Indian Real Estate market has enjoyed HUGE investments from NRIs. Let's examine the financial and tax implication of such investment to determine if such investments are profitable for you.
What type of properties can NRIs buy in India?
- Residential (Plots, High Rise, Single Family, Condos, etc)
- Commercial (Shops, Malls, Office Buildings, etc)
What they can not buy?
- Agriculture land, plantation or farm land. However, if you receive such properties through inheritance or as a gift then you can own them. If you acquired agriculture property before becoming an NRI than your ownership is valid.
- You can not purchase any kind of agriculture land after you become an NRI.
Planning on buying a residential or commercial property in India?
You must carefully plan to buy and sell real property. These transactions can have major tax consequences depending upon your situation. We strongly recommend that you speak with a tax professional.
Do not send the Traveler's Cheques or Foreign currency notes to buy the property.
Use proper banking channel to send funds from the US or use your NRE/NRO/FCNR account in India.
NOTE - No Finacial transaction is allowed to be carried out of India.
Tax Benefits On Purchase of a Property
Both in India and the US, Home Mortgage can be deducted (some restrictions apply). You can offset your rental income with the interest paid on the mortgage.
Sale of Property by NRIs
You may sell the property to anyone (Resident or Non-Resident of India). Income may be taxed as Short Term or Long Term Capital gain in both India and the US.
Long Term Capital Gain in India is 20%
Short Term Capital Gain = Income Tax Slab Rate
Taxes paid in India can be claimed against the taxes due in the United States.
hmm... how to bring this money back to the US
here are some rules to consider
- If you paid from your US bank account than you can repatriate the same or less amount. Meaning, amount repatriated cannot exceed what you paid at the time of purchase.
- the property must have adhered to FEMA directives.
Considering all this, should you invest in Indian Real Estate?
Well, I will let you decide. Here are a few things to consider; Indian real estate has seen large-scale frauds, litigations, builder delays, ownership disputes, low rental values, and repatriation is hard.