Thanks to the changes in real estate rules, government initiatives and policies, and appreciating dollar values, property purchase has become easy for non-resident Indian (NRI) buyers. They are buying homes in India for self-use or investment purposes. The Active Capital Report by Knight Frank Research confirms that real estate investments have recorded a growth of 137% between 2011-2013 & 2014-2016. Although it seems easy, there are a few things that NRI buyers must know before making the real investment.
FEMA Rules Regulated by RBI
The Reserve Bank of India has made property investment in India easier by easing its Foreign Exchange Management Act (FEMA) rules. According to the rule, any NRI having a valid passport is eligible to purchase an immovable commercial and residential property in India other than a plantation, agriculture land, or a farmhouse. The later properties can only be purchased, if they are gifted or inherited by an NRI by the virtue of succession. Else, to acquire any of these prohibited properties, they need to seek approval of the government and the RBI.
A citizen of countries like Sri Lanka, Pakistan, Bangladesh, Afghanistan, Iran, China, Bhutan, or Nepal is not permitted to acquire immovable property in India.
Power of Attorney (PoA)
This is mandatory for NRI buyers, as they may not be physically present in India at the time of the property transaction. Through PoA, NRIs have an option to transfer legal rights to their trusted friends or relatives to complete all purchase procedures on their behalf. PoA can be used for leasing, selling, mortgaging, borrowing, renting, and so on.
The RBI has permitted housing finance companies and banks to provide home loans to NRIs for purchasing property in India. Like any regular Indian Citizen, NRIs can also avail home loans up to 80% of their property value. The loan is sanctioned in Indian Rupees and the borrower has to repay it in Rupees. It can be repaid through :
- Banking channels by way of inward remittance
- NRO/NRE/or FCNR (B) account
- The rental income
- The close relative of the borrower, by crediting their account
The payment towards home loan cannot be made through travellers’ check or foreign currency notes. Also, payment made outside India will not be accepted.
EMIs and the Forex
Paying through equated monthly installments is one of the easiest ways to repay loans. However, the changes in Forex exchange may affect your EMIs and increase your worries. Thus, it is always recommended to make a payment through the rentals.
Taxation and Tax Benefits
India has signed a Double Taxation Avoidance Agreement (DTAA) with more than 85 countries across the world. This agreement applies for an NRI who work and reside in one country and pays his taxes, as well as earn income in a different country through a real estate investment or by other means. Like any regular Indian the NRI buyer is liable to pay taxes on the rental income, short-term, and long-term capital gains. Any property that is held by an NRI for more than 2 years (precisely 24 months) will be considered as a long-term capital asset. This asset will be taxed at 20%. Like any regular Indian buyer, an NRI can claim the tax exemption under sections 54, 54EC, and 54F.
The NRI will be exempted from wealth tax, if the property is unoccupied, and claimed for self-use. Else, they can rent it for a minimum of 300 days in a year to avoid the wealth tax. This rule is applicable for the first property, whereas, in the case of multiple properties, the buyer has to pay a wealth tax at the rate of 1% for value above 30 lakh.
At EON Homes, we treat all our buyers equally. If you are an NRI interested in investing premium segment homes in Pune, you can get in touch with our team, who will help you clear the process easily. If you are not physically present in India then you can also approach us through a friend or family member, who acts on your behalf through a PoA.