Important rules for NRI’s Investing in Indian real estate

Important rules for NRIs investing in Indian real estate
Important rules for NRIs investing in Indian real estate

Real Estate Investment India is a lucrative option for people with a budget and looking for real estate investment. This sector thrives upon the investors’ trust and the Government’s policies are favourable to its growth. Indian investors are given lot many tax benefits and other facilities to encourage them towards investing in properties of various types along with benefits for NRI’s investing in Indian real estate. But not all prospective investors live in India. A sizeable chunk of Indian population has moved to other countries or require staying in foreign lands for a major part of the year, in search of better jobs and higher quality of life. These people who stay outside India for more than six months of a year or intend to do so qualify to attain the status of NRIs or non-resident Indians.

It is common observation that this section of earning individuals has lot of investment potential due to better pay scales. So, to tap this potential, the Indian Government in association with the Reserve Bank of India, comes up with rules to simplify the process of NRI investment in India. The non-resident Indians or NRIs choose to invest in Indian properties because of two prime reasons. First, they get suitable alternative (which they find somewhat safer) for investing the excess funds in the hope of good returns. Second, their emotional attachment with their homeland compels them to pay attention to investment opportunities here.

Rules for NRI investment in India in Real Estate

All NRI investment in India implicates that it will involve management of foreign exchange. The NRIs will be bringing in foreign currency by the way of buying properties in India and this process, therefore, needs strict supervision under FEMA (Foreign Exchange Management Act) rules to ensure that the dealing takes place entirely as per legal guidelines pertaining to exchange of foreign currency. This explains why it is important for investor to know and understand the Rules for NRI investment in India in Real Estate. Secondly, the real estate investment India involves transaction of huge amounts. Therefore, awareness about rules can help investors safeguard their financial interests while putting money in the Indian Real Estate.

NRI’s investing in Indian real estate – Rules pertaining to types of property              

NRI’s own properties in India either by making investments or by the way of inheritance. Properties that are defined clearly as residential and commercial properties are available for NRI’s for investing exactly the same way as it is available for the resident investors. The properties that are not made available to NRI’s for investment purpose are plantations, agricultural lands or farm houses. It is because as of now, no clear cut status is granted to these kinds of properties. However, if an NRI is interested in owning such a property, he can  try by sending across an application to RBI for mandatory approvals. If the RBI grants permission, only then can NRI’s invest in agricultural lands on an exceptional basis. Mostly, it is extremely emotional reasons because of which NRI’s go through this time-consuming way of investing in plantations or farm lands. An NRI can have ownership of plantations, farmlands etc. because of inheritance too, or if a Indian resident has made a gift of such type of property to the NRI relative.

Important rules for NRIs investing in Indian real estate
Important rules for NRIs investing in Indian real estate

NRI’s investing in Indian real estate – Rules pertaining to property transaction

NRIs need to carry out Real Estate Investment India strictly through authorized banking channels. The money has to be deposited in an NRI account in an authorized Indian bank to carry out the purchase proceedings. If an NRI needs financial support to buy property in India, then the facility of home loan is also made available. The payment for property can be made in the form of cheques and ECS mandates issued from NRE,NRO or FCNR account as per the terms detailed out in the sale agreement.

NRI’s investing in Indian real estate – How to simplify the process of property buying

It is important to understand the importance of clean paperwork to ensure seamless transaction of property if an NRI is one of the parties. Clear paper work and all no-dues in place make it easy for the banks to issue home loan to NRI without wasting much time when needed. Also, in most of the cases, NRI may not be present in person to carry out the property buying process. Thus, clear and undisputed Power of Attorney should be prepared in advance and handed over to a reliable family member/friend who can take care of the purchase proceedings on the NRI’s behalf. Before saying ‘yes’ to any property, it is advisable to ensure that no dues of any kind are pending. In case of properties held jointly, the clarity of titles should be obtained in advance to ensure no ugly surprises are waiting at any point during the transaction process. Thus, clarity of titles and clean paperwork are two basic requirements for simplifying the NRI property investment process.

NRI’s investing in Indian real estate – Rules pertaining to taxation on NRI property investment

As the idea is to encourage NRI’s to invest in Indian real estate, there are various tax benefits which are offered to NRI’s on buying properties. Like resident buyers, the NRIs can also claim deduction of Rs 1 Lakh under section 80C of Indian Income Tax Act, 1961. Also, you need to hold property for at least three years from the date of purchase if you want to avoid short term capital gain tax. The appreciation of price of properties held for more than three years attracts long term capital gain tax. To avoid this tax, the investors are advised to invest the money obtained from selling property in another property. Of late, the arrangements for allowing NRI property sellers to invest in other more liquid avenues such as REITs (Real Estate Investment Trusts) are also being made to boost the investor sentiment in this sector.

To conclude, NRI investment in India is subject to certain rules and regulations. The clarity of titles, all requisite approvals in place and no dues pending on the property are required for easy and safe transaction of property. Like resident investors, these Indian nationals of non-resident type get to enjoy tax benefits also on NRI property investment. It is, therefore, advisable to become well-acquainted with all Rules for NRI investment in India in Real Estate to avoid any sort of misunderstanding or loss-making proposition and to extract the best benefits from investing in properties in India.