Tax Implications and Repatriation Rules for NRIs Investing in Indian Real Estate

NRI interest in real estate investments in India is rising rapidly, owing to several factors such as incredible ROI potential, rental yield, and most prominently, an emotional inclination. However, investing in Indian real estate for NRIs is not as simple as finding a property and purchasing it. 

There are a bunch of NRI real estate tax rules India has established that these investors need to examine prior to purchase. The tax rules and repatriation rules must both be studied and understood in detail to maximize returns, ensure adherence to compliance and regulatory norms, and align with pertinent laws.

Tax Implications and Repatriation Rules Applicable to NRI Investments In Indian Real Estate

First things first, when purchasing property in India as an NRI, one must be aware of the kind of properties one can purchase. NRIs cannot buy all types of properties in India. Typically, an NRI can only purchase a residential property and a commercial property in India. Unless inherited, these individuals cannot purchase any agricultural land, farmhouse, or plantation property, among other property types, in India.

Types of Taxes and Repatriation Rules 

When purchased, the residential and commercial properties would be subject to various tax and repatriation rules as under the RBI guidelines for NRI investments and other local laws. Some of the common rules and taxes that can be levied include the following.

Taxes on the Purchase of Property 

While purchasing property, NRIs are required to pay registration charges and stamp duty for the property, just like resident Indians. These charges differ from state to state. It must also be noted that payment for property acquisitions must be done through NRE, NRO, or FCNR accounts that the NRIs hold. The remittance of funds through these accounts is vital.

Tax On Rental Yield 

If an NRI gets rent from property owned in India, the same will be subject to taxation in India. Rent is treated as income from house property, and hence taxed according to the existing income tax slab rates. However, NRIs are also eligible for normal deductions similar to resident Indians, such as a 30% deduction of rent as revenue towards maintenance and deductions for property taxes and home loan interest.

Additionally, the income generated from residential or commercial properties through rentals is freely repatriable after the payment of taxes. NRIs have the liberty of repatriating the rent earnings to foreign accounts in their NRO accounts as per the repatriation rules for NRI property.

Short-Term and Long-Term Capital Gains Taxation 

When an NRI sells property in India, capital gains tax becomes the largest component of the tax burden. Whether it's a short- or long-term gain depends upon the holding period. A property being held for up to 24 months makes it a short-term asset, and the profit is taxed at the slab rates prevailing.

If property is being sold within two years of its purchase, the gain falls under short-term capital gains and is taxed according to the income tax slab rate of the NRI. In case of properties held for more than 24 months, long-term capital gains tax of a fixed 20% with indexation benefit in line with the income tax on NRI investment in property. This allows the investor to compute the purchase price of the property against inflation, thus reducing taxable gains.

ALSO READ: NRI Property Investment Rules To Keep In Mind

Double Taxation Avoidance Agreements

In an effort to prevent double taxation of NRIs in India as well as in the country where they are currently residing, India has signed Double Taxation Avoidance Agreements with several countries. According to this agreement, the NRI real estate tax rules in India provide for the credit of tax paid in India against tax payable in the other country.

This reduces the double taxation burden on rental yields or capital gains, making real estate investment in India a more tax-effective option for worldwide Indians. However, based on the country in question, the terms of the double taxation avoidance agreements can vary, and must be assessed thoroughly.

Repatriation Rules For Sale Profits 

One of the essential factors for NRIs with respect to property purchase in India is the repatriation of funds. This means the ability to send the sale proceeds back into their resident country. Repatriation is permitted under the Foreign Exchange Management Act regulations up to certain limits and guidelines.

The key limitation of this regulation is that NRIs are permitted to repatriate only two residential properties. In addition to this, it is important to note that, as per these guidelines, the amount of repatriation cannot be more than the initial price paid for the property.

NRIs must also note that if the acquisition was done from an NRO account, repatriation is limited to USD 1 million per year. For this, they need to present proper documentation and certifications as needed.

Source: https://www.ujjivansfb.in/banking-blogs/savings-account/nro-savings-account-repatriation-rules

Invest In Aparna

As NRI investor interest in Indian real estate rises, the demand for transparent opportunities that align with the NRI-specific taxation and repatriation laws is also rising. This is why we at Aparna Constructions don’t just build properties, we develop a chance for NRIs to partake in investing in Indian real estate through our supportive policies.

Our RERA-certified properties make it simple for every investor to easily invest in their dream residential property, getting all the clearances needed to carry forward the purchase and acquisition process. With us, you do not need to worry about paperwork delays or legal clearances, Our team offers continuous support to make your property buying journey simple.

Conclusion

For NRIs who want to buy real estate in India, following a structured and informed approach is vital. This starts with finding the perfect property in which to invest. With the numerous tax and repatriation laws applicable, finding the perfect property is essential. As such, trusting a reputed partner is the first step in ensuring a successful land owning experience as an NRI. Following this, understanding all pertinent laws, favorable policies, incentives, and liabilities is critical to maintaining compliance and securely holding your investment.