Rupee sources, then the NRI/PIO can remit an amount upto USD 1 million per financial year out of the balances held in the NRO account subject to tax compliance and satisfaction of the Bank remitting the funds.
According to RBI norms, a maximum of 80% of the value of the property can be funded by a financial institution. Indian financial institutions give rupee loans and so the same needs to be repaid in rupees only. Since all transactions must happen through the normal banking channels, repayment has to be done from money remitted from NRO/NRE account in India or Foreign Currency Non Resident (FCNR) account. For more information, please contact email@example.com to see if we can help you in obtaining loans.
The tax benefits for a NRI are very similar to that of a resident India. So, you can claim a Rs 1 lakh deduction under 80C. There are added advantages of buying a house on loan if you are an NRI. Unlike a resident Indian, who can claim a deduction only up to Rs 1.5 lakh for home loan interest, there is no upper limit on this for an NRI. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during the year and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance is available to NRIs as well.
NRIs also have to pay a withholding TDS at the rate of 1% if you buy a property worth more than Rs 50 lakhs.
If you rent out the property, the income from it is taxable in India and you’ll have to file your returns in India.
When you decide to sell the property, you’ll have to pay capital gains tax as required under the Income Tax Act. You can get long-term capital gains benefits if you hold a property over 36 months. Long-term capital gains is taxed at 20% plus applicable cess. You can claim exemption by investing in another property. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted.
Short term capital gains (property held for less than 3 years) are added to income and taxed at the normal rate of tax.
There would be a 20% TDS for NRIs on sale of property.
You are advised to seek independent tax advice from their Tax Consultants. Please contact us if you don’t have a tax consultant and we would introduce you to one in India.