Are you an NRI who wants to invest in the booming Indian real estate market? Do you want to know the best types of properties, the legal and financial aspects, the tax implications, and the benefits of investing in Indian real estate? If yes, then you have come to the right place.
This article will provide a comprehensive guide on investing in Indian real estate as an NRI. We will cover everything you need to know before deciding, from choosing the right property to repatriating the funds.
Types of Properties NRIs Can Invest In India
The first step to investing in Indian real estate as an NRI is understanding the properties you can buy in India. According to the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) regulations, NRIs can buy any residential or commercial property in India except for agricultural land, plantation property, or a farmhouse. However, NRIs can inherit or receive these properties as a gift from a relative in India.
Some examples of residential properties that NRIs can buy in India are:
- Flats or apartments
- Villas or bungalows
- Independent houses
- Plots or land for residential purposes
Some examples of commercial properties that NRIs can buy in India are:
- Office spaces
- Shops or showrooms
- Warehouses or godowns
- Hotels or resorts
NRIs can buy any number of residential or commercial properties in India, as there is no limit on the quantity or value of the properties. However, NRIs must ensure that they comply with the FEMA and RBI rules and regulations while buying property in India, such as the mode of payment, the source of funds, and the reporting requirements.
How to Choose the Right Property for Investment
The next step to investing in Indian real estate as an NRI is choosing the right investment property. It depends on various factors, such as your preferences, budget, risk appetite, and investment horizon. However, some general criteria and elements that you should consider before choosing a property for investment are:
- Location: The property’s location is one of the most critical factors determining its value and potential. It would help to look for properties in prime areas with good connectivity, infrastructure, amenities, and demand. It would help if you also considered the prospects and development plans of the location, such as metro projects, airport expansions, industrial corridors, etc.
- Market trends: The property segment and region’s market trends are another critical factor influencing its performance and returns. You should analyze the property segment and region’s current and historical data on supply and demand, price movements, rental yields, capital appreciation, vacancy rates, etc. It would be best to look for emerging markets and opportunities with high growth potential and low competition.
- Growth potential: The property’s growth potential is another crucial factor determining its long-term returns and appreciation. It would be best to look for properties with scope for value addition, such as renovation, expansion, conversion, etc. It would be best to look for properties with potential for generating passive income, such as rentals, leases, etc.
- Rental yields: The rental yields of the property are another significant factor determining its short-term returns and cash flow. It would be best to look for properties with high rental demand and occupancy rates, such as near educational institutions, IT hubs, hospitals, etc. It would help to look for properties with low maintenance costs and high rental income.
- Capital appreciation: The capital appreciation of the property is another vital factor determining its long-term returns and wealth creation. It would help to look for properties with high appreciation rates and resale value, such as prime locations, emerging markets, etc. It would help to look for properties with low depreciation rates and high-quality standards.
How to Finance the Property Purchase
The third step to investing in Indian real estate as an NRI is to finance the property purchase. There are various options and sources of funds that you can use to finance your property purchase in India, such as:
- NRE or NRO accounts: You can use your Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts to pay for your property purchase in India. These rupee-denominated accounts allow you to deposit and withdraw funds in Indian currency. You can transfer funds from your foreign bank account to your NRE or NRO account through wire transfer, cheque, or demand draft. You can also use your NRE or NRO account to receive rental income or sale proceeds from your property in India.
- Foreign currency: You can use foreign currency to pay for your property purchase in India. However, it would help if you converted the foreign currency into Indian rupees through an authorized dealer or bank before making the payment. You must also obtain a Foreign Inward Remittance Certificate (FIRC) from the authorized dealer or bank as proof of payment.
- Traveller’s cheques: You can use traveller’s cheques to pay for your property purchase in India. However, it would help if you encashed the traveller’s cheques into Indian rupees through an authorized dealer or bank before making the payment. You must also obtain a FIRC from the authorized dealer or bank as proof of payment.
If you do not have sufficient funds to pay for your property purchase in India, you can also avail of a home loan from an Indian bank or financial institution. However, you must meet specific eligibility criteria and documentation requirements to help a home loan as an NRI, such as:
- Eligibility criteria: You must be an NRI with a valid passport and visa. It would be best to have a minimum age of 21 and a maximum age of 60. You must have a regular source of income and a good credit score. It would help if you had a co-applicant who is a resident of India or an NRI with a valid passport and visa.
- Documentation requirements: You must provide various documents to prove your identity, address, income, and property details, such as passport, visa, PAN card, Aadhaar card, bank statements, salary slips, income tax returns, property papers, etc.
- Interest rates: The interest rates for home loans for NRIs vary depending on the lender, loan amount, loan tenure, loan-to-value ratio, credit score, etc. However, the average interest rate for home loans for NRIs ranges from 6.5% to 8.5% per annum.
- Repayment options: The repayment options for home loans for NRIs depend on the lender, loan amount, loan tenure, etc. However, the standard repayment options for home loans for NRIs are equated monthly instalments (EMIs), post-dated cheques (PDCs), electronic clearing service (ECS), or standing instructions (SI).
Availing of a home loan for your property purchase in India can also have some tax implications and benefits for you as an NRI, such as:
- Tax implications: You must pay tax on the interest and principal amount of your home loan in India as per the Income Tax Act of India. However, you can claim a deduction of up to Rs. 1.5 lakh per annum on the interest amount under Section 24 of the Income Tax Act of India. You can also claim a deduction of up to Rs. 1 lakh per annum on the principal amount under Section 80C of the Income Tax Act of India.
- Tax benefits: You can also avail tax benefits on your home loan in India under the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence. DTAA is an agreement that prevents you from paying tax on the same income in both countries. Under DTAA, you can claim credit or exemption for the tax paid in India on your home loan interest and principal amount in your country of residence.
How to Manage the Legal and Regulatory Aspects
The fourth step to investing in Indian real estate as an NRI is to manage the legal and regulatory aspects of your property purchase in India. There are various rules and regulations that you must follow and comply with while buying property in India as an NRI, such as:
- FEMA and RBI rules: You must observe and abide by the laws and regulations issued by the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) for NRIs to invest in Indian real estate. These include the mode of payment, the source of funds, the reporting requirements, etc. For example, you must pay for your property purchase in India only through your NRE or NRO account, foreign currency, or traveller’s cheques. You must also report your property purchase in India to the RBI within 90 days of the transaction.
- Power of attorney (PoA): You must appoint a power of attorney (PoA) to act on your behalf for your property transactions in India. A PoA is a legal document that authorizes someone to work on your behalf for a specific purpose and duration. A PoA can help you save time, money, and hassle while buying property in India as an NRI, as you do not have to be physically present for every step of the process. However, you must be careful while choosing a PoA, as they can also misuse your authority and rights. You should select a trustworthy and reliable person as your PoA, such as a close relative or friend. You should also specify the scope and limit of your PoA’s authority and rights, such as the type of property, the amount of payment, the duration of validity, etc. You should also register your PoA with the sub-registrar’s office in India to make it legally valid and enforceable.
- Registration and transfer of title: You must register and transfer the title of your property in India to your name. Registration is a legal process that records your ownership and rights over the property in India. Transfer of identification is a legal process that transfers the ownership and rights over the property from the seller or developer to you. To register and transfer the title of your property in India, you must execute a sale deed with the seller or developer. A sale deed is a legal document containing the details and terms of the property transaction, such as the parties’ names, the property description, the agreed price, the mode of payment, etc. You must also pay stamp duty and registration fees for your sale deed. Stamp duty is a tax levied by the state government on the value of the property transaction. Registration fee is a charge levied by the sub-registrar’s office for registering your sale deed. The stamp duty and registration fee vary depending on the property’s state, city, area, type, and value. You must also submit various documents along with your sale deed for registration and transfer of title, such as passport, visa, PAN card, Aadhaar card, FIRC, PoA, etc.
How to Repatriate the Funds from Property Transactions
The fifth and final step to investing in Indian real estate as an NRI is repatriating the funds from your property transactions in India. Repatriation transfers the funds from your property transactions in India to your foreign country of residence. Repatriation can be done for two types of funds: rental income and sale proceeds.
- Rental income: Rental income is the income you earn from renting out your property in India. You can repatriate your rental income from India to your foreign country of residence without any limit or restriction. However, you must pay tax on your rental income in India as per the Income Tax Act of India. You can also claim deductions for expenses related to your property, such as maintenance, repairs, municipal taxes, etc. You can also avail tax benefits on your rental income in India under the DTAA between India and your country of residence. Under DTAA, you can claim credit or exemption for the tax paid in India on your rental income in your country of residence.
- Sale proceeds are the funds you receive from selling your property in India. You can repatriate your sale proceeds from India to your foreign country of residence subject to certain limits and conditions. The limitations and conditions depend on the type and source of funds used for buying the property in India, such as:
- If you bought the property in India using funds from your NRE account, foreign currency, or traveller’s cheques, you can repatriate the sale proceeds up to the amount invested in the property within ten years from the date of purchase or acquisition.
- If you bought the property in India using funds from your NRO account home loan or any other source, you can repatriate the sale proceeds up to USD 1 million per financial year (April-March) after paying applicable taxes and obtaining a certificate from a chartered accountant.
- If you inherited or received the property in India as a gift from a relative who is a resident of India, you can repatriate the sale proceeds up to USD 1 million per financial year after paying applicable taxes and obtaining a certificate from a chartered accountant.
You must also pay tax on your sale proceeds in India as per the Income Tax Act of India. You must pay capital gains tax on the difference between the sale price and the property’s purchase price. The capital gains tax rate depends on the type and duration of holding of the property, such as:
- If you sold a residential property in India after holding it for more than two years, you must pay long-term capital gains tax at 20% plus surcharge and cess.
- If you sold a residential property in India within two years of holding it, you must pay short-term capital gains tax at 30% plus surcharge and cess.
- If you sold a commercial property in India after holding it for over three years, you must pay long-term capital gains tax at 20% plus surcharge and cess.
- If you sold a commercial property in India within three years of holding it, you must pay short-term capital gains tax at 30% plus surcharge and cess.
You can also claim exemption or deduction from capital gains tax on your sale proceeds in India under certain conditions, such as:
- Suppose you reinvested the sale proceeds in another residential property in India within one year before or two years after the date of sale or acquisition or in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) within six months after the date of sale or acquisition. In that case, you can claim exemption from long-term capital gains tax under Section 54F of the Income Tax Act of India.
- If you reinvested the sale proceeds in another residential property in India within one year before or two years after the date of sale or acquisition, you can claim exemption from short-term capital gains tax under Section 54F of the Income Tax Act of India.
You can also avail tax benefits on your sale proceeds in India under the DTAA between India and your country of residence. Under DTAA, you can claim credit or exemption for the tax paid in India on your sale proceeds in your country of residence.
To repatriate your funds from your property transactions in India, you must follow specific steps and procedures, such as:
- Open an NRE or NRO account with an authorized dealer or bank in India.
- Transfer your funds from your NRE or NRO account to your foreign bank account through wire transfer, cheque, or demand draft.
- Obtain a FIRC from the authorized dealer or bank as proof of repatriation.
- Obtain a certificate from a chartered accountant as proof of payment of taxes and compliance with FEMA and RBI rules.
Conclusion
Investing in Indian real estate as an NRI can be a rewarding and profitable venture if done right. However, it also involves various challenges and complexities that require careful planning and execution. Therefore, it is advisable to seek professional guidance and assistance from experts with experience and expertise in dealing with NRIs and the Indian real estate market. Home Locator can help you find and buy the best properties in India according to your preferences, budget, risk appetite, and investment horizon. We also offer end-to-end assistance and support throughout the property buying process, from finding the right property to repatriating the funds. Home Locator also has a network of trusted and reliable developers, lawyers, chartered accountants, and bankers who can help you with your property transactions in India. Home Locator also has a blog that provides the latest news, trends, insights, and tips on the Indian real estate market.
If you are an NRI who wants to invest in Indian real estate, then Home Locator is the perfect platform for you. Contact us today, and let us help you achieve your dreams.
FAQ Section
Q: What are the benefits of investing in Indian real estate as an NRI? A: Investing in Indian real estate as an NRI can offer you various benefits, such as:
- High returns: The Indian real estate market offers high returns on investment, as property prices and rental income are expected to grow steadily.
- Diversification: The Indian real estate market offers diversification for your portfolio, as it has different segments and regions that cater to different needs and preferences.
- Tax advantages: The Indian real estate market offers tax advantages for NRIs, as they can claim deductions and exemptions on their income and capital gains from property transactions in India. They can also avail of the benefits of DTAA between India and their country of residence.
- Emotional value: The Indian real estate market offers emotional value for NRIs, as they can own a property in their homeland and stay connected with their roots and culture.
Q: What are the challenges of investing in Indian real estate as an NRI? A: Investing in Indian real estate as an NRI can also involve some challenges, such as:
- Legal and regulatory aspects: The Indian real estate market has various legal and regulatory elements that NRIs must follow and comply with, such as FEMA and RBI rules, PoA, registration and transfer of title, etc. These can be complex and time-consuming for NRIs who are not familiar with the Indian laws and procedures.
- Financing and repatriation: The Indian real estate market has various financing options that NRIs can use to fund their property purchase and transfer their funds back to their foreign country of residence. However, these can also have some limitations and conditions that NRIs must meet, such as eligibility criteria, documentation requirements, interest rates, repayment options, tax implications, etc. These can also vary depending on the type and source of funds used for buying the property in India.
- Market research and evaluation: The Indian real estate market has various market trends and growth potential that NRIs must research and evaluate before choosing a property for investment. However, these can also change rapidly and unpredictably depending on location, demand, supply, price movements, etc. These can also differ across different segments and regions in India.
