NRI’s guide to buying property in India
|One of the Greatest Indian dreams of this generation is buying real estate in India. A house in India is essential, irrespective of which corner of the world you currently reside in. The Indian laws, over the years, have evolved and made this a fairly easy job. The Reserve Bank of India governs such transactions and they fall under the purview of the Foreign Exchange Management Act (FEMA).
In this section, we give you a glimpse of all the fundamentals you are supposed to know if you are an NRI wanting to buy property in India. To begin with, we need to understand the definition of non-resident Indian. Since property purchases are governed by FEMA, we need to go by the definition of NRI as stated in FEMA. According to FEMA, an NRI is a citizen of India who is resident outside India.Now let us understand the rules and implications:Can an NRI buy property in India?
Yes, a non-resident Indian can buy either a residential property or a commercial property in India. There is no limit on the quantity of properties that an NRI can purchase in India.
Exception: Agricultural land, plantation land or a farm house in India are properties an NRI can NOT buy. He cannot even acquire such property as a gift. He can inherit this property.
Is RBI permission required?
Is deemed income from house property taxed in foreign country?
What are the income taxes that applicable on house properties in India?
NRIs have always been opportunistic in terms of investment avenues and returns. The government regularly comes up with new schemes to attract more and more investments from abroad. Real estate is one of the sectors which always grabs the attention of non-residents.
The Reserve Bank of India has also given permission to all non-residents who possess Indian passports as well as people of Indian origin to put their money in the real estate sector (residential as well as commercial property). The number of NRIs investing in real estate is increasing fast as the value of the rupee is depreciating and real estate offers better returns. A place in the homeland usually gives a sentimental support and sense of security, which is the other reason of investment in real estate by NRIs.
The RBI along with the Foreign Exchange Management Act (FEMA) has become lenient in terms of rules and regulations for non-residents who are looking for an investment in real estate. They are not only simplifying the rules but also providing the benefit of repatriation of the capital involved. The government is planning some investment growth activities through their investment promotional council, to create an environment appropriate for non-residents to put money.
How can NRIs invest in real estate?
|Sources of finance:
NRIs consider financial institutions as an easy option available in India for purchasing any property. At the same time financial institutions consider NRIs as their potential clients. Financial institutions provide home loans easily, efficiently and sooner to such people as they are very much prompt at the time of repayment. Furthermore, the repayment can readily be done by inward remittance through the proper banking channel. If someone is already getting income in India from sources like rent or dividend, he/she can directly repay the loan as well.Tax implications for NRIs looking for property in India:
An NRI has to shell out stamp duty as well as registration fees at the time of purchase. He is entitled to avail all sorts of benefits at par with Indian residents on the interest paid for the home loan. However, the tax process becomes full of twists and turns if the property is leased.RBI has also predetermined these norms in home loans for non-residents who are looking forward to buying any property:
As the amount of income received from such action comes under the head of income from property, therefore, standard deduction is applicable as per the standard slab. In this case, the NRI will have to pay the applicable tax if he is residing in the country where worldwide income is taxable unless the country has Double Tax Avoidance Agreement with India.
The special advantage for an NRI is the amount which is paid for the interest of home loan is deductible from NRI’s taxable income without any upper limit. The NRI is legally responsible for the payment of capital gains tax as prescribed under the Income Tax Act, in case he sells off the property.
Points to be considered at the time of purchase:
Property name: The name of property should be clear from issues and the seller should have the required right to sell it, especially if it is inherited or any joint property.
NDC: Always check that there will be no outstanding electricity/water bills or any other authority dues pending with the property. Take a no dues certificate from the seller at time of purchase.
Bank release letter: It is advisable to take the bank release letter from the concerned bank, if the property had been mortgaged as security in any type of loan.
Permits: The property of sale should have all approvals and permits from the civic authorities in terms of construction
India’s real estate growth prospect lure investors from every parts of the world and NRIs are looking to capitalize by buying property in India. However, there are various rules and norms which should be followed by the NRIs in order to own a property in India. Here are a few steps which should be followed by an NRI for property buying;
Proof of eligibility:
The exchange control regulations:
The power or attorney:
The home loan: