Planning to invest in realty seems worthwhile, especially for Non-Resident Indians (NRIs) seeking to buy property in India. Over the years, the real estate market in India has attracted NRIs due to its dynamic economic growth, robust infrastructure, and attractive investment returns.
However, due to market factors and economic trends, investing in real estate properties can often become challenging. For NRIs buying a property in India, this is the right place. In this ultimate guide, we have provided some valuable insights and tips that may help NRIs make proper decisions when investing in Indian real estate in 2024.
Types of Properties NRIs Are Allowed to Buy in India
NRIs have the permission to buy different types of properties in India, subject to several conditions:
- Residential Property: NRIs can purchase residential properties such as houses, buildings, bungalows, apartments, villas, farmhouses, etc., to fulfill investment purposes or for self-use. No restriction exists on the total number of residential properties NRIs can purchase.
- Commercial Property: The Indian Government allows NRIs to invest in various commercial properties, including warehouses, office spaces, retail outlets, and industrial units. These properties can equally be rented out as a source of income or employed for business purposes.
- Agricultural Land: In India, NRIs are strictly prohibited from owning agricultural land. However, certain relaxations apply to NRIs who inherit agricultural land. They can also buy agricultural land if they meet specific criteria set by the RBI (Reserve Bank of India).
- Plantation Property: NRIs buying a property in India can own plantation properties like tea estates or coffee estates by obtaining prior approval from the Reserve Bank of India (RBI).
NRIs need to become familiar with India’s regulations and guidelines for property ownership. They should also conform to the restrictions the local authorities or state governments set on NRI property purchases, which streamlines the acquisition process.
Overview of The Foreign Exchange Management Act (FEMA)
The Indian Government introduced the Foreign Exchange Management Act (FEMA) on 29th December 1999 by passing an act in Parliament. The FEMA act aligns well with the World Trade Organisation (WTO) guidelines. It is integral in India’s legal framework, influencing the management rules of transactions and foreign exchange.
This act authorizes the Central Government to control the movement of payments to and from individuals located outside the nation. Besides, any financial transactions involving foreign exchanges or securities need approval from FEMA. Therefore, NRIs buying property in India need to be aware of the rules and regulations circulated by FEMA.
Necessary Documentation for Buying Property in India for NRIs
Following are the documents that the NRIs buying a property in India need to furnish:
- PAN Card
- Aadhaar card
- Electricity bills
- Passport
- Salary slips
- Income Tax Returns
- Application for a home loan
Tax Implications for Non-resident Indians Buying Property in India
NRIs investing in real estate in India must be aware of certain tax implications like rental income, return of funds, capital gains, etc. Income generated from various rental properties is taxable under the Income Tax Act, and NRIs must file income tax returns accordingly.
Capital gains from the sale of properties are also taxable, with rates varying depending on how long the property was owned. NRIs must pay 20% TDS if they buy property through non-residents and take long-term capital gains. If they buy a property through a resident, 1% TDS will be deducted when the selling price exceeds ₹50 Lakhs.
Step-by-Step Guide to Property Purchase
Mentioned below is the step-by-step procedure that the NRIs can follow to buy a property in India:
Step 1: Determining Eligibility
As an NRI, you have the authority to own a commercial or residential property in India, with several restrictions on agricultural land, farmhouse purchases, and plantation property.
Step 2: Choose the Type of Property
Choose whether you need to buy industrial, residential, or commercial property. This choice will influence the following steps since each property type has different regulations and documentation.
Step 3: Acquire a PAN Card
A Permanent Account Number (PAN) card is necessary for various financial transactions in India, including purchasing an asset. If you do not have a PAN card, make sure you apply for one via the official Income Tax Department portal.
Step 4: Pick the Right Financing Option
Choose whether you want to purchase the property using a housing loan or self-financing. Many financial institutions in India provide housing loans to NRIs so that they can acquire their desired property effortlessly without breaking the bank.
Step 5: Choose a Reputable Real Estate Agent
Consider partnering with a trusted real estate agent who specializes in serving NRIs. They can assist you through the local market, legal processes, and documentation, ensuring a streamlined buying experience.
Step 6: Pick the Right Location and Property
Research thoroughly and narrow down potential properties according to your budget and preferences. Besides, several factors should be considered, such as location, facilities, accessibility to necessary services, potential for appreciation, etc.
Step 7: Verify Property Ownership
Before finalizing a deal, ensure the property is genuine and free from legitimate disputes. You can hire a professional legal expert to verify the property papers for this.
Step 8: Acquire the No Objection Certificate (NOC)
If you buy a property that an NRI formerly owned, you must get an NOC certificate from the Income Tax Department. This certificate certifies that the seller has completed all tax obligations.
Step 9: Sale Agreement
After all verifications are completed, both the purchaser and seller must proceed to sign a sales contract. This shows the terms and conditions of the sale, including the payment schedule and date of possession.
Step 10: Register the Property
Property registration is a vital legal step. Both the buyer and the seller must sign the required documents at the sub-registrar’s office.
Step 11: Acquire the Occupancy Certificate
For newly built properties, it is necessary to get the occupancy certificate from the local authorities, which confirms that the property is safe to live in.
Step 12: Funding the Purchase
Finally, you must fund your purchase after completing all the essential formalities. If you pay via a home loan, you must furnish some documents to the bank. Many banks provide competitive interest rates and flexible repayment terms for NRIs.
Region-Specific Investment Opportunities for NRIs in India
Investment opportunities for NRIs in property can vary according to India’s different regions. Following are some region-specific options that might encourage NRIs:
Tier 1 Cities (Delhi, Mumbai, Bengaluru): These cities provide high potential for property investment due to their growing population, fast urbanization, great communication/transport, and increasing demand for residential and commercial spaces.
Tier 2 and Tier 3 Cities: Emerging cities such as Kochi, Hyderabad, Pune, Ahmedabad, etc., have been witnessing significant development and offer reasonable property prices compared to Tier-1 cities, therefore offering better chances for ROI.
Real Estate Market Trends for NRIs
Real estate trends for NRIs involve technology integration, sustainability, and affordable housing. Since the demand for co-living and vacation homes is increasing, it is necessary to keep track of regulatory changes and taxes.
Right now, India’s real estate market is worth ₹24 Lakh crore, i.e., nearly USD 300 Billion. The market is grouped into residential and commercial segments, with commercial making up 20% and residential making up 80%.
Conclusion
NRIs buying property in India can access various investment opportunities, each having different financial objectives and catering to different risk profiles. However, they need to understand the significance of investing and conduct thorough research to ensure they make their investments fruitfully.
With good research and efforts, NRIs can buy property in India that provides maximum returns and profits. To ensure a hassle-free process, you can contact Rustomjee today and avail our best NRI-specific services.
FAQs
- Do NRIs need to pay tax for a property sale in India?
The standard TDS on property sales for NRIs is 20%. However, a higher TDS will apply if any property is sold before holding it for at least two years from the date of purchase.
- Are NRIs eligible for housing loans in India?
Yes, NRIs are eligible for housing loans in India, but the eligibility criteria can differ among lenders. Generally, NRIs must retain a steady income source and a healthy credit history. Besides, they must furnish necessary documents like passports, ID proof, foreign address proof, income proof, etc.
- What are the legitimate requirements for NRI buying property in India?
NRIs must follow the rules and regulations under the Reserve Bank of India (RBI) and Foreign Exchange Management Act (FEMA) guidelines. They also need to have an authentic PAN card and an NRI status certificate and ensure that the property purchase conforms to land laws.
