This is an exciting time for Non-Resident Indians (NRIs) wishing to invest in property in India. However, they should be aware of the regulations which govern the buying & selling of property and for the income they earn from the investment. NRIs from a significant segment of investors willing to put their money in the real estate sector. They either buy properties in India for investment or for settling back after they retire. The real estate market in India has emerged as a lucrative opportunity and NRI investments have surged.
There are Foreign Exchange Management Act (FEMA) regulations which NRIs should keep in mind while buying property in India. The Reserve Bank of India (RBI) has formulated some simple rules for NRI investments in real estate.
NRIs or people of Indian origin as defined by FEMA can acquire immovable property in India by way of purchase, other than agricultural land, plantation property or farm house. This is general permission given by the government of India.
Properties Where NRIs Can Invest
NRIs are allowed to invest in residential as well as commercial properties in India. However, they can own farmhouses, plantation properties & agricultural land only if they have inherited or gifted to them.
Financial Property Transactions by NRIs
For property transactions in India, NRIs can use the following methods.
Funds can be remitted into India through normal banking channels
Transfer funds from NRO/FCNR(B)/NRE accounts maintained in India
Payments by Traveler’s Cheques or foreign currency notes are not permitted
Payments outside India are not valid
Eligibility for Loans by NRIs
NRIs can avail home loans in Indian rupees for property purchase like any normal Indian citizen. Depending on individual eligibility, up to 80% of the property value can be paid through loans. Criteria for payment of loans can be the following.
Inward remittance through normal banking channels
Debiting to NRO/FCNR(B)/NRE accounts
From the rental income of the purchased property
Payments from close relatives defined in Section 6 of Companies Act 1956 through account holders in India
Taxation on Profits Earned by NRIs
Wondering how you would be taxed for the properties you have earned through property investments. Here is a break-up. You can earn returns through real estate investments in the form of rentals or short or long-term capital gains.
Rental Income – Rental income which you earn from properties in India fall under income accrued in the country & is taxable irrespective of your residential status.
Short-Term Capital Gain – This applies to profits earned through the sale of the acquired property within two years of purchase. These are calculated as the difference between the cost of purchase & sale proceeds. Taxation is applicable as per the slab rate for NRIs.
Long-Term Capital Gain – This is applicable when the purchased property is held for more than two years before selling. However, the exemption can be claimed under sections 54, 54F & 54EC for long-term capital gains, unlike short-term capital gains.