Buying property in India is one of the greatest dreams for an India, no matter what part of the world they live in. The Indian diaspora has been considerably interested in investing in the realty sector in India. Over the years, Indian laws have made it easier for NRIs to invest in Indian properties. The Reserve Bank of India governs all of the transactions and these come under the purview of the Foreign Exchange Management Act (FEMA).
An NRI can choose from a wide range of options in residential or commercial properties in India. But they should be aware of certain legal provisions involving the purchase or ownership of immovable property in India.
Who Is An NRI? What Are The Criteria Of An NRI?
According to the Foreign Exchange Management Act (FEMA), an NRI is defined as a person resident outside India who is
- Either a citizen of India or
- Is a Person of Indian Origin (PIO)
PIO means a citizen of any country other than Bangladesh or Pakistan, under the following conditions
- who at any time held an Indian Passport, or
- who or either of whose parents or any of the grandparents was a citizen of India under Constitution of India or Indian Citizenship Act, 1955, or
- who is the spouse of an Indian citizen or spouse of a person referred to in 1 and 2 above
Can An NRI Buy Property In India?
Yes, an NRI can buy either a residential property or a commercial property in India. There is no limit on the number of residential and commercial property that an NRI can purchase.
But there is one exception under the Reserve Bank of India (RBI) regulation, that is an NRI cannot buy any agricultural land or plantation property in India. An NRI is also not allowed to buy a farmhouse in India. However, there is no restriction in the case of inheritance of such property.
Can Any NRI Buy Properties In India?
The Reserve Bank of India (RBI) has issued a circular that permits NRIs to purchase certain immovable properties in India. The investors do not need to obtain special permission from RBI, in case of residential or commercial properties.
But to purchase any agricultural land, plantation property or farmhouse in India, they have to take special permission from the RBI.
Types Of Properties That An NRI Can Invest In
A circular by the RBI permits NRIs to purchase two types of properties in India
- Residential property
- Commercial property
In this case, the investor does not need to inform the RBI about such purchases, even after the transaction has concluded.
However, they are exempted from purchasing three types of properties, namely,
- Agricultural land
- Plantation property
Does The Ownership Of Property Continue After Becoming an NRI?
Yes. A non-resident Indian can continue to own any agricultural land, farmhouse, or plantation property in India that he owned when he became an NRI, which he is otherwise not possible to purchase, after becoming an NRI.
- They can also let out the property, irrespective of when it was acquired. The rent received from such property can be remitted after appropriate Indian taxes have been paid on such rent.
- They are also allowed to sell or gift immovable property to any person resident in India.
- Similarly, they are also allowed to sell or gift any property, other than agricultural land, plantation property or farmhouse to any NRI.
Source Of Financing Of Immovable Property In India
When an NRI purchases the permitted property, its payment can be made in two ways
- From foreign banking channels, or
- From their NRE/NRO or FCNR account, by remittance
- Note: A non-resident Indian cannot make the payment in the form of a traveller’s cheque or by foreign currency.
Can NRIs Take Support Of Home Loans For Purchasing Property In India?
- NRIs can even make use of home loans in Indian Rupee to finance their purchase.
- An Indian employer of the NRI employee can grant the home loan to finance the property.
Servicing Of The Home Loans
- The EMI for the home loan takes place in Indian currency (INR)
- It can be done by direct remittance from abroad or from the money in credit in the NRE/NRO/FCNR account
- The home loan can also be serviced out of rents that the person receives from such property
- It can also be serviced from the money that is transferred to the borrower’s account from the account of their relatives
- If the NRI is buying the property for his/her own residence, they can even apply for a home loan against deposits lying in their FCNR or NRE account up to Rs. 100 lacs to service their home loan
Documents Required For Obtaining NRI Home Loans
NRIs are required to submit three additional documents such as,
- A copy of the passport
- A copy of the works contract or the labour card
- The power of attorney (POA)
Note: POA is required because the borrower is not based in India
NRI Joint Ownership Of Property
An NRI can own a property in India in two ways
- Single ownership
- Joint ownership with another NRI
Note: A person resident in India or a person who is not allowed to invest in Indian property cannot become a joint owner of such a property, irrespective of the authorized user’s contribution towards the investment.
Top 5 Must-Know Facts For NRIs Investing In India
- To conduct transactions, such as property registration, through an authorised trustworthy person, an NRI needs to give them a power of attorney (PoA).
- The PoA holder can sign on behalf of the NRI by producing a copy of the PoA to the appropriate officials.
- If an NRI earns rental income from a property in India, they would be taxed at 30% via tax deducted at source (TDS), while the remaining amount will be repatriated under Foreign Exchange Management Act (FEMA) rules.
- If proceeds are earned through the sale of immovable property in India, it can be repatriated after a deduction of 20-30% TDS. It depends on whether it is a long -term or short-term capital gain.
- An NRI must pay the required taxes, just like a person resident of India does when purchasing a property in India
a.) stamp duty
b.) registration fees,
c.) post-purchase annual property tax
d.) GST (in case of a property that is under construction)
Thus, it is very clear that buying a residential or commercial property in India by NRIs is not a very tedious task, as long as one is willing to pay for it or eligible to get a home loan.