A Must-Read for NRIs When Investing in Real Estate!

Buying house

Every Non-Resident Indian who wishes to buy a property in India should be aware of the rules and regulations involved that oversee the acquisition and sale of a property. A lot of NRIs also choose to buy properties in India purely for the fact that the houses can be leased, and the return on investment would eventually be high. But there are a lot of rules and regulations, even for leasing that many NRIs may not be aware of.

Non-resident Indians really are a significant group of investors in the Indian real estate diaspora. NRIs mostly buy houses and properties in India for investment purposes. A lot of them also choose to buy them for use later on in their lives, like the retirement period. Why not? Real Estates are excellent investments to make and when planned out accordingly. Over a period of thirty years, India has emerged as a lucrative real estate market for internationals. Due to high amounts of investment in Real Estate, India’s market has been growing consistently, and most of these investments come from NRIs.

Investing in Real Estate is a very easy task, but what are the important rules and regulations that one must keep in mind? Read on to find out!

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FEMA Involved for NRIs to Follow

A Must-Read for NRIs When Investing in Real Estate!

The Foreign Exchange Management Act oversees all Real Estate investments and transactions that the NRIs make. Having a key goal of attracting a lot of foreign investments, the FEMA has written relatively simple rules!

As mentioned in the FEMA, NRIs or NIOs (persons of Non-Indian Origin) can acquire properties and land by way of purchase, whatever property or land they choose to with the exception of agricultural land, plantation farms, and farmhouses. This has been regulated and approved by the government of India.

However, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, et cetera, cannot purchase or be a part of the transferral of properties in India. People of this origin can lease properties with a term not exceeding five years, and for this, they would require permission from the Reserve Bank of India.

The Types of Properties that NRIs can Invest In

NRIs are permitted by the government of India to invest in both residential and commercial properties. And, as mentioned before, they are not allowed to invest in agricultural lands, and farmhouses.

A Must-Read for NRIs When Investing in Real Estate!

Take the Hiranandani Parks for example. A lot of the buyers are NRIs and have leased it specifically for the expats to be housed in a literal city within a city.

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Transaction Methods for NRIs

NRIs and NIO persons have a lot of methods to make payments. Some of them are:

  • Funds can be transferred India, if the NRI is not currently here, through conventional banking methods
  • Money contained in offshore bank accounts
  • Money cannot be paid through non-Indian currencies or travelers’ cheque

Eligibility Criteria for obtaining Loans for NRIs

Like every other Indian Citizen, NRIs and NIOs can avail similar type of loans. They will be permitted to obtain loans in Indian Rupees itself, with a limit of borrowing for up to 80% of the actual house’s value. Their loans can be repaid through the following means:

  • Inward remittance via conventional banking means.
  • Debiting the cost of the monthly EMI from their Account.
  • Using Rental Income to pay back the loan every month.
  • According to the Section 6 of the Companies Act, every NRI who borrows will be allowed to pay back the loan every month through their relatives if they are situated in India.

Profits Earned from Real Estate Investments and their Taxes

Real estate investments, as mentioned before are a tremendous way to acquire excellent returns on investments. Real estate investors and NRIs especially, can earn their money invested into the properties back by leasing them for people to live in. The means and ways that investors can acquire profits from their real estate investments are discussed below.

A Must-Read for NRIs When Investing in Real Estate!

Income Acquired from Rent

Irrespective of the residential status of the purchaser, whether NRI or non-NRI, income acquired by leasing it for people to live in are taxable according to government regulations.

Capital Gains

Capital gains are applicable to all profits earned through the purchasing of a property. The capital gains for properties are calculated as the difference between the proceeds of the sale and the total cost of acquisition of the property. NRIs are taxed based on their designated slab rates.

Long-Term Capital Gains

Long-term capital gains apply when the property has been held by the property purchaser for more than two years. NRIs in this category, are taxed at a rate of 20 percent. On the contrary, unlike short-term capital gains, NRIs can apply for an exemption for these types of capitals.

These are the most pertinent rules that every NRI must be aware of when investing. Do you know more? Let us know in the comments below!

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