Settling abroad is an aspiration for many working Indians especially millennials. I got a call from one of my relatives settled in the US to inquire about real estate investments in India. So the question arises, “How can a Non-Resident Indian(NRI) invest in Indian real estate market?”

YES! The Indian real estate market provides amazing opportunities to NRIs planning to invest in India. Attractive schemes, great ROIs, low cost are the main reasons why investing in India is a good option. The new government and tax reforms like RERA and GST are proving to be game changers for the real estate market in India, making it more transparent and cost-effective for NRI buyers than ever before.

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NRIs can even buy property jointly with a resident Indian. If you are a NRI, you might have some misconceptions or confusions related to property buying in India, this article will cover in detail some major aspects concerning NRI property buyers. With COVID-19, Indian real estate market has seen steep correction in almost all cities. This is an opportune time for value buying for NRIs looking to harvest good returns in coming years.

Property buying in India for a NRI

According to FEMA (Foreign Exchange Management Act) regulations, Non Residential Indians can purchase assets in India without requiring special permissions from the Reserve Bank of India (RBI). Here are a few tips to follow:

  • NRIs don’t have to inform the RBI regarding their decision of buying a property in India nor do they have to involve RBI at the final stage during the transaction as long as they are buying residential or commercial properties in India. They can either come to the country or give a Power of Attorney (POA) to a relative to get any transactions done.
NRI Guide to Property Buying in India
NRI Guide to Property Buying in India
  • NRIs are restricted from buying agricultural land, farmhouse, plantations as they don’t fall under aforementioned categories. If they wish to buy an asset from the restricted category they need to file a special request to RBI where all the circumstances will be observed.

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Real estate is a more lucrative option among gold and stock investments for a NRI because of the constant cash flow when the property is let out. We will be comparing gold and stock investments with real estate in another article.

Documents required for a NRI to buy property in India

After arriving at a decision of investing in India you are ready to move towards the procedure of property buying. To ensure that the whole process of property buying is smooth, one must have all the documents required for property buying in hand. Documentation also helps to solve the dispute which may occur in future. Below is the list of necessary documents that a NRI looking for buying property in India needs to have. A NRI can even buy property in India without Aadhaar Card. Let us take a look at the documents required for a NRI to buy property in India.

a. Indian Passport or Overseas Citizen of India(OCI) Card

Indian passport is one of the most important documents you need to have to buy property in India. However, if you hold a passport of some other country you need to have a Person of Indian Origin (PIO) card. If you are not an Indian citizen but are eligible to become an Indian citizen i.e. one of your parents is an Indian, you need to have an Overseas Citizen of India (OCI) card which can be issued from the Indian embassy of the country you live in.

b. PAN Card

You must have a Permanent Account Number (PAN) card as you will be expected to file income tax returns for your investment in India. A PAN card is a necessary document for a NRI buying property in India. You can easily get a PAN card in India by applying online.

c. Power of Attorney Certificate

A NRI buying property in India, has to grant power of attorney to an individual who will be making investment decisions on his/her behalf. Having a reliable Power of Attorney(POA) will help you in the registration of your property, execution of the sale and possession. A power of attorney has to be carefully chosen because POA holder will be making all the decisions on behalf of your best interests. A lawyer will help you prepare a Power of Attorney Certificate which has to be signed by your power of attorney and the witnesses. You need to keep all these documents safe and ready for your property buying process to be smooth.

Is a NRI’s physical presence required to purchase property?

Is an NRI's physical presence required for buying property
Is a NRI’s physical presence required for buying property

Frequent travel from the country of residence to India for a NRI is hectic. Therefore NRIs are provided with some facilities to ease their work and save themselves from the big task of traveling. One such provision is made through Power of Attorney mentioned above.

A person granted with Power of Attorney privilege can take decisions and sign documents on your behalf. Since your POA holder resides in India, he/she can save you from the trouble of being physically present. A Power Of Attorney holder needs to be someone whom you trust completely as he/she acts in your best interests – from checking the construction work, inspecting the property and being physically present for the paperwork.

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Functions performed by a Power of Attorney:

  • Carry out property transactions – buy/sell/rent/lease.
  • Manage any property disputes that arise.
  • Sign financial documents as needed for banks/insurance companies while buying property.
  • Let out your property and collect rent from tenants.

Eligible property investments for NRIs and their benefits

According to RBI regulations, NRIs are allowed to make two types of real estate investment in India: Residential and Commercial. Before solving your dilemma about which property investment will be more profitable we need to be clear about what properties are classified under commercial and residential.

a. Commercial Property

Commercial property includes office buildings, medical centers, hotels, malls, retail stores, farm land, multifamily housing buildings, warehouses and garages. These properties are intended to generate income or profit.

b. Residential Property

Residential property includes housing complexes, apartments, individual houses etc. These are generally purchased by an individual to live with the family or to become a landlord. Residential properties include the following type of real estate investments

Gated Communities: A gated community (or walled community) is a form of residential community or housing estate containing controlled entrances. They provide you the combined benefit of living in a community and urban lifestyle. They offer great amenities like sports arenas, clubhouses, gymnasiums and swimming pools, to name a few. They also offer better security. You can choose from a variety of flats, penthouse, row houses as per your preferences.

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Independent Villa: Villas give you the charm of a front garden, a backyard and a proper boundary wall for your house. Living here has its own advantages. You are the owner of the property as well as the land and have the freedom of renovating your property whenever you want without even informing your neighbours. The privacy you get in a villa makes it perfect for families.

Apartments: Urban families always tend to choose the beautifully-designed apartments located in the prime areas of the city. They give investors different choices from which they can choose their perfect home according to their preference. From the number of bedrooms needed to the carpet area, there are large number of options to choose from to invest in an apartment made for your needs.

Tax and TDS Implications for NRIs buying property in India

Like other forms of assets, tax and TDS implications are applicable on real estate also. A NRI planning to invest in Indian real estate market is subjected to different tax regulations than an Indian citizen investing in real estate. Let us know about the tax and TDS implications which will give you a better understanding of the home buying process for a NRI.

NRI buying property in India for self-use

A property is considered as a self-use property if it is the only property a NRI owns regardless of the country of residence. If the purchase of the property is financed through home loan, the interest paid on it is deducted from the total taxable income of the NRI. A NRI can claim these tax benefits with the help of Section 80C of the Income Tax Act of 1961. A maximum of Rs 1.5 lakhs can be availed for a tax deduction and further tax deduction benefits can be availed during the repayment of loan. Apart from this NRIs who buy property in India have to deduct 1% TDS and deposit the same to the Income Tax department.

NRI buying property in India for rental income

If a property is purchased with an objective of giving it on rent or generating a secondary income, the home loan interest is again deductible from the total taxable income. However, the crucial difference in this case is that there is no maximum limit of Rs 1.5 lakhs. 30 percent of the income gained through rent can be deducted for maintenance and repairs of the home even when there is no maintenance needed. Apart from these there are regular taxes that are applicable at the time of purchase and ownership of property.

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Payment options and Home Loans available for NRIs

Payment options and Home Loans available for NRIs
Payment options and Home Loans available for NRIs

After you’ve decided the property you wish to buy, the next step is the payment procedure. You can also go through our Home Buying Guide which makes property research, shortlisting and buying process easier. Generally individuals do not have enough funds to buy a property and they decide to buy it on home loan. If you’re wondering can a NRI get a loan to buy a property in India? The answer is Yes! RBI allows NRIs to apply for home loans from Indian financial institutions for buying property in India. Here are a few pointers to keep in mind when applying for a home loan to finance your property.

Financing Sources

If a bank or a housing finance company is registered with the National Housing Board, it can give home loans to a NRI buying a property in India. There is no limitation on the number of commercial or residential properties a NRI can purchase or build. Banks are not allowed to credit the loan amount into the NRI’s account directly. Fund has to be expended by the seller or developer of the property. All the transactions must be done strictly in Indian currency. A NRI buying property in India can either use Non-Residential External account (NRE), Non-Residential Ordinary (NRO) account or Foreign Currency Non-Residential (FCNR) account for the transactions.

Home Loan Application for NRIs: Eligibility and Process

NRIs applying for home loan in India are eligible for the loan only if their CIBIL score, according to their country standards, is good. Salaried NRIs need to maintain a minimum amount in order to apply for a loan. NRIs need to be present in India for a particular period to obtain the loan and can apply for the loan either offline or online. If they are still unable to visit the country or unable to apply for the loan, they can ask their Power of Attorney to apply on their behalf.

Documents required

The following documents are required at the time of applying for a home loan by a NRI:

  • 1 passport size photograph, signed
  • Copy of passport
  • Copy of visa
  • Power of Attorney document
  • Address proof of the country of residence
  • PAN card

Additional documents for salaried individuals:

  • Copy of appointment letter
  • Last 3 months salary pay slip
  • Bank statement of the last 6 months

Additional documents for self-employed individuals:

  • Copy of incorporation of business
  • Income proof
  • Partnership deed (if applicable)
  • Bank statement of the last 6 months in applicant’s name
  • Bank statement of the last 6 months in company’s name
  • Office address proof

Maximum amount and tenure of loan for a NRI

The RBI has set the limit for the maximum Loan to 85 percent of the Value amount (depends on the applicant’s monthly income). Loan amounts vary from Rs 5 lakhs to 5 crores depending on the bank. Unlike Indian residents who are given a long duration to repay the loan, NRIs are only given a tenure of five to fifteen years as they are more financially stable and have the currency conversion advantage. The interest rates offered to NRIs are same as those offered to the residential Indians (between 8 percent and 11 percent).

Repayment of home loan for NRIs

A NRI buying property in India can repay the loan only through their NRE, NRO or FCNR accounts. After returning to their country, NRIs can repay through Equated Monthly Installments (EMI) through those accounts. If a NRI is short on capital, a residential Indian can transfer money to the NRE or NRO account to repay the loan. As long as a NRI has the necessary documents in place, there will be no problems in the home loan application process.

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In conclusion, the process of buying a property for a NRI is straightforward and hassle-free one if you keep all the above points in mind. Just choose your Power of Attorney wisely and keep all the documents sorted. Do your homework carefully before starting the process and will help you with the rest. You must ensure that you are dealing with only RERA registered projects and RERA registered property agents. You should not get overwhelmed with packaging of marketing brochures as shared by Builders. Do a thorough research and ask pointed questions on email or over call to the sales team of Builders.

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