Most Indians living abroad are quite inclined to buy properties in India. It is not only about making an investment, but a way to stay connected to their homeland. However, there are certain things that every NRI buying property in India should keep in mind before taking this plunge. Bear in mind that the entire process entails numerous challenges. And making one mistake can result in a huge loss.
To prevent this from happening, you should be very tactful in your approach. And this is exactly where this guide will help you. In this post, we have discussed important things NRIs should know before buying a property in India:
Types of Properties NRIs Can Buy
As per the Reserve Bank of India (RBI), NRIs that hold valid Indian passports can buy residential and commercial properties in India. Moreover, it is not mandatory for them to inform the RBI when buying a property or making an investment.
An NRI can buy these two types of properties in any number they want as per the income tax laws and RBI regulations.
In case they cannot come to India in person, they can make the purchase by giving power of attorney to another person. However, under the RBIs general rules and regulations, no NRI is allowed to purchase agricultural land or plantation in India. Also, NRIs cannot buy farmhouses unless they have special permission from the RBI to purchase one.
However, if an NRI owns a property before they were NRI, the property remains in their ownership. Likewise, NRIs can retain the ownership of agricultural land, plantation, and farmhouses which they had purchased prior to becoming one. They can also gift or sell immovable properties to any Indian resident but it shouldn’t be agricultural land.
Funding & Financial Transactions for Buying Property
In order to buy a property in India, NRIs have to make every payment in Indian currency using local banks. In short, they are required to have an NRI account in any local Indian bank. Like any other Indian national, NRI can also obtain bank loans for purchasing properties but they have to pay 20% of the whole amount.
However, as NRIs have to use local banks for making transactions, it is crucial that they should use their NRO/NRE accounts for inward transactions. They can submit post-dated checks or use Electronic Clearance Services (ECS) of their NRO/NRE accounts or Foreign Currency Non-Resident (FCNR) accounts. Additionally, it is recommended that they should engage a reputable lawyer to verify their documents and legally check all the paperwork of their property purchasing.
Power of Attorney
NRIs are required to provide a power of attorney in the name of the developer or builder if they’re purchasing an under-construction property. To be on the safer side, it is always wise to hire a lawyer to carry out this legal documentation on your behalf. Doing so will help in reducing the chances of any potential forgery and it will also ensure that your investments are safe.
NRIs are entitled to avail all the tax benefits that any local Indian resident can benefit from. While selling a property in India, NRIs have to pay Tax Deducted at Source (TDS) at a 20.6%. The rate for long-term gains and 30.9% on short-term gains. The taxes that NRIs have to pay are similar to those that Indian residents pay. However, if an NRI has a lower tax slab. They can apply for a refund of TDS by filing income tax returns.
Properties sold within 3 years of purchase are categorizing as short-term. Capital gains whereas any property above 3 years are treating as long-term.
Repatriation of Funds to their Foreign Country
NRI and PIO can repatriate funds to any foreign country following certain guidelines. Firstly, they have to fulfill the condition that they’re moving funds that they have obtained by selling their immovable property. The conditions they are require to meet are:
- The NRI/PIO has bought the property as per the FEMA directives applicable to them at the time of purchase.
- The funds they’re trying to return shouldn’t exceed the original amount of investment. If they have made the payment through FCNR accounts.
However, the underlying following conditions limit an NRI/PIO to repatriate a maximum of $1 million in a fiscal year.
- Purchased the property using rupee from the balance of their NRO account.
- If the property has been gifting to them then the amount has to be transferred first in an NRO account.
- They have inherited the property from any Indian residence. They have to provide an undertaking and an authorized chartered accountant’s certificate to the Central Board of Direct Taxes.
There you have it! These are the factors an NRI must take into account before looking for commercial and residential properties for sale in Mumbai and other cities. We hope that this article will help you in making any property investment in India.