The number of NRIs looking to purchase residential real estate properties in India continues to rise. 

We understand that it might be overwhelming to go through the long process of researching the legalities, documentation, taxation and a hundred other aspects that go behind a property purchase in India, for an NRI- which is why we have come up with the ultimate guide that will help you gain a comprehensive analysis of the same, in no time. 

Contents: 

  1. Who is an NRI and a PIO? 
  2. Why Should An NRI Invest In A Property in India?
  3. What Properties Can NRIs Buy in India?
  4. Transaction details for NRIs Purchasing Property in India 
  5. Document Checklist for NRIs Purchasing Property in India
  6. Funding For Properties Purchased by NRIs in India
  7. Taxation Regarding Property Purchase by NRIs in India 
  8. Power of Attorney 
  9. Tips for NRIs to Buy A Profitable Property in India 

Let’s dive in! 

Who Is An NRI And Who Is A PIO?

Go to guide for NRIs purchasing housing properties in India

  • Non-Resident Indian (NRI)

In general definition- An Indian citizen who stays abroad for employment or business for an uncertain duration of time is an NRI or a Non-Residential Indian

When it comes to Indian Taxation, the definition of NRI is looked at from a more specific angle. 

In order to understand the definition of an NRI with reference to Income Tax, we need to know what defines an Indian Resident, in the same context. 

  • Who is a resident Indian?

An individual is referred to as a resident of India if he/she :

  • Is in India for a minimum of 182 days during the Financial Year taken into consideration.

                                                                              OR

  • Is in India for a minimum of 365 days during the 4 years preceding that Financial Year AND for a minimum of 60 days in that year.  

                 Example: Consider the FY 2018-19. If you were in India for 365 days or more, during 2017, 2016, 2015, 2014 AND for 60 days or more during the FY 2018-19- You are a resident.                                                                  

If you don’t satisfy either of the above two criteria, then you are an NRI. 

Although, if you are an Indian citizen and you leave India for the purpose of employment abroad/ as a member of a crew on an Indian ship- the 60 days minimum period will be increased to 182 days for you.

To find out more about NRI Taxation, refer to our detailed guide by clicking here. 

  • Person of Indian Origin (PIO)

PIO is an identification status given to those individuals whose ancestor was a permanent Indian resident/citizen and who is also currently a citizen holding the passport of another country.

Find out your accurate residential status from answering a few questions, by clicking here.

Why Should An NRI Invest In A Residential Property in India?why NRIs should invest in housing properties in India

One can expect better returns from investing in properties in India since the rate of price rise of real estate has consistently been more in India when comparing it with other developed countries. Here are a few reasons why NRIs should consider investing in a property in India: 

  • The cost of housing is lower than that of the country they live in. 
  • Re-ensures a sense of belongingness in their motherland. 
  • India is a reliable choice for long term investments and high rates of return on the same.
  • RERA ensures consumer protection of property resulting in more transparency and assurance. 
  • The Indian real estate sector promises a wide range of properties at various fast-growing cities, each having its own circle of demand. 
  • Key metropolitan cities like Mumbai, Bangalore, Hyderabad, New Delhi are rapidly developing attracting an increasing rate of real estate investment. 
  • The enacted GST law instills a sense of confidence in investors.
  • The housing sector is affordable and has seen a boost due to the drop in price and several incentives provided by the government for first-time home buyers. 
  • NRIs get tax benefits on real estate purchases in India. 

These are only a few of the several reasons NRIs must consider investing in Indian real estate properties. 

What Properties Can NRIs Buy in India?

There are no restrictions when it comes to the nature of the property being purchased by an NRI. An NRI is free to purchase any real estate property except agricultural lands- which can come under his possession only via inheritance/gift. Special permission from the RBI and the Government of India is required if NRIs want to purchase agricultural land or a plantation. 

Other than that, NRI investment in properties is treated on par with that of resident Indians. 

Transaction details for NRIs Purchasing Property in India 

Transaction details for NRIs purchasing housing properties in India

The transaction for property investments can only be made in Indian Rupees via authorized Indian banks. The NRI must hold either an NRE, NRO or FCNR Account through which he may fund his purchase. Before we move on, here is a brief explanation of these accounts: 

These are primarily different types of bank accounts for NRIs.

NRE Account

  • A Non-Resident Rupee Account or an NRE account is an Indian Rupee denominated account. It helps transfer the money earned abroad to India and maintain them.
  • You can’t deposit your desired amount in Rupees, the deposit is to be made in the respective foreign currency which will then be converted into Indian Rupees at the time of deposit. 
  • With an NRE Account, you can transfer funds to another NRE Account as well as an NRO account (explained below.)
  • An NRE Account allows savings, current, fixed deposit, or recurring. 
  • Interest earned from an NRE Account is not taxable in India. 
  • Deposit made in an NRE Account is subject to day-to-day fluctuations in the value of Indian Rupee and conversion loss- since the deposit is made in a foreign currency. 

NRO Account 

  • A Non-Resident Ordinary Rupee Account or an NRO Account helps maintain a regular flow of income in the form of pensions, rents or dividends from India. It is also a Rupee- denominated account like NRE. 
  •  You can deposit funds in the respective foreign currency in an NRO account as well, but unlike in an NRE account, funds originating from India, in Indian Rupees, can only be deposited in an NRO account 
  • With an NRO Account, you can transfer funds to another NRO Account but not to an NRE Account. 
  • Income earned from an NRO account is taxable in India.
  • The risks that come with an NRE Account such as day-to-day fluctuations based on INR value and conversion loss are not faced by NRO Accounts. 

FCNR Account

  • A Foreign Currency Non-Resident bank account allows you to transfer your foreign income to India, in the same currency as your resident country. It is a foreign currency-denominated account, unlike an NRE Account. 
  • Unlike NRE and NRO Accounts, in an FCNR Account, you can only open term deposits with a tenure of anywhere between 1 and 5 years. It does not allow savings, current or recurrent deposits. 
  • Income earned from an FCNR account is not taxable in India
  • Since an FCNR account allows you to deposit in the foreign currency itself, your money is protected from the risks of exchange rates that you will come across in the case of an NRE account. 

To buy a property- an NRI may seek assistance from any authorized Indian bank who may fund up to 80% of the purchase, the rest 20% must come from the NRI’s sources. 

The NRI must also ensure the title of the property is clear and have it verified by lawyers. In the case of properties that are jointly held, the title must be cleared first- without any dues pending or non-authorized bills. 

Document Checklist for NRIs Purchasing Property in India

Home Loans for NRIs purchasing housing property in India

Documentation is a crucial part of any investment. Ensuring your documents are original and clean is extremely imperative. It can also be overwhelming to go through the long list of paperwork required to purchase a home in India as an NRI, especially for first-time homebuyers. To make it easier for you, here is a checklist of the documents you require at the time of your investment: 

Basic documents needed: 

  • Title Deed (in the seller’s name)
  • Title Deeds of the past 15 years
  • Latest tax receipts (of land/building)
  • Updated Encumbrance Certificate that covers the past 15 years
  • Approved plan
  • Building permit/Notice of Commencement 

These are the basic documents you require for any property purchase which are used to verify the general legalities regarding the land. More documents can be asked for by your advocate in the case of complications found in this set of documents. 

Documents for Builder Projects:

Check if the builder project (villas, apartments, etc.) is pre-approved by the bank- in which case you will not need all the paperwork pertaining to land, you only need: 

  • Sale and construction agreement
  • Receipts of down payment
  • Notice of Commencement (NOC) from the builder  

Documents for Processing Home Loans:

  • Passport and Visa copies
  • Copy of work permit/ employment contract/ appointment letter
  • Latest salary certificate (if it is not bank credited, it must be attested by the embassy)
  • Latest 6 months payslips
  • Bank statement of the past year (Overseas account as well as NRE/NRO account) 
  • ITR of the past year except for NRIs in the Middle East Nations or who are Merchant Navy employees
  • Duly filled loan application form
  • 3 passport size photographs
  • Power of attorney (executed in the format mentioned by the bank and attested from the Indian Embassy) 

The panel advocate will check these documents and certify their validity. 

Documents required at the time of registration: 

  • Pan card
  • Overseas Citizenship of India/ Person of Indian Origin card
  • Passport
  • Passport size photographs
  • Address proof
  • Power of attorney registered

These are the important documents required for an NRI’s property investment in India.

Funding For Properties Purchased by NRIs in India

Home Loans

There are several banks in India that provide home loans to NRIs looking to purchase residential properties in the country, with very attractive interest rates. As mentioned earlier, banks can fund up to 80% of the purchase with the NRI sourcing in the other 20%. 

Eligibility for Home Loans for NRIs

  • Must have a minimum of 2 years of work experience in the company currently employed
  • NRIs between the ages of 18 to 60 are eligible to apply for the loan
  • Must be an NRI/PIO/OCI.
  • NRIs require a resident India during the application process to act as a co-applicant, co-borrower, and co-owner of the property. 

Given below are the interest rates of home loans in top banks of India:

 

BANKS

 

INTEREST RATES (per annum onwards)

SBI 7.95%
HDFC Bank 8.00%
ICICI Bank 8.95% 
Axis Bank 8.80%
LIC Housing Finance 8.70% 
DHFL Housing Finance 10.00% 
Bank of Baroda 8.10%
Kotak Mahindra Bank 8.90% 
Indiabulls Housing Finance 8.80% 
Canara Bank 8.35% 

 

Features of Home Loans for NRIs

  • You may apply for a home loan online
  • Attractive and affordable interest rates
  • Transparent process of acquiring loan
  • You may choose between fixed and floating interest rates
  • No repayment charges to paying loans before the due date.

Taxation Regarding Property Purchase by NRIs in India 

Taxation for Purchasing housing property in India for NRIs

  • Taxes 

NRIs owning house properties in India will be taxed in two ways:

1.Income from House Property: This refers to the income from a house situated in India. Tax on this house will be calculated the same way it would be for a resident.  If an NRI has purchased a home loan, then he/she gets a deduction of 30%, a reduction in property tax and interest deduction. Income from house property is taxed at slab rates.

2.Income from Rental Payment: An NRI owner will experience a 30% TDS deduction from the tenant. Income can be received through an account in India or from his/her account abroad. 

  •  Form 15CA & 15CB: 

The individual making the payment to the NRI must submit Form 15CA to the Income Tax Department online. Sometimes a certificate from a Chartered Accountant i.e Form 15CB is needed before uploading Form 15CA online, where the Chartered Accountant will certify the details of the payment, TDS rate, deduction, etc. 

Click here to download Form 15CA.

Click here to download Form 15CB

   Form 15CB is not required in the following circumstances: 

  1.  Money transferred or paid is not more than Rs 5,00,000, in a Financial Year.
  2. If lower TDS has to be deducted and a certificate is received under Section 197 for it. Or if lower TDS has to be deducted by order of the AO.
  3. Neither is required if the transaction falls under Rule 37BB of the Income Tax Act– where a list of 28 items is specified. Click here to view the list. 

 

3.)  Income from Capital Gains: Any capital gain on capital assets in India is taxable. Capital gains on securities, shares invested in India become taxable. If an NRI sells his house with a long-term capital gain, then the buyer should deduct TDS  at 20%. 

If the cost of the new asset is less than the net consideration, capital gains are exempt proportionately.

 If the asset acquired is sold before 3 years, the profit exempted will be included in the income in the year of sale. 

  •  Deductions 

Exemption on Sale of Property 

 Long-term capital gains earned by NRIs are subject to a TDS of 20%. An NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.

Exemptions available for an NRI with respect to the selling of property:

  • Exemption on long-term capital gains on the sale of a house property. 
  • Exemption on sale of any asset other than a house property.

 

Exemption on reinvesting capital gains:

This exemption has been restricted to the capital gain arising from the transfer of long term capital assets being land and building or both

If you are an NRI,

  • Instead of reinvesting your profit from the sale of your first property elsewhere, you can also invest that amount in bonds up to Rs.50 lakhs that are issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
  • You have 6 months’ time to reinvest the profit in these bonds. In order to receive this exemption, you must re-invest before the Tax Filing Deadline.
  • This re-invested amount can be redeemed after 3 years, yet you cannot sell it before the stipulated duration of 5 years from the date of sale. 

Upon completion of these investments, the relevant proof is to be shown to the buyer- then you are eligible to waiver the TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

 Power of Attorney

NRIs can give the Power of Attorney to their friends or relatives in India to complete the property purchase process in India. The Power of Attorney may be general or specific with regards to their exercisable rights. 

 

Tips for NRIs to Buy A Profitable Property in India

Tips for NRIs Purchasing Housing property in India

Now that we have gone through the process and legalities behind purchasing a housing property in India as an NRI- here are a few tips you may follow:

 

1. Ensure to Include A Site Visit- Nowadays the online platform has made property purchases easier and much more accessible. Yet, however confident you may be about the builder’s credibility, it is always safe to go down there and check it for yourself before making such a huge investment. Site visits will also provide you with a sense of reassurance, and also have you solve all your important queries from the builder personally.

2. Statutory Approvals– Check whether the property has access to uninterrupted water, power supply; check for the sewage disposal in the area, approvals from the fire department and other safety approvals, etc. Considering all of this is extremely important before you decide to make an investment. 

3. Re-check built-up area: Verify if the quotes measurement of the property is the built-up area or the carpet area. Usually, builders quote the lobbies, stairwells, etc as super-built up areas and the carpet area is almost always 15-20% lesser than the built-up one. Make sure to cross-check this.

4. Comparative Analysis: Before choosing to buy one property, choose 100 others, shortlist 20, and negotiate with 10 of them. Finalize one among those 10 properties.  

 

Conclusion

The ultimateguide for NRIs pruchasing houses in India

In this guide, we saw everything that goes behind purchasing a property in India for NRIs. 

We started off with defining an NRI after which we listed out the reasons as to why India should be considered as a destination of housing investment for Non-Resident Indians. 

We then saw what properties NRIs can buy and went through the details of the transaction for the same. Next, we listed all the documents needed to make the purchase. We then moved on to understanding the home loans available for NRIs willing to make property investments in India, we saw the eligibility for such loans, their features and different interest rates of famous banks in India. 

Taxation regarding housing property purchases in India by NRIs was then covered where we look at the NRIs’ different taxable incomes and the tax deductions they receive. Lastly, we touched upon who a Power of Attorney is and quickly brushed by some important tips to keep in mind while considering investing in housing property. 

I hope this guide gave you a comprehensive analysis of this topic. Here are some reference links for further research: 

https://www.dsmaxproperties.com/blog/nri-comprehensive-guide-to-buying-property-in-india/https://www.makaan.com/iq/nri/five-things-nris-buying-property-in-india-must-knowhttps://budgeting.thenest.com/duties-limitations-power-attorney-26001.html  https://www.thehindu.com/real-estate/must-know-rules-for-nris-for-real-estate-investment-in-india/article19203443.ece  https://www.thehindu.com/real-estate/legalities-of-nri-property-ownership/article29982528.ece