Non-resident Indians buy properties in India not JUST for residential purposes but also for investing in the Indian real estate market. In some cases, the purchase is out of pure emotional connection to the country as they want to keep a house ready for their homecoming after retirement.
With the introduction of the Real Estate Regulatory Act (RERA) and Benami Bill, there is an increase in NRIs investing in real estate in India. These regulations by the Indian Government have made it safer for investors to enter the real estate market.
Who is an NRI?
A Non-Resident Indian is an individual who resides outside of India. According to the Foreign Exchange Management Act, the duration of stay outside of India should be more than 182 days.
An NRI can invest in residential and commercial properties. There is also no restriction on the number of properties you can purchase. But there is a restriction on buying plantation property, farmhouses, agricultural land, and Adivasi plots. NRIs can own such properties only if they have been gifted or inherited.
Important Property Buying Rules for NRIs Investing in Real Estate in India
While the procedure for investing in real estate has become a hassle-free job, there are a few factors that NRIs should keep in mind.
Research and Due DiligenceIt is vital to do thorough research before shortlisting a property for purchase. You must assess aspects like the location, quality of surrounding infrastructure, the reputation of the property developers, as well as previous projects of similar nature.
Type of propertyResidential properties are a cheaper investment than commercial properties, but if the purpose of investment is to run a business, you can look at some strategically located commercial spaces. Although you can pay certain charges and get a residential property converted to a commercial property, the entire procedure can turn out to be more expensive than buying a commercial property. You must also consider the time you will have to spend in the process of getting a property converted.
Financial planningNRIs investing in real estate in India should know that the transactions need to be carried out in Indian currency through an account of the NRI in an Indian bank. You can also apply for a home loan of up to 80% of the property value. The remaining 20% must be funded by you from your sources. Since all transactions are to be completed through an Indian bank account, you must have an NRO, NRE, or FCNR account.
Tax benefitsAn NRI is eligible for the same tax benefits as an Indian citizen on purchasing a property. Under Section 80C of the Income Tax Act, 1961, you can claim an income tax deduction of ₹1.5 lakh. Additionally, as an NRI, you can avail of a tax deduction on the home loan interest with no upper limit in the applicable deduction. Also, other deductions, including registration charges, stamp duty, annual municipal taxes paid and 30% rent paid for maintenance, are available to NRIs.
If you sell the property within three years of purchase, it is a short-term capital gain. The earnings through the sale are taxable. If the sale occurs after three years, you can reduce long-term capital gains tax by again investing in real estate. Besides, if the investment is for rental income, the NRI must pay local taxes on the income earned.
A common mistake that NRIs make is finalizing the deal in a hurry. You should appoint any of your friends or relatives in India as power of attorney. This way, if you are unable to decide on a property during your short visit, your friend or relative can continue the research on your behalf and fulfil your dream of investing in real estate.
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