NRI investment in Indian Real Estate – Why NRI’s should invest in India

A lot has been done towards making NRI investment in Indian Real Estate convenient and rewarding over the last few years. This is related to NRI’s inclination to invest in their homeland which is seemingly prevalent for the following reasons:-

  • Being an Indian at origin, they like to be connected to India and are therefore passionate about buying a piece of land/home in their home country.
  • Earning in foreign currency and investing in INR is relatively easier and cheaper.
  • Investing in property at its current prices is a good idea if the NRI has a vision of spending his/her post-retirement years in India.

Let us take a deeper insight into the tax implications, ease of funding and other regulations prevalent for NRI who purchase or sell a property in India.

  • Property options for NRI– Not all properties can be purchased by a NRI as per FEMA and RBI guidelines. A NRI can buy any immovable property in India, residential or commercial apart from purchasing an agricultural land, farm house and plantation property.
  • Funding the purchase – Getting a loan from financial institution for investing in property is an easy task for a NRI provided everything is in place: income proof, property papers and other documents. As per guidelines, funding can be done for upto 80% of the property while the balance 20% has to be arranged for by the buyer himself. NRI investment in Indian real estate is convenient considering this factor.
  • Tax Implications – Tax implications vary depending upon the usage of the property in a given financial year. A property may be used to live in, put on rent or purchased for resale and in all three cases, tax treatment varies.

In case a property is being lived in by the NRI and the property has been taken on loan, the interest on loan subject to a maximum deduction of Rs. 1, 50,000 is exempted from taxable income.

In case rental income accrues on the NRI owned property, the entire interest on loan, subject to no upper limit is deductible from taxable income. Taxes are applicable on two third of the rental income earned while one third is kept aside for repair and maintenance expense irrespective of whether it is incurred or not.

In case the property is sold within three years of purchase, short term capital gain tax is payable by the NRI on such property. However, if the property is held up to three years and sold thereafter, long term capital gain tax at a maximum rate of 20% is payable on such income. In case the NRI desires to evade the tax, he may re-invest the gains in another immovable property in India.

  • Property Papers – One needs to be extremely careful about the currents status of the property before purchasing it. It should be lien free and no dues should be pending against the same. To ensure this, it is advisable that the NRI refers the property papers to a lawyer before moving ahead with his decision to purchase the same. It is also recommended that a no dues certificate is demanded from the seller and clear title certification taken from bank if the property was ever mortgaged.

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