NRI

Different types of investments require different strategies. Working out the reason for investment and the type of property influence those strategies. An NRI could want to make a purchase to use, for resale or to let out for rental income. In the case of personal occupancy, an NRI can avail a number of tax benefits. In terms of rental income, the income will be taxed and allowed deductions for maintenance and repair of the property. In case of purchase for the intent of resale, it is advisable to hold the property for a minimum of three years in order to avoid short-term Capital Gain Tax.

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All transactions related to an investment in an Indian property are governed by the RBI, which stipulates that any NRI who has an Indian passport is eligible to invest in Indian real estate. The RBIs 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 a forest, agricultural, farm or plantation land, which is at par with the rights of an Indian resident and can also inherit property or transfer ownership to any other party as a sale. NRIs enjoy easy eligibilty to bank home loans with authorised banking channels such as NRE/NRO accounts, which determine the repayment of the principal loan amount as well as the interest amount. The RBIs mandates for NRI loans from banks in India include certain clauses. Banks can finance up to 80 percent of the total purchase amount, with the NRI paying the rest. In terms of taxation, an NRI is required to pay a registration fee, stamp duty and others. The interest on a home loan taken from an Indian financial institution will be exempted from the tax amount. In terms of rental property, the income from it will be subject to tax by both India as well as the resident country, unless that country has an agreement with the Indian government in terms of double tax avoidance.

An NRI has to maintain a Rupee Account in India in order to invest in property here, to send the money earned in India to a foreign account or 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. They can be both current as well as savings and an Indian Rupee Account with a minimum monthly balance of ₹75,000. The differences between these two accounts are that the NRE account is tax-free but the NRO is susceptible to tax. 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 keep money overseas but converted to rupees.

Apart from verifications in terms of papers and title deeds, ensure that the property bought is on legitimate land and that the seller has the right to sell the property. Talk to a real estate consultant or an advisor to get an idea of the micro-markets and the best places to buy. All documents should be verified by a lawyer. It is also important to make sure that a no-dues certificate from the seller is issued and that all pending bills have been paid. An under-construction property requires a Power of Attorney (PoA), which will make matters simpler. A PoA is usually divested to a trustworthy representative of the NRI in the home country. 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.