Dos and Don’ts for NRIs investing in Indian realty
September 18, 2016
The realty market in India has always seen interest from the NRIs. With real estate developers focusing on NRI investors, they can now choose from an array of options in both residential and commercial segments. If you are an NRI looking to make an invest, read to know some of the points you need to keep in mind before making an investment.
The Regulatory Act
The regulatory body, Reserve Bank, rules are not too difficult to comprehend. You don’t need prior permission from the authorities to invest. An NRI can either come to the county or give Power of Attorney (POA) to a relative to get any transactions done. The rules for any such property contract comes under the Foreign Exchange Management Act (FEMA).
Types of transactions allowed
An NRI or a person of Indian Origin (PIO) can own both residential and commercial property in India. There is no restrictions on the number of assets that they can own or the size of the property, however, an NRI cannot buy any agricultural land, farm house and plantation property. They can own such property if they have already inherited it or if it is gifted to them.
Funding the purchase
NRIs can avail home loans in India. However, the documentation differs according to the country in which the NRI resides. According to RBI, a maximum of 80% of the value of the property can be funded by a financial institution. The rest of the money needs to come from own resources. To support the investment, an NRI must use a non-residential external (NRE) account only. They can also use post dated cheques or Electronic Clearance Service (ECS) from the NRE, NRO or Foreign Currency Non-Resident (FCNR) account to transact the money. It is also important to note that all transactions must take place in Indian rupees only.
Purchasing a property in India not only gives you returns but it also offers tax benefits. An NRI gets the same tax benefit that a resident gets. According to Section 80C of the Income Tax Act of 1961, one can claim a deduction of Rs 1 lakh. If an NRI has taken a home loan, there are added benefits as well. A resident can claim a deduction of up to 1.5 lakh for home loan interest while there is no such upper limit for NRIs. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during the year and a flat 30% of the rent deduction is available to NRIs also.
If NRIs buy a property worth 50 lakh or above, they will have to pay a withholding TDS at the rate of 1%. They are, however, exempted from wealth tax if the property is vacant. If an NRI has rented out the property, the rental income is taxable. They may have to show this income in the country they reside as well and pay taxes unless they are a resident of a country with which, India has a Double Tax Avoidance Agreement (DTAA).
It is not just important to get the processes and rules right. While making an investment, it is also wise to check on the builder credibility. NRIs should verify the brand visibility and amenities of the project and builder. It is a good idea to choose a reputed builder like Casagrand, who have proven track record. NRIs should also check if the project that they are investing in has all the necessary approvals and licenses.