ADVANTAGE FOR NRI INVESTORS:

The Indian real estate industry,is always buoyant and lucrative. When it comes to non resident Indians (NRIs), Indian realty is a great place to invest in for many reasons.

Reasons for Investmnet:

  • For one, it is home and NRI still maintain a close connection to the subcontinent and owning a property there is a good way to solidify that connection.
  • Secondly, the low value of the rupee vis-à-vis currencies such as the dollar and the pound make it possible for NRIs to purchase houses or even commercial real estate property at steal deals and with good returns.
  • Thirdly, the house is always there for the NRI to return to after retirement, if he or she wants to choose that option. With the new government's focus on infrastructure and reforms and with world-class retail outlets, schooling and facilities emerging in India, it is possible for the NRI to explore many options.

The government has also made it easier for NRIs to invest in Indian property, with the Foreign Exchange Management Act affording many good schemes.

Purpose of investment and type of property:

It is important for an NRI to work out why he or she wants to invest and what type of property holds interest, because different type of investment requires a different strategy, be it to :

  • Buy a property for use
  • Property that can be resold
  • One that fetches rental income and
  • A property that guarantees returns.

If the NRI wants to choose a property to stay in, he or she can avail of many tax benefits. In terms of rental income, the income will be taxed as also deductions for maintenance and repair of the property.

If the NRI wants to buy real estate to make money on resale, it is advisable to park the money in real estate for at least three years, because of short-term capital gain tax, which is not present if the property is not sold in three years. Long term capital gain brings tons of tax benefits and to also reap the benefit of price appreciation.

Location and supporting infrastructure:

There are many resources to explore to find out about the best places to invest in India. Apart from the metros, satellite townships and upcoming smart cities are great places to invest, as they not only ensure good returns but are surrounded by excellent infrastructure and transport systems.

Government policies and tax implications

In order to invest in Indian property, all transactions are governed by the RBI, which stipulates that any NRI who has an Indian passport is eligible to invest in Indian real estate and whose regulations make it easy for NRIs to invest in Indian real estate. The only condition is to follow the provisions of the Foreign Exchange Management Act (FEMA) and the Income Tax Act.

The FEMA stipulates that an NRI can purchase or receive any immovable property in India, as long as the property is not forest, agricultural, farm or plantation land, which is on par with the rights of an Indian resident and can also inherit property or transfer ownership to any other party as a sale.

When it comes to banks, NRIs are their prime customers and it is easy to get loans in a simple and effective manner without any hassles, complete with an authorised banking channel such as an NRO or NRE account, which determines the repayment of the principal loan amount as well as the interest. The RBI's mandates for NRI loans from banks in India include certain clauses. Banks can finance 80 per cent of the total purchase amount, with the NRI paying the remaining amount.

Another thing to keep in mind is taxation. The NRI is required to pay registration fee, stamp duty and other such charges, although interest on the home loan that he or she takes from an Indian financial institution will be exempted from the tax amount. In terms of rental property, whatever rent comes in will be subject to income tax from both India and the country in which he or she lives, unless that country has an agreement with India in terms of double tax avoidance.

NRO and NRE accounts

An NRI has to maintain a rupee account in India in order to invest in property here, either to send back the money he or she has earned in India to a foreign account or wants to keep money earned or acquired in India within the country.

A Non Resident Ordinary Rupee (NRO) or a Non Resident Rupee (NRE) account can be opened by an NRI who is a citizen of another country. Both these can be savings or current accounts and Indian rupee accounts, with a monthly balance of Rs 75,000. The differences between these two accounts are that the NRE account is tax free but the NRO is susceptible to tax and that the NRE has no restrictions in terms of transferring foreign earned capital to India, both in terms of principal and interest earned, unlike the NRO account, which sees the taxation of interest earned. An NRE account will work for the NRI who wants to park his or her money overseas but converted to rupees.

Guidelines

It is important to make sure that the property bought is on legitimate land and that the seller has the right to sell the property, apart from verifications in terms of papers and title deeds. It is also a good idea to talk to a real estate consultant or an advisor, so as to get an idea of the micro markets and which are the best places to buy. Getting documents verified by a lawyer is important and also to make sure that a no-dues certificate from the seller and that all pending bills are paid.

An under construction requires a Power of Attorney (PoA), which will make matters simpler. A PoA is usually divested to a trustworthy representative of the NRI in his or her home country, someone who can take care of the paper work, verification, contracts, title deeds, mortgages and much more.

The NRI should also take note of the guidance value or circle rate, which is the minimum value at which a property can be sold in a particular place. Similarly, stamp duty is usually paid either on the circle rate or the market rate, whichever is higher. Circle rate affects resale of the property by the NRI, who can sell a property at a lower price than its circle rate but the circle rate will still be treated as the base amount and the sale price, according to which the capital gain will be calculated.