Things NRIs can't afford to miss if investing in Indian Real Estate

The non-residents Indians usually buy properties in India for investment purposes, when they want to stay connected to their roots and in cases where they are looking to retire and settle down in their home country. In any such case, NRIs that are planning to invest in the Indian Real Estate should be aware of the regulations that govern the acquisition and sale of any property. Here we have listed down some of the most important aspects of investing and government policies that NRI investors must know.

FEMA

Foreign Exchange Management Act allows for transactions related to NRIs. The real estate falls under the purview of FEMA respectively. It states that an NRI can only purchase a residential or commercial property in India but an agricultural land, plantation, or a farmhouse can only be owned when it is inherited or gifted to the NRI.

The act also prohibits citizens from certain countries from acquiring or transferring property in India without prior approval from RBI. These countries are Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan. It is imperative to purchase any property following the guidelines mentioned under the FEMA Act.


Taxation and other benefits 

NRIs are eligible to earn returns from their investments in the form of rental income and short or long-term gain. Further, with more than 90 countries, India has a double taxation avoidance agreement. This means an NRI can claim the tax credit on the taxes paid by him/her on income earned on the immovable properties. They are liable to pay taxes on the capital gain arising in India. We have mentioned the type of capital gains in detail below:

Rental Income 

The rent earned from the property asset in India falls under the category of income earned in India which makes it taxable. Irrespective of the residential status, it will be taxable since it has been acquired from India.

Short-term Capital Gains 

If a property is sold within the two years of purchase, then the amount of profits earned through the sale is categorised under the short-term capital gains. The difference between the sale proceeds and the cost of acquisition is calculated as the capital gains in such situations and it is taxed as per the applicable slab rate for the NRI.

Long Term Capital Gains

A property that is held for more than two years from the date of purchase is taxed at 20 percent and is categorised under long-term capital gains. However, unlike short-term capital gains, the exemption can be claimed under sections 54, 54 F and 54 EC.

Power of Attorney

An NRI purchased Property in India can have a Power of Attorney (PoA) since the NRI is not physically present in India to fulfill the responsibilities. Although, it requires an agreement that must be signed in the presence of two witnesses who should either be physically present in the Indian Embassy or the signatures should be mandatorily attested by a local attorney. The document is later attested by the Indian Embassy and the entire registration should be completed within three months from the date of execution.

The PoA agreement will empower the respective person to act on behalf of the real authority of the property. It helps NRIs manage their assets in India efficiently. An assigned PoA can be used to manage the mortgage, lease, sell, rent-collection, rising dispute, as a representative for bank requirements, etc.

Ensure that a legal registration is done first with proper identification before completing handing over the property. Frauds, disputers, and stamp duty evasion are prevalent and it’s imperative to have the necessary identification done from your end.

Home Loans 

Like any other normal citizen in India, NRIs and POIs are can avail home loans in Indian Rupees up to 80 percent of the value of the property. The loan taken must be paid back in the same currency. Also, if an NRI is planning to pay back the loan with EMIs through personal earning abroad, then they must understand the effects of forex (foreign exchange) as fluctuations may cause a burden. You can also pay off the loan through the rental income from the property.

Cookie Bonus: Have floating interest rates while taking a home loan in India instead of fixed interest rates.

Repatriation of funds

As per the rules under FEMA, the repatriation of proceeds from the sale of a property cannot exceed $1 million in a financial year. However, if the property was a gift or inherited by the NRI then they are eligible to exceed the $1 million per financial year limit. Also, repatriation can be done only if the property is purchased by following the FEMA directives.

Note: Repatriation of funds is restricted up to maximum of two residential properties and the property is purchased by a person outside India, repatriation will only be allowed after attaining the requisite approval from RBI.

Source: https://www.radiusdevelopers.com/blog/Things-NRIs-cant-afford-to-miss-if-investing-in-Indian-Real-Estate