Buying a property back in India has always been the most cherished dream of several NRIs (non-resident Indians) living in different countries. More than the need to reside here, many NRIs feel that the Indian realty market is one of the best investment options which will fetch them good returns over a period of time. Keeping in tune with this high demand and the aim to attract more funds into the sector, the government has also eased several regulations for the NRIs to facilitate smooth buying process.
To start with, all property purchases in India are governed by the Foreign Exchange Management Act (FEMA). It defines an NRI as a citizen of India but one who resides outside the country. Thus, it is imperative that NRIs understand the process and consider the below important points before taking a leap.
Property-type that NRIs can buy!
Eligible For: The law clearly states that all NRIs are eligible to buy any residential or commercial property anywhere in the country without even informing the RBI. In fact, there is no restriction on the number of property purchases as well.
Exception: On the contrary, an NRI is not permitted to purchase agricultural land, farm house and plantation land. In fact, he cannot even acquire such properties as gift but can only inherit it.
How can NRIs Fund their Purchase?
First and foremost, all monetary transactions made by the NRIs must be in the Indian currency and through normal banking channels using an NRI account. They can opt either for their own funding or even avail home loans from any of the banks or other financial institutions in India. But, RBI mandates that maximum of 80 per cent of the overall property value can be availed as loan from the financial institutions.
One must also make sure to use inward remittances and have them remitted inward from NRO/NRE account in India. Alternately, they can issue post-dated cheques or Electronic Clearance Service (ECS) from their NRE, NRO or Foreign Currency Non-Resident (FCNR) account.
Power of Attorney
To make the buying process simple, it is recommended that NRIs give a PoA to a person residing in India so that he/she may complete formalities including registration, possession, execution of sale agreement etc. The PoA enables them to execute all contracts, deeds, sell, lease, and all matters relating to property management as well. However, experts cite that it is advisable to give a specific power of attorney to a person, restricted only to a single action such as only purchase or only for lease.
Moreover, the power of attorney must be executed on a stamp paper which must be attested by any authorized official of the Indian Embassy / Consulate / Trade commissioner in that country.
Taxation Policies for NRIs
NRIs buying property in India are entitled for all tax benefits similar to that of the residents. This means, taxation rules of income from property and the capital gains are same for both resident Indian and NRIs. The only difference is on the TDS rate during the sale of property. At first, one can claim Rs 1.5 lakh principle repayment deduction under Section 80C of the Income Tax Act, 1961. Furthermore, under Section 24, the interest on home loan is deductible from the income from house property to the extent of Rs 2 lakh per annum.
Moreover, to enjoy the tax benefits, minimum three years’ investment is recommended. For instance, the Income Tax (IT) rules state that if an NRI sells a property within three years of purchase, it will be treated as short-term capital gains and taxed accordingly. The proceeds from the sale will also be added to the income of the NRI. If the same property is sold after three years, the IT department offers an option of reducing long-term capital gains tax, by investing the proceeds into another property purchase.
NRIs must file IT returns in India
If an NRI buys a property in India, it is mandatory for him/her to pay property tax in India along with the stamp duty and registration fees for the property. Hence, one must assess all the costs before planning an investment. Besides, any income earned via rent in India is also subject to income tax. Therefore, though not mandatory, it is advisable to get a PAN card before making an investment, to ease financial procedures later.
Thus, if one understands these simple processes then property buying in India can be an easy task. More so, with favourable economic conditions, ease of norms and regulations, depreciating Indian rupee and the central government initiatives, the NRIs can surely expect high financial gains over a long period!