Must-Know Regulations For NRIs Investing In Real Estate

Not many NRIs are aware of the fact that RBI guidelines allow them to purchase specific types of properties. As a starting step, an NRI interested in purchasing property in India must know the various legal provisions relating to owning an immovable asset in India. For, example, the Foreign Exchange Management Act, (FEMA), Non-Resident Indian (NRI) and Persons of Indian Origin (PIO) are treated as same when it comes to the regulation pertaining to investment in real estate in India. Below are some other regulations that an NRI needs to be aware of before investing in real estate in India.

Types Of Properties That NRIs/PIOs Can Purchase:

The guidelines laid down by Reserve Bank of India (RBI) require the NRIs/PIOs to have a valid Indian passport to buy residential or commercial properties in India. That said, there is no need to obtain any special permission from RBI for the same, and neither is an NRI required to inform the RBI about the purchase. An NRI can invest in as many properties as per the rules laid down by the RBI. But there are certain property types that an NRI can’t buy. These include:

1. Agricultural land
2. Plantation, and
3. Farm house

If the NRI really wishes to invest in a farmhouse, special permission is needed from the RBI. However, a person can continue to own a farmhouse, a plantation or even agricultural land that they owned before becoming an NRI. Also, an NRI can purchase immovable property in India either individually or jointly with another NRI.

Funding And Financial Transactions:

When an NRI buys an immovable property, the payment has to be received in India through banking channels. The payment will be subject to taxes and duties levied in India. The payment for the purchase can also be made through funds held in NRE/ FCNR (B)/ NRO accounts of the NRIs/ OCIs.

Note: No payment can be made through travellers’ cheque and/or foreign currency.

If the NRI is looking for funds to purchase properties, he can easily avail them from Banks/NBFCs if he has proper paperwork in place. In fact, many financial institutions in India have home loan schemes which are specifically tailored for NRIs. The loan amount can be obtained to cover up to 80 per cent of the cost of the property, and the remaining 20 per cent should come from the NRI’s own sources. Also, before applying for funds, the NRI must get all the documents verified by a competent lawyer. This will ensure that everything is in order. As a precaution, a certificate from the seller stating that ‘there is no lien attached to the property being purchased’ can be obtained.

Tax Benefits:

NRIs can avail most of the tax benefits that are available to resident buyers. If the NRI sells the property within three years, any profit earned would be deemed short-term capital gains. In case the property is sold after three years, the NRI has the option to cut down on the long-term capital gains tax by purchasing another property.

Repatriation Of Funds:

If an NRI sells a property and is repatriating funds to a foreign country, he needs to follow certain guidelines. The following conditions need to be satisfied when funds obtained by selling immovable property are being repatriated:

          1. The NRI should have purchased the property as per the regulations laid down under FEMA, applicable at the time of purchasing the property.

         2. The amount being repatriated should not exceed the original investment. However, under the following circumstances, a maximum of $1 million in a financial year can be repatriated:

•  If the property was purchased using rupee source that was in the NRIs account.
•  If the property was gifted to the NRI, then the sale proceeds should be transferred to an NRO account before being repatriated to another country.
•   If the property was inherited from an Indian resident, then the evidence related to the same should be provided. The NRI should also provide an undertaking and a certificate from a practising Chartered Accountant to the Central Board of Direct Taxes.

As a safeguard, it is advisable for NRIs to take legal advice at the time of purchasing property in India. That way, if there are any changes in the guidelines, then those can be factored in during purchase.