Recently, an NRI friend expressed his desire to buy property in India. I approved, sagely quoting a line I’d read somewhere, “The best investment on Earth is earth.”
It was his next query that got me thinking a bit. “Anything I should know before taking the plunge?”
Buying a property anywhere is a matter that needs careful thought. For an NRI, investing in Indian property could either be for practical purposes, or for sentimental reasons. He/she could either sell it off at a later stage at an appreciated value or simply let it out and earn regular returns through rent. It could also be a part of his/her retirement plan, of returning to India for good.
Whatever the reasons might be, the glaring challenge for anyone based overseas to purchase a property in India is the distance. After all, managing a property from abroad is no cakewalk!
If an NRI chooses to go ahead with his/her decision of investing in a property in India, the next step to consider is knowing some basic rules around investing in Indian property. Let’s take a look at what an NRI investor must know before buying Indian property.
6 Things an NRI investor MUST KNOW before investing in Indian property!
1. Types of Property An NRI Can Invest In:
An NRI can purchase both residential and commercial properties in India. While there is no restriction on the number of properties an NRI can own in India, he/she cannot purchase agricultural lands, farmhouses or plantations. Such properties are allowed only if they are gifted to, or inherited by the NRI.(1)
2. Regulatory Act:
The sale and purchase of Indian property by NRIs are governed by FEMA (Foreign Exchange Management Act), 1999. The regulatory framework and instructions, however, are issued by the RBI (Reserve Bank of India).(5)
3. Financial Transactions:
All transactions related to investments in Indian property by an NRI should be done in Indian currency, through Indian banks. In case of purchase, payments can be made only out of funds received in India through normal Indian banking channels by way of inward remittances from any place outside India OR out of funds held in any Non-Resident External (NRE) account/Foreign Currency Non-Resident (FCNR) account/Non Resident Ordinary (NRO) account maintained in India.(4)
Payments cannot be made through travellers’ cheques, foreign currency notes or any other mode.
4. Funding For Investment In Indian Property:
An NRI can also avail housing loans like an Indian Resident. Several NRI home loan schemes are available under different financial institutions in India. However, the documentation process for availing these loans is different. For example, Axis Bank demands the following documents from NRI investor looking for a home loan to purchase Indian property: (3)
- Full passport copy and work visa copy
- Overseas address proof e.g. utility bill, card statement, house lease agreement, bank statement etc.
- Salary slip for three months
- Appointment letter or contract copy
- Salary Account and NRE/NRO Account statement for six months
- General Power Of Attorney
Before approaching any institution for funding, it is important to make sure that all the paperwork is clean and verified by a lawyer. NRIs must take a no-dues certificate from the seller when purchasing a property. If the property is inherited or jointly held, it is crucial to get the title cleared.(2)
5. Power Of Attorney:
An NRI can purchase Indian property by choosing a trusted representative in India and handing over the POA (Power of Attorney) that gives the said representative the power to conduct transactions on the NRI’s behalf. This is especially useful if the NRI intends to invest in property that is still under construction/being developed. However, it is important to ensure that the document is appropriately worded, ideally with the help of a lawyer, and the NRI’s interests are protected.(2)
6. Tax Benefits of Investment In Indian Property:
NRIs purchasing homes in India are entitled to tax benefits, like their Indian Resident counterparts. They can claim a deduction of up to INR 1 lakh, under section 80C of the Income Tax Act, 1961. Similarly, NRIs are also eligible for deduction on stamp duty, registration, municipal taxes, and a deduction of 30% on rent.(1)
However, it should be noted that an NRI must pay TDS for a property over INR 50 Lakhs at 1%. If the NRI decides to sell the property within three years of purchase, it is considered as a short-term capital gain, and the earnings through the property are taxable. If he/she sells the property after three years, the option of reducing the long-term capital gains tax by investing in another property is available. (2)
That’s all! Remember, though, purchasing property is simply the first step, and the challenges one might face during the process can be rather taxing.
What an NRI needs is someone to assist him/her through the whole deal – right from deciding whether to let out the property, screening and choosing tenants, to regular maintenance of the property and dealing with the financial and taxation aspects of the property in India. In other words, an NRI needs a Real Estate Portfolio Manager!
Real Estate Portfolio Management Services take care of everything for an NRI property owner! And guess what… My friend’s hired one already!
If you are an NRI looking for a real estate portfolio managers you can trust, get in touch with Homzhub today!
- https://www.axisbank.com/nri/home-loans/nri-home-loans/eligibility-and-documentation – Do Note: The example given is only for information purposes and to help you understand the general documentation. It is in no way an endorsement of the said bank nor do we recommend any particular bank. Readers are advised to conduct thorough research, before approaching any bank or financial institution.