Real Estate is one of the top investment tools for NRIs in India. It can be a form of retirement abode or an asset to bind the funds in. With the historical trend of immense growth and expansion, Real Estate has carved a separate niche for NRIs. Although, we need to understand that investing in Real Estate for an NRI is different when compared to a Resident India. Let’s see how:
What properties can NRIs buy in India?
NRIs can buy both residential and commercial properties in India. However, they can not buy any Agricultural Land, Farm House or Plantation property. They can only be inherited or received as gifts.
How can NRIs invest in Real Estate in India?
NRIs can invest in the real estate properties allowed to them through the following mediums:
Self-Transactions using:
Funds in their NRE/NRO/FCNR (B) accounts in India
Funds remitted to India from overseas (in own account; can’t pay to the seller directly)
Loan Facility (in INR) in India for NRIs; up to 80% of the property value based on individual eligibility of the NRI than can be repaid through:
Inward Remittance (money transferred into your own account from abroad)
Funds in their NRE/NRO/FCNR (Bank) accounts in India
Rent from the purchased property
Close Relatives crediting the borrower’s loan account (under section 6 of the Companies Act, 1956)
Note: No payments can be made by traveller’s cheque (pre-paid, pre-printed fixed amount cheques for payments across countries) or in foreign currency notes. All payments must be made in India only.
Rental income: A real estate property in India can fetch a very handsome rental income if the property is set in a well established neighborhood. An important point to note here though is that the rent is liable for TDS (Tax Deducted at Source) and the tenant will deduct 31.2% of the rent as tax before sending it to you. In Spite of that, it’s a fair deal and rental income can bring in sizable profits
Price benefits and Long term Returns: The Real Estate industry in India appreciates at a rate of 19.5% per year (CAGR 2017-18; Source: IBEF). So, the investment value will multiply exponentially with time and it can be easily labelled as a very fruitful investment. Also, The Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 (Source: IBEF). The investment that you put in today will bring in multifold profits in the longer run
Retirement Plan: Reverse Mortgage (A type of loan where people over 62 years of age with considerable home equity can borrow money against the value of their home as a lump sum, fixed monthly payment or line of credit.) is gearing up in India. So, NRIs can invest in property and use it as a source of income post their retirement
Tax Exemption: NRIs, if you buy property on loan in India, you can claim an exemption on the interest you pay for your home loan (section 24). Under section 80C, you can claim an exemption on the repayment of the principal amount. Also, there are ways to save taxes on Capital Gains from selling out the property in India and much more. (For Tax Advisory: write to us at [email protected])
Taxation on Real Estate for NRI
Taxation on Real Estate is a bit complex. It can be further subdivided into rent and capital gains. Along with that, TDS on buying a property is also a very essential instrument that must be deducted and paid to the government authorities.
1. TDS while buying property: Deduct TDS as per the table below while buying property in India keeping in mind the associated conditions.
Property Bought From
Condition
Tax deducted at source
Resident
50 Lakhs or above
1% TDS of Purchase Value
NRI
No Condition
20% plus surcharge and cess for long term gains and 30% plus surcharge and cess for short-term gains
2. Income from Rent: Rent from property owned by an NRI is subject to a TDS of 30% to be deducted by the tenant. The rent received after the deduction of TDS is added to the total income of the NRI and is applicable for tax according to the Tax Slab of the NRI. NRIs can also choose to pay taxes themselves and file the returns. However, there are certain deductions that must be considered: Municipal Taxes paid, standard deduction of 30% on taxable value, deduction for interest on any loan taken for the property, repayment of principal amount of home loan up to Rs.1,50,000/-.
3. Capital Gains Tax for NRI on sale of Property: The minimum holding period for long term capital gains for real estate is 2 years.
Nature of gains
Tax Liable
Tax Deducted at Source (TDS)
Short Term Capital Gains
As per tax slab
30%
Long Term Capital Gains
20%
20% (plus surcharge and cess) with indexation
4. Taxation on Multiple Properties: If NRI owns more than one residential property which are self-occupied, then only one of the houses will be treated as self-occupied and all others will be treated as deemed to be let out. In such cases, a notional rent is computed and offered to tax as if the property was rented out
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