of the Greatest Indian dreams of this generation is buying real
estate in India. A house in India is essential, irrespective of which
corner of the world you currently reside in. The Indian laws, over
the years, have evolved and made this a fairly easy job. The Reserve
Bank of India governs such transactions and they fall under the
purview of the Foreign Exchange Management Act (FEMA).
this section, we give you a glimpse of all the fundamentals you are
supposed to know if you are an NRI wanting to buy property in India.
To begin with, we need to understand the definition of non-resident
Indian. Since property purchases are governed by FEMA, we need to go
by the definition of NRI as stated in FEMA. According to FEMA, an NRI
is a citizen of India who is resident outside India.
let us understand the rules and implications:
an NRI buy property in India?
a non-resident Indian can buy either a residential property or a
commercial property in India. There is no limit on the quantity of
properties that an NRI can purchase in India.
Agricultural land, plantation land or a farm house in India are
properties an NRI can NOT buy. He cannot even acquire such property
as a gift. He can inherit this property.
RBI permission required?
RBI permission is not required to buy residential or commercial
deemed income from house property taxed in foreign country?
would need to look at the tax code in your country of residence. In
the case of NRIs in the United States, the US tax code does not tax
deemed income. However, Ganga Mukkavilli, a New York City based CPA
whose firm, CPAs, Taxes & Associates PC, specialises in
international accounting, taxes and small businesses says that you
would still have to show the property if it is an investment property
in your tax return in the US (even though you do not have any rental
income ). "If you do not show this investment property, the
problem will arise at the time of sale of property. Suppose you sell
a property on which you had no rental income for US tax purposes but
had deemed income as per India Tax code, then the amount spent on the
maintenance, repairs and renovations and depreciation on this
property which may be eligible for deduction or addition to your cost
basis while calculating capital gains would become difficult to
establish. However, if you have not declared the property in your tax
returns, the US tax code may challenge the cost basis (purchase +
improvements + suspended losses) to claim a tax deduction at the time
of sale," he explains.
course, any investment properties with rental income and related
expenses must be reported on Form Schedule E in the US tax returns
and rental activities by nature are always treated as 'passive'
investments with restrictions on deductibility of the net rental
losses. Always consult a tax expert as passive activity rules are
quite cumbersome," he adds.
are the income taxes that applicable on house properties in India?
to the Indian Income Tax Act, if a person (resident or NRI) owns more
than one house property, only one of them will be deemed as
self-occupied. There will be no income tax on a self-occupied
property. The other one, whether you rent it out or not, will be
deemed to be given on rent. If you have not given the second property
on rent, you will have to calculate deemed rental income on the
second property (based on certain valuations prescribed by the income
tax rules) and pay the tax thereof.
Now, the Income Tax Act does
not specify if either or both these properties must be situated only
in India. Vikas Vasal, Executive Director of KPMG India explains, "At
the time of drafting the Income Tax Act, one did not envisage a
situation where an Indian would own properties overseas. But now,
more and more Indians are settling abroad. So from the reading of the
Act, the rule of 'more than one property' will apply to global
this means is that if you are an NRI and own only one property
globally and that property is in India, you would not have to pay any
income tax on it in India.
However, let us say you are an NRI
resident in USA. You own and live in a house in USA. You also own a
house property in India. Even if you do not give the property in
India on rent, you would have to pay income tax on deemed rent in
India. The deemed rent is determined by certain valuation rules
prescribed in the Income Tax Act.
Remember that even if you have
inherited a property in India and that is not your only property, you
would have to pay tax on deemed income.
have always been opportunistic in terms of investment avenues and
returns. The government regularly comes up with new schemes to
attract more and more investments from abroad. Real estate is one of
the sectors which always grabs the attention of non-residents.
Reserve Bank of India has also given permission to all non-residents
who possess Indian passports as well as people of Indian origin to
put their money in the real estate sector (residential as well as
commercial property). The number of NRIs investing in real estate is
increasing fast as the value of the rupee is depreciating and real
estate offers better returns. A place in the homeland usually gives a
sentimental support and sense of security, which is the other reason
of investment in real estate by NRIs.
RBI along with the Foreign Exchange Management Act (FEMA) has become
lenient in terms of rules and regulations for non-residents who are
looking for an investment in real estate. They are not only
simplifying the rules but also providing the benefit of repatriation
of the capital involved. The government is planning some investment
growth activities through their investment promotional council, to
create an environment appropriate for non-residents to put money.
can NRIs invest in real estate?
to the regulations of FEMA and RBI, an NRI is permitted to make
specific investment in real estate. A NRI is allowed to do the
following investments in property.
Any immovable property can be purchased by an NRI in India
other than any agricultural land, farm house and plantation
2: He can get any immovable property
as mentioned above by gift from Indian resident, Indian citizen
residing outside India or person of Indian origin.
Obtain any property by inheritance.
can transfer immovable property to any resident of India by
5: He can transfer any agricultural
land, farm house or plantation land to any resident of India by
6: He can also transfer his residential
or commercial property by means of gift to any person either residing
in India or abroad or person of Indian origin.
consider financial institutions as an easy option available in India
for purchasing any property. At the same time financial institutions
consider NRIs as their potential clients. Financial institutions
provide home loans easily, efficiently and sooner to such people as
they are very much prompt at the time of repayment. Furthermore, the
repayment can readily be done by inward remittance through the proper
banking channel. If someone is already getting income in India from
sources like rent or dividend, he/she can directly repay the loan as
implications for NRIs looking for property in India:
NRI has to shell out stamp duty as well as registration fees at the
time of purchase. He is entitled to avail all sorts of benefits at
par with Indian residents on the interest paid for the home loan.
However, the tax process becomes full of twists and turns if the
property is leased.
has also predetermined these norms in home loans for non-residents
who are looking forward to buying any property:
maximum of 80 per cent amount is financed by the financial
institution. The rest should be given by the NRI.The
remittance of the amount for down payment can be done from the place
of residence by normal banking channels,
- i.e., NRO/NRE account in
NRI has to repay his principal amount as well as interest part from
that similar channel only.
the amount of income received from such action comes under the head
of income from property, therefore, standard deduction is applicable
as per the standard slab. In this case, the NRI will have to pay the
applicable tax if he is residing in the country where worldwide
income is taxable unless the country has Double Tax Avoidance
Agreement with India.
special advantage for an NRI is the amount which is paid for the
interest of home loan is deductible from NRI's taxable income without
any upper limit. The NRI is legally responsible for the payment of
capital gains tax as prescribed under the Income Tax Act, in case he
sells off the property.
to be considered at the time of purchase:
in real estate is a simple move but there are several drawbacks as
well. So, one should be cautious enough at the time of purchase to
secure the deal. Few points of consideration are under:
name of property should be clear from issues and the seller should
have the required right to sell it, especially if it is inherited or
any joint property.
check that there will be no outstanding electricity/water bills or
any other authority dues pending with the property. Take a no dues
certificate from the seller at time of purchase.
is advisable to take the bank release letter from the concerned bank,
if the property had been mortgaged as security in any type of loan.
property of sale should have all approvals and permits from the
civic authorities in terms of construction Indiaâ€™s
real estate growth prospect lure investors from every parts of the
world and NRIs are looking to capitalize by buying property in
India. However, there are various rules and norms which should be
followed by the NRIs in order to
- own a property in India. Here are a
few steps which should be followed by an NRI for property buying;
you are an NRI and are looking for investing in a property in India,
you should obtain a Person of Indian Origin (PIO) certificate as an
eligibility proof. In case you do not have your PIO certificate, you
can always produce your motherâ€™s/fatherâ€™s birth certificate for
the eligibility. However, these documents should be submitted to the
Indian embassy of the particular country.
Exchange Control Regulations:
the initial times, the restrictions relating to investment by NRIs in
Indian properties have been lessened. An NRI can easily buy a
property with the funds received from regular banking. Also an NRI
can hold a Foreign Currency Non-Resident FCNR account,
Non-Residential External (NRE) account or a Non Resident Ordinary
(NRO) account to make a property purchase. An NRE account is required
for the pay outs and an NRO account is required for the depositing
and the transferring of money.
the relevant income tax and capital gains at the time of sale
proceedings are deducted from the account, one can repatriate the
funds from the NRE account to the foreign account.
case if an NRI wishes to rent out a property, he/she can rent the
immovable property. However, the rental income or the profit which is
made as returns from the property will be eligible for repartition
for payment of taxes and payment of a certificate which is produced
by a chartered accountant.
an NRI owns a property in India and wants to sell it away, he/she can
sell it to another NRI or any person residing in India who is free
from any legal issues. However, the purchase or sale of a farm house
or other agricultural land is not permitted, but gifting of an
agricultural land or a farm house or plantation land is permitted to
a resident of India. The same follows with an NRI or a PIO.
Power of Attorney:
is advisable that an NRI should give the power of attorney to an
Indian resident who is trust worthy. In case the NRI is not present
in India for the legal formalities, the trusted person can complete
all the formalities.
NRI can avail a home loan in India for the purchasing of a property.
A home loan of about 85-90 per cent can be taken and further the loan
will be disbursed to him/her at the time of buying a property.