NRIs (non-resident Indians) have a major portion of the investment in Indian real estate. Courtesy the rules that have made it easier for everybody abroad holding Indian passport to buy a property in India.
An NRI must be aware of these rules before they invest in Indian property.
- Properties Options
An NRI or POI (Person of Indian Origin) can invest in more than one property and up to ‘n’ number but with certain exceptions that include agricultural and plantation lands and farmhouses. Besides these properties mentioned, NRIs do not need any special permission from the RBI and neither do they need to intimate the RBI for the same.
- Transactions & Funding
According to RBI, NRIs’ investment in Indian property must be done in Indian currency. They can also apply for home loan in India but the financed amount is not to be transferred to their account overseas. The funded amount is to be transferred to their NRO (Non-resident Ordinary Rupee) or NRE (Non-Resident Rupee) account.
Only 80% of the property value can be financed through home loan and they are required to invest 20% of the property value from their pocket. Post dated cheque through their NRE, NRO or FCNR account can also be accepted.
NRIs must have all their paperwork intact prior to applying for a home loan in India. RBI has easy norms for sanctioning loans through banks or housing finance companies registered with National Housing for NRIs, provided they have no flaw in their paperwork.
- Tax Benefits
Under section 80C, NRIs can claim tax benefits over the applied home loan by virtue of which they can ask for a refund of up to Rs. 1 lakh. They are exempted from the regular resident tax.
However, they have levied the tax on the rental income. They have also levied the tax on the property sold within three years of purchasing, considering it a short-term capital gain. Contrary to this, if the property is sold after three years of its purchased date, they can claim tax exemption and may get their amount refunded. In the latter scenario, one can reduce the long-term capital gain tax as he or she invests in another property.
- Power of Attorney & Joint Property
Since the NRIs are unable to travel to and fro to India to keep an eye on property booking status, they can give the power of attorney to their friends, family or any other person of their trust. They are also free to buy a property with joint ownership but only with another NRI and not the resident of India.
- Regulatory Act
According to Regulatory Act of India 1961, NRIs can buy a property other than agricultural, plantation and farmhouses in India without intimating RBI or sending a written communication to them. This rule was made by Reserve Bank of India in order to attract more of the NRIs funds towards Indian estate. Foreign Exchange Management Act (FEMA) governs the rules for NRIs transactions in the Indian realty.