A Handy Blueprint for NRIs Buying Property in India

An NRI buying property in India is a common feature whether the market is hot or not, primarily because NRIs like to have a place back here in India. The RBI’s regulations on it are fairly easy as well and you do not have to take any prior permission from the authorities and currency rates are favorable too.

Let us run through a couple of pointers for the NRIs to understand the process, documentation involved and tax implications if they wish to invest in India.

All About NRI Investment in India

Laws:

• An NRI or Person of Indian Origin (PIO) can own both residential as well as commercial properties in India.
• There is no restriction on the number of properties you can buy.
• The rules for any such property transaction fall under the Foreign Exchange Management Act (FEMA).
• The financial transaction must be in Indian rupees (INR) and through normal banking channels using an NRI account.

Exceptions:

NRI investment cannot be done in agricultural land, farmhouse, and plantation property (they cannot purchase) unless they’ve been gifted or inherited. To acquire agricultural land/plantation property/farm house in India, NRIs must get approval from the RBI and the government.

Loan/ Funding the Purchase:

NRIs may avail of loan facilities from lenders; however, there are some things to be kept in mind.

• Take a no-dues certificate from the seller to ensure there is no water, electricity, or any other pending bills with the authorities.
• For new construction, the land title should be clear and the builder must have all approvals and permits from the civic authorities in terms of construction
• Only graduate NRIs can avail of home loans in India.
• A maximum of 80% of the value of the property can be funded by a financial institution. Rest has to come from the NRI’s personal resources. Indian financial institutions give rupee loans and so the same needs to be repaid in rupees only.
• Repayment has to be done by inward remittances. You can directly get the money remitted from NRO/NRE account in India or issue post-dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO, or Foreign Currency Non-Resident (FCNR) account.
• In case you let out the property you can use the rent to repay the loan as well. Cheques issued from a relative’s local account can also be used to make the loan payments.
• PoA (Power of Attorney): This is especially required if NRIs buy an under-construction property. A PoA can be given to anyone to execute any contracts, deeds as well as mortgage, lease, or even sell.

Tax implications:

• An NRI is entitled to all tax benefits related to the purchase of property that a resident Indian is. So, they can claim a Rs 1 lakh deduction under 80C.
• There is no upper limit to claim home loan interest for a tax deduction. Other deductions such as stamp duty, registration charges, municipal taxes paid during the year, and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance are available to NRIs as well.
• They have to pay a withholding TDS at the rate of 1% if they buy a property of more than Rs 50 lakh.
• Wealth tax is exempted if the property is vacant and declared as ‘self-occupied. Else they have to rent it out for at least 300 days a year to avoid paying wealth tax. This applies to the first property only. For subsequent vacant properties, they have to pay tax at the rate of 1% of the value (net of outstanding loans) in excess of Rs 30 lakh.
• The exemption may be claimed by investing in another property.
• Capital gains may also be taxable in their country of residence if it doesn’t have a DTAA with India.

Documents Required:

1) Indian Passport of Person of India Origin (PIO) Card or Overseas Citizen of India (OCI) Card

NRIs need an Indian passport to buy property in India. If they hold the passport of a foreign country, they need a PIO card. A person who is not a citizen of India, but was eligible to become an Indian citizen before or after partition (or a child of such a person) would need an overseas citizen of India (OCI) card.

2) PAN Card

NRIs need a PAN (permanent account number) card for two reasons:

• File income tax returns if they have rented out the property.
• If the property is sold later, they have to pay capital gains tax

3) Power Of Attorney

If you are an NRI who does not visit India too often, you must give POA to someone in the city in which you are buying a property to execute transactions on your behalf.

Places to Invest in India

Let us look at some of the best places to invest in India that would give you maximum returns on your investments, the developments are fairly safe and you have a wide range of property options to choose from.

Mumbai

Though is known to be the most expensive real estate market in Asia, there are a number of affordable options available in the upcoming suburbs of the city.

Pune

With a large number of migrant employees who work in the automobile and information technology companies in the city, there are a large number of luxury, premium & affordable residential projects in Pune. The growth of Pune has scaled at such a level that this city has attracted both NRIs and other people from around the globe. NRI investment in Pune has various unsaid and unknown benefits as the city is booming with companies wanting to invest or wanting to set up their offices.

Bengaluru

IT hub Bengaluru has a good mix of affordable homes as well as premium projects. A large number of new areas are being developed in the city outskirts.

Bhiwadi

This emerging area in the national capital region (NCR) has gained traction among NRIs.

All these cities have an International airport or are easily accessible for the nearest airport; they have many reputed developers and the range of properties is wide enough to pick and choose; good returns on investment. So if you’re an NRI looking forward to buying property in India, here is your ready reckoner.