Must Know Rules for NRIs Who Plan to Invest in Real Estate in India

Must Know Rules for NRIs Who Plan to Invest in Real Estate in India

One of the most important considerations for a Non-Resident Indian investing in real estate in the country is to comprehend the financial landscape. There are new real estate rules that makes buying a property for NRIs way easier than it was before. Any individual who holds an Indian passport can definitely invest in Indian real estate, as long as the property is not an agricultural land, farmhouse or plantation property. Here are a couple of things that must be kept in mind before starting to search for properties that will be invested in.

Regulatory Act:

Anyone who has an Indian passport is not required to submit any permission if he or she wants to make an investment on a property in India. The Reserve Bank of India has definitely made the rules so simplified and in layman’s terms in order to understand this so that there can be a higher attraction for foreign investment. Real estate transactions are governed by the rules under the FEMA or Foreign Exchange Management Act.

Kinds of properties to invest in:

There is no limit on the number of properties that a non-resident Indian can invest in. An NRI and a PIO or a Person of Origin can purchase many residential and commercial properties in India, as long as they want to. However, there is a limit and restriction on foreign investment, especially when it deals to agricultural land, farmhouse, plantation property. Such properties are allowed only if these are gifted or inherited to the NRI in question.

Financial Transactions and Funding

For any property investment that is made in India, all the transactions must be done in Indian currency via the Indian banks. One of the mandates is to have the NRI account be authorized in any Indian bank.

A non-resident Indian can also get funding for this purchase as long as his or her paperwork is clean. There are a number of home loan schemes that are made available under the different kinds of financial institutions in India. If the individual is getting his or her property funded, he or she has to make sure that he or she receives the minimum 20% of the value of the property in order to invest from his or her own resources. It is possible for the individual to take the funding of 80% of the value in the property.

All the transaction that must be carried through the Indian banking channels. So, it is very important to make sure that the NRE and NRO account for all the reward remittances are accurate. It is also possible for the NRI to issue the post-dated cheques or the ECS from the NRO, NRE or FCNR account.

Before anyone approaches the bank for funding, they must all check the paperwork and see if it is clean and has been verified by lawyers. The next step is to take a no-dues certification from the seller especially when buying property that is inherited or jointly held. It is very necessary that the buyer has to get the title cleared and ensure that there are no pending dues or bills with the authorities.

Power of Attorney

If the individual is buying a property that is under construction, then he or she must give the power of attorney to the trusted associate or the builder. They must also get the help from the lawyer to word the document appropriately and ensure that there is no possibility for forgery. In doing this, the investment is secure even when the property is being developed.

Tax Benefits

While the NRI enjoys a majority of the tax benefits that an Indian resident is entitled to, then the property can be purchased. It is also possible to claim the reduction of a lower percentage of Rupee, as indicated under Section 80C of the Income Tax Act of 1961. If the individual sells the property in a period of three years upon purchase, then this is regarded as a short-term capital gain. Another good thing about this is that the earnings through the property are also taxable. If the property is sold after three years, then the owner has the option of reducing the long-term capital gains tax by investing in another property.

The CREDAI or the Confederation of Real Estate Developers Association of India organizes the exhibitions for the NRIs on a regular basis. It helps scan the different investment options and also offer the spot loans from the top banks. Easy investment reductions and options in down payment are usually offered. Therefore, it is very important that the buyer checks all the offers from the CREDAI before investing in any kind of real estate in India.

Can an NRI Purchase or Own Property in India?

Any non-resident Indian who is interested in buying property in India must be aware of certain legal provisions that pertain to owning or purchasing immovable property in India under the FEMA or Foreign Exchange Management Act. Persons of Indian origin (PIOs) or NRIs are treated at par for the sole purpose of investing in real estate.

Kinds of properties and investments that NRIs and PIOs can invest in

The Reserve Bank of India has granted permission to the NRIs to purchase any commercial or residential property in India. The investor must not seek specific permission from the RBI nor is he required to send intimation or communication in anything regarding the RBI. Under existing general permissions, NRI can purchase commercial or residential property in India. The investor also should not seek special permission from the RBI. Under these general permissions that already exist, an NRI can then purchase no matter how many commercial or residential properties. The income tax also lets the NRI own as many properties as he or she pleases.

In a situation where the NRI cannot come to India, the documents regarding the purchase must be executed by anyone who holds the valid power of attorney. Under the RBI’s permission, a non-resident Indian cannot purchase plantation property or agricultural land. Consequently, under the existing regulations, NRI cannot purchase farmhouses in India. So, if the NRI wants to purchase a plantation or farmhouses, he or she must approach the RBI for specific permission and the RBI must consider this on a case-to-case basis.

Joint Ownership

An NRI can purchase the property, whether it be a sole proprietor or a partnership with the non-resident Indian. However, a resident Indian or an individual, who is otherwise not permitted to invest in a property in India, cannot become a joint holder in such irrespective, property of the second holder’s contribution towards the purchase.

Continuance of ownership of property after becoming an NRI

What if a person owns properties in India and then becomes an NRI? Such a person continues to hold the property under his name in the country. An NRI is also permitted to continue owning plantation property, agricultural land or farmhouses that he or she owned when he became a non-resident Indian. Otherwise, this is not allowed to be purchased after the individual becomes an NRI. They are also permitted to let out the property, no matter how much was acquired. The rent that has been received from the property can be remitted after appropriate Indian taxes have been paid on rent.

Likewise, any NRI is allowed to sell or even gift an immovable property to any resident in India. She or he can also transfer or gift any property, other than farmhouse agricultural or plantation property to the non-resident Indians.

A Guide to Investing Property in India

The rupee is falling and real estate has emerged as a lucrative investment option for non-residential Indians. Also, whether the market is hot or it’s not, a number of NRIs prefer to have their place back in India. The RBI’s regulations on it are easy as well and the individual does not have to take permission from the authorities. The rules for such property transaction fall under that is called the Foreign Exchange Management Act or FEMA.

Funding the Purchase

Lenders prefer to fund a buyer’s purchase, as long as he or she is eligible, and the property papers are clean. It is smart to get the papers verified by a credible lawyer even before making transactions. Make sure that the papers are verified by the lawyer before going ahead. Make sure also that the title papers of the property, especially if this is inherited or jointly held that it comes with a bank release in case the situation that it was under mortgage at any point. The buyer must not also take a certificate from the seller at the time of the purchase regarding dues. This is because it only ensures that there is water, electricity or pending bills upon moving. For the new constructions, land title must be clear and the builder must also have taken approvals and permits found in the civic authorities in terms of construction. Also regarded as an education qualification and profession, this plays a role in deciding your own legibility. Likewise, gradate NRIs can avail home loans in the country.

According to the norms of RBI, maximum of 80% of the value of property can easily be funded by the financial institution. The NRI’s personal resources must come to some form of rest. The Indian financial institutions give rupee loans and the same needs to be repaid must be in the form of rupees only. Another option that NRIs are used is to get the funding overseas where the interest rates are lower and is usually a good idea, especially for those who are still overseas and prefer to acquire the property in India.

Because all the transactions must happen via a banking channel, repayment must also be done by the inward remittances. It is possible to get the money directly remitted from the NRE or NRO account in India or also issue the post-dated cheques or ECS or Electronic Clearance Services from the NRO, NRE or the FCNR or Foreign Currency Non-Resident account.

In case the individuals let out the property that he or she can use in order to repay or rent the loan, cheques are also issued from the local account of the relative in order to make loan payments.

Regulations of the Sale on Property by the NRIs

Under the rules posted by FEMA, a non-resident Indian can sell any commercial or residential property that he or she bought or inherited to any other individual he or she prefers. If the NRI inherited any planation, agricultural property or farm house, they have to look for a resident Indian to purchase this. However, they are also allowed to gift these to another NRI or anyone who has an Indian origin. There are some guidelines set by RBI that is specific on the repatriation of the sales proceeds that have to be adhered to.

Therefore, the NRI must decide on whether they want the money as repatriatable or not. If they want the money to repatriated, then it must come in the form of a foreign currency from the overseas account, FCNR or NRE. One can also repatriate up to the amount that the property has been invested in.

The other condition that repatriation cannot go over the foreign exchange amount that has been paid for the purchase of property is through the banking channels. Refund of bayana, application money or advance on cancellation has no limitations. It must also be noted that the non-resident Indian cannot repatriate the proceeds for more than two properties.

Tax Implications

A property is also a good tax that saves the tool for both the residents and non-residents. The benefits for an NRI are very similar to the tax benefits of the resident Indian. An NRI is entitled to all the tax benefits that are related to purchase the property that a resident Indian is. This legislations and requirements must be adhered to.

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