For Non-Resident Indians (NRIs), or Overseas Citizens of India (OCIs) investing in real estate in India can be a lucrative option. However, before investing in a property, it is important to understand the tax implications that come along with it. In this blog, we will discuss the various tax implications for NRI buying property in India.
Can NRIs Buy Property in India?
Yes, NRIs can buy property in India. As per the Foreign Exchange Management Act (FEMA) of India, NRIs are eligible to acquire and hold immovable property in India. NRIs can purchase residential and commercial properties in India and also qualify for home loans.
Also read: TDS on Sale of Property by NRI in India [New Rates for 2024]
Types of Properties NRIs can Purchase in India
NRIs can invest in real estate, provided the property they want to purchase is not:
- Agricultural land,
- Plantation property or
- A farmhouse
The income tax laws permit NRIs to own any number of residential or commercial properties they desire. However, if an NRI wishes to purchase a plantation or farmhouse, they have to get approval from the RBI and the government.
Also read: Five Must-Know Things for NRIs Buying Property In India
NRI Buying Property in India: Tax Implications
Given below are the tax implications for NRIs buying property in india:
- The NRI must calculate the TDS (Tax Deducted at Source) based on the residential status of the seller and the capital gains involved.
- When an NRI buys an immovable property in India from a resident, he/she must deduct TDS at a rate of 1%, if the sale consideration value exceeds Rs 50 lakh.
- In case the NRI purchases property from NRI, TDS is deducted at a rate of 20% if long-term capital gains apply, and for short-term capital gains, TDS rate will be as per income tax slab rate of NRI seller.
- Short-term capital gains occur when the property is sold within two years of purchase, while long-term capital gains occur when the property is sold after two years of purchase.
- It is important to note that the tax deducted should be deposited within 30 days of such deduction. Failure to deposit the tax within this period can lead to a penalty of 1% per month on the outstanding amount.
Also read: How can NRIs file TDS Returns on Sale of Property in India?
RBI Guidelines for NRI Buying Property in India
The Reserve Bank of India (RBI) has issued guidelines for NRIs who wish to invest in real estate in India. Here’s everything you need to know about the RBI guidelines for NRI buying property in India:
- A NRI can buy or own any immovable property (other than agricultural land/ plantation property / farm house) in India.
- NRIs may transfer any immovable property in India to a resident in India. He may transfer any immovable property (other than agricultural land or plantation property or farm house) to an Indian Citizen resident outside India or a PIO resident outside India.
- An NRI can obtain the necessary funds for buying a property in India through normal banking channels using the inward remittance method from any place outside India or by debiting their NRE/FCNR(B)/NRO account.
- The payments cannot be made through traveler’s cheques, foreign currency notes, or other modes unless explicitly allowed by the RBI.
- If an NRI purchases a residential or commercial property under the general permission category, they do not have to provide any documentation to the Reserve Bank.
- All payments should be made in Indian currency and through the NRI account using banking channels.
- NRIs can use their own funds or avail of NRI home loans from banks and other financial institutions. The RBI permits buyers, including NRIs, to avail up to 80% of the total property value via loans from financial institutions.
Documents Required for NRIs to Buy Property in India
NRIs planning to purchasing property in India will need to provide the following documents:
- Passport and/or OCI card
NRIs will need to show their Indian passport. In case one holds a foreign passport, he/she can buy property in India-
provided they have a PIO card or an OCI card.
- PAN Card
A PAN card is mandatory to buy property in India.
- Power of Attorney
In case NRIs are not present in India to execute the purchase transactions, they must provide a Power of Attorney (PoA). A registered and notarized special power of attorney executes a property transaction, and not a general power of attorney.
Additionally, NRIs will also need to provide their current address proof like any utility bills and passport size photographs for the sale deed registration.
Also read: 5 Things NRIs Should Note When Selling Property in India
Calculate your TDS Refund with SBNRI’s TDS Refund Calculator
A TDS refund is the process of reclaiming the excess tax deducted at source by the payer if the actual tax liability of the taxpayer is lower than the TDS deducted. This situation typically arises when the income tax calculated on the total income is less than the TDS already deducted. To claim a TDS refund, taxpayers need to file an income tax return (ITR). The Income Tax Department processes the ITR and verifies the details. If the tax department finds that the TDS paid is more than the actual tax liability, the excess amount is refunded to the taxpayer.
You can easily find out how much tax refund you can get by calculating your TDS Refund from this TDS Refund Calculator.
Contact SBNRI
If you want to sell or purchase a property in India, you should have sound knowledge of NRI property transactions and tax laws. We at SBNRI are here to help you out with everything related to property transactions in India and other financial and legal services required by NRIs.
You can download SBNRI App to connect with our experts and get end-to-end assistance related to an NRI home loan.
You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.
FAQs
Can NRI buy property jointly with Resident Indian?
Yes, RBI allows NRIs to jointly own a property with another NRI or a resident Indian. However, if the resident Indian is ineligible to buy property, then the NRI will also not be allowed to buy the property with that resident Indian.
Do NRIs pay property tax in India?
Yes, NRIs (Non-Resident Indians) are required to pay property tax in India on any property that they own in the country just like resident Indians.
Can NRIs buy agricultural land in India?
Under the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, NRIs and OCIs cannot purchase lands or plantation property in India unless they acquire special permission from RBI.
Do NRI pay tax for buying property?
If you purchase property in India as an NRI, you will be required to pay property tax. Additionally, stamp duty and registration fees apply during the purchase. However, NRIs can avail deductions on these fees.
Do NRI have to pay TDS on property purchase in India?
Whenever a property is bought or sold in India, TDS must be deducted by the buyer while paying the seller. The deducted TDS amount must then be deposited with the Income Tax Department. This rule also applies to NRIs (non-resident Indians) selling property in India.
Is it a good idea for NRIs to buy property in India?
Indian real estate industry is expected to grow at a healthy CAGR of 25.60% in the future and will reach $1 tn by 2029, 13% of the GDP. Indian real estate industry presents a great opportunity for NRIs/OCIs looking to diversify their investments across Indian assets.
What is the TDS on NRI property?
TDS (Tax Deducted at Source) shall be deducted whenever any property is sold/ purchased. The buyer needs to deduct TDS and pay the balance to the seller. The amount to be deducted depends on the residential status of the seller. In the case of an NRI seller, the amount of TDS to be deducted will depend on the quantum of money received by the seller.
