Thanks to new real estate rules, buying a property for a non-resident Indians (NRI) is easier than ever before. Anyone with an Indian passport can invest in Indian real estate, given that the property is not an agricultural land, plantation property or a farmhouse.
One of the most important considerations for an NRI investing in Indian real estate is understanding of the financial landscape. If you are an NRI looking to invest in a property in India, here are few things you need to keep in mind before you start looking out for properties:
If you have an Indian passport, you do not require any prior permission to make a property investment in India. The Reserve Bank of India has made the rules very simple to attract more foreign investment. Real estate transactions are governed by the rules under the Foreign Exchange Management Act (FEMA).
Types of properties to invest in
There is no restriction on the number of properties than an NRI can invest in. An NRI, as well as a Person of Indian Origin (PIO), can purchase as many residential as well as commercial properties in India as they want. However, there is a restriction on foreign investment when it comes to agricultural land, plantation property or a farmhouse. Such properties are allowed only in case they are inherited or gifted to the NRI in question
Financial transactions and funding
For any property investment in India, all the transactions should be done in Indian currency through Indian banks. One of the mandates is to have an NRI account in an authorised Indian bank.
An NRI can easily get funding for the purchase if his paperwork is clean. There are several NRI home loan schemes available under different financial institutions in India. If you are getting your property funded make sure that you have a minimum of 20% of the value of the property to invest from your own sources. You can take funding for a maximum of 80% of the value of the property.
All your transaction should be carried through Indian banking channels, so make sure to use your NRO/NRE account for all your inward remittances. You can also issue post-dated cheques or ECS from your NRE, NRO or FCNR (Foreign Currency Non Resident) account.
Before you approach the bank for funding, check that all your paperwork is clean and verified by a lawyer. Take a no-dues certificate from the seller if you are buying a property and if it???s inherited or jointly held, work to get the title cleared. Also, ensure that there are no pending bills or dues with any authorities.
Power of attorney
If you are buying an under-construction property, you will have to give power of attorney to your builder or a trusted associate. Take help from your lawyer to appropriately word the document so that there is no chance of forgery and your investment is secured while the property is being developed.
As an NRI you can enjoy most of the tax benefits that an Indian resident is entitled to on purchase of property. You can claim a deduction of Rs. 1 Lakh under section 80 C on the Income Tax Act, 1961. If you sell the property within three years of purchase, it is considered as short-term capital gain, and the earnings through the property are taxable. If you sell the property after three years, you have the option of reducing the long-term capital gains tax by investing in another property.
The Confederation of Real Estate Developers Association of India (CREDAI) regularly organises exhibitions for NRIs where it helps them scan different investment options and offer spot loans from top banks. Easy investment options and reduction in down payment value are also offered.
Therefore, it is important that you check all the offers from CREDAI before you invest in real estate in India.
Though with FEMA the foreign exchange laws have been modified and diluted significantly but due to the legacy of FERA excesses during old days, NRI people are very apprehensive while dealing in with any immovable properties in India. Since the matter of purchase of immovable property in India by NRIs is covered under the provisions of FEMA, it is advisable to understand the legal position.?? In this article I would try to cover the prevalent provisions in respect of purchase of immovable property by NRIs in India.
RBI has issued a notification granting a general permission to NRIs for purchase of certain immovable properties in India without obtaining any specific permission from RBI.?? So Indian Citizens who have become NRIs, for FEMA purposes can acquire certain immovable property situated in India without any specific permission from RBI.
Types of properties where NRI or POI can invest:
Though RBI has given general permission to the NRIs to purchase immovable properties in India, the permission does not grant power to acquire any and every property in India. The NRIs are allowed to purchase only residential or commercial property. So NRIs cannot purchase any agricultural land or plantation property. Since it is fashionable to own a farmhouse, let me make it very clear that under the existing dispensations, NRIs cannot purchase a farmhouse in India. This way as long as the investment being made by NRIs in India is either in residential property or commercial property, they are not even required to intimate RBI about such purchases, even post conclusion of the transaction. Moreover there is no restriction as to the number of residential or commercial property an NRI can acquire.
Source for financing the purchase of immovable property in India:
The payment for purchase of permitted property by an NRI can be made by way of remittance through banking channels from abroad or from money lying in their NRE/NRO or FCNR account. The money for purchase of the permitted properties has to come only through banking channels hence the payment cannot be tendered in the form of traveler???s cheques or foreign currency.
NRIs are even allowed to finance the purchase with home loan in Indian Rupees. The home loan can be granted by the Indian employer of the NRI employee for the purpose of financing of the property.
Servicing of the home loan:
As far as payments of EMI for the home loan taken in Indian Currency in India is concerned, the same can be done either by direct remittance from abroad or from the money lying to the credit in NRE/NRO/FCNR account of the NRI.?? In addition to the above sources, the home loan can even be serviced out of the rents received from such property or money transferred to borrowers account from the account of relatives of such borrower.
In case the NRI is buying the property for the purpose of his own residence, the NRI can even take loan against deposits lying in their FCNR or NRE account upto an amount of Rs. 100 lacs for the purpose of servicing the home loan.
Who can be named as joint owner of the properties?
The property to be purchased by an NRI can either be purchased in single name or jointly with any other NRI. It may be noted that that a resident Indian or a person who is otherwise not allowed to invest in the property in India cannot even be made a joint owner in such property though the second named person might not even be contributing any money towards the property.
Continuance of ownership of properties after becoming NRI:
Lot of people who are taking up jobs outside India and thus would become NRIs are worried about what would happen to the properties, which they already own.??There is nothing to worry about for such properties. A person who owns a property when he becomes an NRI can continue to hold the property in his name. It is interesting to note here that such resident Indian becoming an NRI is even allowed to continue to own agricultural land, plantation property or farm house which he is otherwise not allowed to purchase after becoming NRI.??An NRI is allowed to let out the property, which he owned when he became an NRI without taking any permission from RBI. An NRI is even allowed to get the money sent back outside India after appropriate taxes have been paid in India from rent so received.
So from the above discussion it becomes clear that buying a house or office in India by the NRIs is not very difficult as long as you are either able to pay for it or get a home loan.
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