India is one of the most attractive real estate investment destinations, especially for the Non Resident Indian (NRI) population. According to a report by Square Yards, a real estate investment advisory firm, the total NRI investment in primary Indian real estate in top 8 major cities is expected to reach around USD 11.5 billion in 2017. Thanks to the progressive regulatory reforms and ease of NRI investment process in India, the NRI investment sentiments have improved considerably.
While market scenario is favourvable for a real estate purchase, it is advisable for NRIs to understand the prevailing policies, reforms and laws governing their investment. To help them with the process, we have listed below some of the key laws that one should keep in mind:
Ease of Buying: RBI has eased the rules of owning a property by NRIs under the Foreign Exchange Management Act (FEMA). As opposed to earlier, they are no longer required to go through an approval process with Foreign Investment Paper Board. Now, buying a property in the country is an Indian passport away.
Property Type: An NRI can purchase both residential and commercial properties in India. What’s more, there is no cap on the number of properties that an NRI can buy in India. However, they are not allowed to buy any agricultural land, farm house or plantations. These can be owned only if it is inherited or given as a gift.
Power of Attorney: Now, physical presence of an NRI is not mandatory for making a real estate transactions. A power of attorney (POA) is only required to simplify the investment procedure. In case of an under-construction property, a developer may require you to give POA that authorizes them for ease of documentation. Alternatively, NRIs can issue a POA to a relative or a known Indian resident for executing all real estate dealings on your behalf, including registration, sale etc. However, care should be taken to get the POA vetted or prepared by a legal expert to avoid any misuse.
Loans/Funding: To secure funding for real estate transactions in India, an NRI must ensure all the paperwork is up to date, proper and in line with the laws. Additionally, NRIs must have an account with an authorised Indian bank and must be make all the transactions in Indian rupees.
Several financial institutions in India offer various home loan schemes for NRIs. As per the norms laid down by RBI for securing funding, NRIs must ensure that at least 20 percent of the value of the property comes from personal resources and the remaining 80 percent can be financed through a bank or other financial institution.
Besides this, one must keep in mind that these dealings have to be executed through Indian banking channel using NRO/NRE account for inward remittances. Alternatively, one can also opt for post-dated cheques or ECS from the NRE, NRO or Foreign Currency Non Resident (FCNR) account for the transaction.
Selling: A NRI can sell any of his/her property – commercial or residential – to anyone. Somewhat similar to buying laws, while selling an agricultural land, farm house or plantations, NRIs have to ensure that the buyer is an Indian resident or they can gift it to anyone, including an NRI.
Tax Benefits: When buying a home in India, NRIs are entitled to tax benefits that are similar to the ones enjoyed by the citizens. They can claim up to INR 1 lakh of deduction under Section 80C of the Income Tax Act, 1961. Similarly, NRIs are eligible for deduction on stamp duty, registration, municipal taxes, and a 30% deduction on rent. These are some of the benefits enjoyed by a resident as well. NRIs, however, have to pay TDS for a property over INR 50 lakh at 1 %. A capital gain tax is also levied while selling the property.