Property Buying Tips For NRIs
Non-Resident Indians living outside India have been investing in real estate in order to stay connected to their Indian roots. A piece of land or a residential house in their home town or village is considered as one of the best investment options by them.
Keeping in view the buying capacity of NRIs, the Government of India has been making continuous efforts to motivate NRIs to make due investments in India. Indian Government welcomes NRIs with open arms and offers plethora of opportunities to make India a favorable destination among NRIs to invest their hard-earned money in land and properties. Government projects like ‘GHAR WAPSI’, which means “Return to your Roots”, act as a well-played card that ensures huge investments from NRIs in residential and commercial properties to give a boost to Real Estate sector.
Even though the various projects worked well from an investment point of view but they also opened doors to various ground-level issues which are yet to be streamlined and often lead to confusion in the minds of NRIs.
There are many misconceptions and issues that NRIs come across while buying a property in India.
Major factors which are critical and need the attention of NRIs while making a decision of purchasing a property in India are:
Nature Of Property
An NRI can buy as many properties in India as he wants because there’s no restriction on the number of properties that can be bought. NRIs can invest in residential and commercial properties anywhere in India except Agricultural land/Farmhouse/Plantation property. If an NRI wants to purchase any of the before-mentioned property types, they need to take a separate RBI approval to buy the same.
Selection of Property
For a property investment in India, selecting the right property at the right place is eminent. There’s no dearth of choices available in the market but it depends on one’s preference and budget available for investment.
Ownership of Property
A property bought by NRIs can be ‘Single’ or ‘Jointly’ owned. In case of joint ownership, the property can be jointly owned with either another NRI or a resident Indian. In case the resident Indian is not allowed to purchase the property being considered, then NRI is not allowed to buy and jointly own the property with that person. Ownership of any kind of property, including agricultural/ farmhouse/plantation, does not change with newly acquired NRI status.
Payment Modes, Terms, And Its Implications
The payment towards buying a property needs to be made only in Indian currency through any of the banks. NRIs can also take a loan from any bank or housing finance company registered with National Housing Bank and governed by the Foreign Exchange Management Act. Repayment of the loan can only be in Indian currency and can be done through funds in Non-Resident Ordinary (NRO)/Non-Resident External (NRE) accounts or through Foreign Currency Non-Repatriable (FCNR) deposits. Although repayment cannot be made directly to the bank, through the seller’s or developer’s account.
Applicable Taxes And Implications
Government of India has given various exemptions to NRIs seeking to buy property in India:
- When the property is purchased from an Indian resident, an NRI can take a deduction of Rs 1 lakh under 80 C of the Income Tax Act, 1961. It is to be noted that there is no upper limit regarding the deduction on home loan interest.
- TDS of 1% on the total purchase amount on property worth more than Rs 50 Lacs is deducted by NRI while buying a property from resident Indian.
- TDS of 20% on the total purchase amount is applicable when the property is being bought from a person who is not an Indian resident.
- NRI property owners are exempted from wealth tax if the property is vacant and declared as self-occupied. Else NRIs need to rent out the property for at least 300 days in a year to avoid wealth tax. This rule, however, is applicable only for the first property not on subsequent acquisitions, even if they are declared self-occupied.
- Identification of a genuine seller
- Identification of a suitable property as per the requirements of an NRI client
- Establishing title of the property from government records so as to avoid any kind of ambiguity
- Ensuring that all property documents are properly analyzed, executed and delivered
- Preparation and evaluation of necessary documents for efficient and effective execution of the transaction
- Negotiating, drafting and reviewing the necessary purchase agreements
- Physical inspection of the property in order to negotiate a better purchase price
- Representation before various authorities such as SDM, Registrar, Courts, etc.
- Repatriation, tax and any other compliance advice