NRI’s Guide to Investing in Real Estate in India
Indian Real Estate has been an investors’ favourite for a long time now. Thankfully, NRIs can now buy or possess real estate in India, while complying with the FEMA (Foreign Exchange Management Act) regulations.
If you, as an NRI, hold your property for at least three years, you can enjoy benefits both from taxation advantage(s) and capital appreciation. To know more, keep reading.
An Ultimate Guide for NRIs to Invest in Real Estate in India
With the enactment of the Benami Bill, FEMA and the Real Estate Regulatory Act (RERA) by the Government of India, investing in real estate in India has become convenient for Non-Resident Indians (NRIs). The framework and rules of RERA have made the investment in Indian properties easier, safer, cheaper and transparent for NRIs.
Before investing in Indian realty, an NRI needs to follow some steps to make his/her investment worthwhile. There are two important things that you need to keep in mind while planning to invest in properties in India:
- You must hold or apply for a Permanent Account Number (PAN), as it works as your national identity. PAN is a prerequisite for carrying out financial transactions of sorts within India territory.
- All monetary transactions are to be made in Indian Rupees.
Here’s a guide for NRIs to invest in Real Estate in India.
- Research with Diligence
Investing in real estate is a huge monetary deal. Therefore, you should conduct thorough research in order to protect your invested capital. Make sure to evaluate factors like locational advantages, reputation of the real estate developers and their past track record in this business. This is a great way to educate yourself before you invest your money into Indian property.
You can visit realty exhibitions organised in your city by renowned establishments like the Confederation of Real Estate Developers Association of India. This can be an opportunity to meet different high-profile property developers, evaluate property plans, and flexible investment options.
- Properties Where You Can Invest
As per the Reserve Bank of India (RBI), an NRI can freely purchase immovable property in India. You are permitted to purchase residential and commercial real estate other than agricultural land and farmhouses. The Indian passport is essential as it assists you to make property transactions administered by the regulations as per the Foreign Exchange Management Act (FEMA).
- Financial Plan
Before investing in your desired properties in India, you need to have a realistic financial plan. Having an NRO/NRE account in any authorised Indian bank is essential since you have to perform all transactions in the Indian currency. To make payment, you can avail Electronic Clearing Service or use post-dated checks.
Ensure that once you determine what property to purchase, you arrange for the requisite funds. As per the RBI directive, for buying properties in India, NRIs need to put down at least 20% of the cost of the property on their part. The balance of 80% or less can be availed in the form of loans from financial institutions registered with the National Housing Bank (NHB).
Furthermore, you need to know that the loan amount will not be credited to an NRI’s bank account. Instead, it will be paid directly into the bank account of the property developer or seller. Repaying the loan is possible using an NRE or NRO bank account or FCNR (Fixed Deposit Foreign Currency account).
- Power of Attorney
Being abroad, it may not be possible for you to be present physically in India every time to execute different activities related to the transaction. Under such circumstances, having Power of Attorney (POA) is the best choice.
By POA, you can transfer your authority to someone trusted, like your family member living in your native town, to act on your behalf. In your physical absence, the POA becomes eligible to perform and execute all needed actions. A properly drafted POA will protect you from possible forgery and ensure the security of your investment until you can acquire your property.
- Hire an Attorney
Considering your hefty investment and complexity of the property deal, it makes sense to hire a trusted attorney. They will examine whether the title deeds of ownership are original and perform a thorough background check of the property developer and estate. In addition, they will ensure that legal clearances like municipal, environmental and also get a ‘no-dues’ certification from the seller.
- Tax Benefits
The Indian Government has simplified the taxation rules to motivate NRIs to invest in real estate in India. When an NRI sells property two years after owning it, they are liable to pay tax on Long-Term Capital Gains (LTCG) as TDS at 20%. In case the property has been sold before 2 years, Short-Term Capital Gains (STCG) will be charged at a TDS of 30%. However, NRIs are allowed to claim exemptions under section 54 and Section 54EC on LTCG from sale of house property in India.
To conclude, the passing of Benami Bill and FEMA Act has been a boon for NRIs to invest in the Indian real estate sector. Developers and financial institutions have streamlined the entire process of property transactions, making it hassle-free and secure. So, being an NRI, if you are interested in investing in real estate in India, follow the guidelines mentioned above.
Frequently Asked Questions
Which personal documents are necessary to purchase a property in India?
The documents required to buy a property in India are as follows:
PAN (Permanent account number) card
OCI/PIO card (if applicable)
Passport (In the case of NRI)
What are the benefits of Non-Resident Indians investing in Indian properties?
The ideal factors that make NRIs to invest in Indian real estate are:
The falling value of the rupee will multiply the buying power of NRIs.
With the booming Indian property market, NRI investors can get a substantial Return on Investment by means of capital appreciation.
Compared to other investment options like gold, equity, crypto currency, etc., real estate is less risky and has a relatively steady growth rate.
How are real estate gains taxed?
When it comes to capital gains when NRIs sell their property two years after the acquisition, it is treated as a short-term capital gain and will be taxed at the applicable tax slab for an NRI. On the contrary, if the property is held for over two years, it will be treated as a long-term capital gain and will be taxed at a rate of 20% on indexation. NRIs can also benefit from tax exemption under Section 54F and 54EC of the Income Tax Act.