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5 Things that NRI Must know Before Making a Real Estate Investment in India

Property buying has gotten easier for non-resident Indian (NRI) buyers thanks to changes in real estate legislation, government efforts and policies, and rising dollar prices. They are purchasing residences in India for personal use or as an investment. According to Knight Frank Research’s Active Capital Report, real estate investments grew by 137 per cent between 2011 and 2013 and 2014 to 2016. Even though it may appear to be simple, there may be a few factors that NRI purchasers should be aware of before making a serious investment.

FEMA Rules Regulated by RBI

The Reserve Bank of India has eased the Foreign Exchange Management Act (FEMA) requirements, making it easier to invest in real estate in India and according to the rule, any NRI with a valid passport who wants to buy a commercial as well as residential property in India, except perhaps a plantation, agricultural land, or even a farmhouse, must have a valid passport. The latter properties are only available for acquisition if they are gifted or inherited by either an NRI through succession. Otherwise, they must obtain government and RBI approval before purchasing any of these restricted assets.

Citizens of Sri Lanka, Pakistan, Bangladesh, Afghanistan, Iran, China, Bhutan, or Nepal are not allowed to purchase real estate and lay NRI real estate investments in India.

Power of Attorney (PoA)

This is mandatory for  NRI real estate buyers, as they may not be physically present in India at the time of the property transaction. Through PoA, NRIs have an option to transfer legal rights to their trusted friends or relatives to complete all purchase procedures on their behalf. PoA can be used for leasing, selling, mortgaging, borrowing, renting, and so on.

Home Loans

The Reserve Bank of India has allowed housing finance businesses and banks to give home loans to non-resident Indians for the purchase of a real estate in India. NRIs, like any other Indian citizen, can get a home loan up to 80% of the value of their property. The loan is granted in Indian Rupees, and the borrower is required to return the loan using Indian Rupees. It can be returned in the following ways:

  • Banking channels by way of inward remittance
  • NRO/NRE/or FCNR (B) account
  • The rental income
  • The close relative of the borrower, by crediting their account

The payment towards home loan cannot be made through travellers’ check or foreign currency notes. Also, payment made outside India will not be accepted.

EMIs and the Forex

One of the simplest methods to repay a debt is to pay it back in equal monthly payments. Changes in the foreign exchange rate, on the other hand, may have an impact on your EMIs and add to your concerns. As a result, it is always advisable to pay through rentals.

Taxation and Tax Benefits 

Let us take a look at the tax for NRI buying property in India. India has signed a Double Taxation Avoidance Agreement (DTAA) with more than 85 countries across the world. This agreement applies to an NRI who works and resides in one country and pays his taxes, as well as earns income in a different country through a real estate investment or by other means. Like any regular Indian the NRI buyer is liable to pay taxes on the rental income, short-term, and long-term capital gains. Any property that is held by an NRI for more than 2 years (precisely 24 months) will be considered a long-term capital asset. This asset will be taxed at 20%. Like any regular Indian buyer, an NRI can claim the tax exemption under sections 54, 54EC, and 54F.

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