All About NRI Residential Investment Transaction

Ashwinder R Singh, CEO-Residential Bhartiya Urban

NRIs require no special permission or documentation to invest in real estate in India. All that they need to have is funds to invest and an Indian passport. Foreign Exchange Management Act (FEMA) and government regulations allow them to own property in India. But this property should be either residential or commercial. Investment in agricultural or plantation land or a farmhouse is not allowed unless it is inherited, gifted, or received out of legacy. There is no limit on the number of properties which an NRI can own. An NRI can also get into joint ownership of property with another NRI but not with a resident Indian or someone who is now allowed to buy a property in India.

For buying property in India, NRIs need to make all investment transactions in only Indian currency using authorised banking and financial channels or through NRE, NRO or FCNR accounts. Payment through traveller’s cheques or foreign currency is not accepted. While seeking a home loan from the bank/ financial institution,  NRIs need to make sure that their personal documents and the documents of the property are clean and clear.  The loan application process is almost similar to the one for Indian residents though there are some differences. The educational qualification and professional experience plays a role with respect to the sanctioned loan amount. Considering the higher income and payback potential of the NRIs, the repayment tenure is shorter- ranging from 10-15 years.Upon sanction of the loan, the amount is directly credited to the account of the seller or developer and the NRI has to repay it using the same applicable channels and means mentioned above.

The taxation rules on NRI investments require special attention. The income tax norms are not much different for the NRIs from resident Indians. NRIs are also eligible for a tax deduction on the sanctionable home loan- 1.5 lakh for the interest paid on a home loan. Additionally, registration charges, stamp duty, and other municipal fees paid by the NRIs are also eligible for deduction from the income tax liability.

There is no tax on owning a property. The capital gain earned by selling it, however, is taxable. If an NRI sells a house within three years of possession, it is considered a short-term capital gain which attracts a tax liability of as much as 30.9 percent. Long-term capital gain out of the sale anytime after three years, are taxed at 20.6 percent. The cost inflation index is also taken into consideration while taxing long-term capital gains. , reducing the tax liability for the NRIs. Moreover, they can get TDS liability waived off if they choose to use the long-term capital gains in purchasing another property. NRIs are required to file income tax returns if they have rented out the property and are receiving regular rentals. The tenant is expected to have TAN and deduct 30 percent from the total rent before sending the remaining amount to the NRI landlord.

Another transaction aspect that needs serious attention is the Power of Attorney (PoA). It comes as a crucial option for those who are not physically present to buy the property, an under-construction property in particular.  A PoA allows them to authorize a trusted friend or a relative to sign agreements and other official documents on their behalf to complete the transaction. The PoA can also authorize the representatives of the NRI to lease or rent out the property.