According to a recent report, NRI (Non Residential Indian) investments in real estate in India have almost doubled from just $6 billion in 2013 to $11 billion in 2018 due to a depreciated rupee and increased transparency from regulations such as RERA (Real Estate Regulation and Development Act) and GST.
The Indian government implemented these measures to protect the interests of home buyers, make the Indian real estate more affordable and boost real estate investments. As a result, there is an increased interest from NRIs -- Indian passport holders living abroad.
As an NRI looking to invest in the Indian real estate, you should be familiar with the following:
Foreign Exchange Management Act (FEMA) regulates any purchase of property by NRIs and these policies play a significant role in real estate transactions between NRIs and real estate developers selling properties in India.
According to FEMA, an NRI can purchase and own any immovable property in India, except agricultural land, plantations or farmhouses. The only way NRIs can acquire these properties is as a gift or inheritance.
While NRIs don’t require any approvals or permissions from government bodies or the RBI (Reserve Bank of India) to purchase or sell properties in India, they are required to provide documentation to prove their NRI status. The documents to be provided as evidence include:
An Indian passport or OCI (Overseas Citizen of India) card or a PIO (Person of Indian Origin) card
PAN (Permanent Account Number) card, which is issued by the Income Tax Department of India for taxation purposes
Lastly, all transactions regarding real estate properties in India must be done in INR (Indian Rupee) through the standard banking channels using an existing NRI bank account. In India, NRIs are allowed to hold either an NRE (Non Resident Rupee) account, which is to manage foreign earnings in foreign currency, or an NRO (Non Resident Ordinary Rupee) account, which is to manage income earned in India in INR.
As an NRI living outside India, it can be difficult to get procedures done in India while purchasing real estate property. To make managing property in India easier, NRIs are allowed to give Power of Attorney (POA) to their friends or family to conduct property purchases on their behalf.
To grant POA to a friend or a family member in India, NRIs must document the POA terms on stamp paper, and visit a local registrar office along with two friends or family members as witnesses and an ID proof. The process is relatively simple and the most convenient way of managing property in India while living abroad.
According to the RBI, NRIs are allowed to take home loans, for purchasing property or conducting repairs and renovations, from any authorised bank or housing finance company located in India. The loan will be sanctioned in INR and it has to be repaid in INR only.
An important thing to note is that the loan won’t be credited to the NRI bank account, but to the account of either the property seller or developer. The repayment can be done using the NRO or NRE bank accounts or FCNR (Foreign Currency Non-Repatriable) account deposits.
India has the DTAA (Double Taxation Avoidance Agreement) with over 80 countries, which provides ample tax relief to NRIs. As a result, NRIs don’t have to pay any taxes in India while purchasing a property.
However, if they get income from the property in the form of rent or profits by selling the property, then NRIs have to pay certain taxes on that income according to the Income Tax Act, 1961. The taxes that an NRI has to pay for income from rent is the same as that an Indian citizen would pay.
When selling property, the Government of India levies a 20.6% tax on long-term capital gains (when the property has been held for more than two years) and 30.9% tax on short-term capital gains (profits earned within two years of property purchase).
It is an exciting time to invest in real estate in a developing country like India, where property rates surge every year. Investing in real estate is one of the safest and least volatile investments that NRIs can make, with high returns and profit guaranteed. Just make sure that you are fully aware of the rules and regulations that come with real estate investments in India.