Amongst the plethora of investment options in India for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), Real Estate has an edge. Especially during the present times with the huge reflux of NRIs returning to India, Real Estate has turned out to be the hot spot for investments. Buying a house or a piece of land, it’s all over the place. The intentions are scattered; some are investing for a contented retirement, while some want an asset that brings in a decent income, and some just want a place to spend their lives after returning for good. Reasons are too many, medium just one. Real Estate!
Now, being an NRI brings in certain rules and regulations. There are restrictions on investments in Real Estate. So, let’s just start by understanding which properties an NRI/OCI can invest in.
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.
Till here, we know what are the properties that an NRI/OCI can buy in India. Now, we need to discuss the very mediums that can be used to invest in Real Estate in India.
Also read: Best NRI Investments in India: Top 10 Investment Options for NRIs/OCIs in India 2024
Investment in India by NRIs/OCIs: How can NRIs/OCIs invest in Real Estate in India?
NRIs/OCIs can invest in the real estate properties allowed to them through the following mediums:
1. 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)
2. 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.
Also read: 10 Best NRE Accounts in India for NRIs 2024: Online Application
Documents required for investing in Real Estate
The basic set of documents required by an NRI for investing in Real Estate in India are:
- Passport
- Address Proof
- Permanent Account Number (PAN) Card
- Photographs
That’s it! Just these basic documents can help you in investing in Real Estate in India. But, why do NRIs invest in Real Estate? What are the benefits? Let’s explore.
Also Read: How NRI invest in India: Real Estate
Why should an NRI buy a house in India?
There are multiple benefits of investing in Real Estate in India. The benefits can be chosen as per the needs of the investor. Let’s glance through the basic advantages of investing in Real Estate in India by an NRI:
- Rental Income: Real Estate properties attract a very handsome rental income if they are set in a well established neighbourhood.
- Price Benefits & Long Term Returns: The Real Estate industry in India appreciates at a rate of 19.5% per year (CAGR 2017-18; Source: IBEF). With this trend of growth, any investment in this sector will bring in lucrative returns in the longer run with a benefit of exponential growth in the prices.
- Retirement Plan: Investment in Real Estate can be used as a source of income post retirement with the concept of 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.) gearing up in India.
- Tax Benefits: There are multiple tax exemptions on property loans in India. (Section 24: exemption on the interest you pay for your home loan)(Section 80C: exemption on the repayment of the principal amount). You can also save taxes on capital gains from selling the property (watch video).
Another major aspect to consider while investing in Real Estate in India is Taxation. Taxation on Real Estate can be further subdivided into rent and capital gains. Along with that, TDS on buying a property is also a very essential instrument we must deduct and pay to the government authorities. We will cover all of them one by one.
Also read: Lower TDS Certificate for NRI Property Sale in India
Taxation on Real Estate Investment in India by NRI
- 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 |
- 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, certain deductions 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/-.
- 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 |
- 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
NRI/OCI Investment in Indian Real Estate: Power of Attorney
Sometimes it can be a pain to come to India and do everything yourself. This special condition is for NRIs who would prefer to stay where they are right now but still don’t want to miss out on the opportunity to invest in Indian Real Estate.
You can always have a Power of Attorney (POA) carry out your investments for you. A POA can enable easy buying, managing and selling of your real estate property in India. However, you need to take certain precautions as well while creating the perfect power of attorney.
Also read: Inoperative PAN: Steps NRIs & OCIs can Follow to Activate PAN without Linking to Aadhaar
Indian Real Estate: The Perfect NRI/OCI Investment
Given the benefits that it possesses, NRI investments in Real Estate in India can be one of the best investment tools. All you need is a basic understanding of how the industry operates and what exactly are your expectations out of the investment. You need to pick an objective(s) (rent, retirement, Tax Benefits or Long Term Returns). It can also be a mixture of all the benefits.
That’s the beauty of investing in Real Estate: You can enjoy most of the benefits together. Buy a house that can fetch you a decent rental income till you return, if you get it on a loan, tax exemptions are a plus. Then you can choose to either sell it off for good returns or stay put for your life post retirement.
Invest in India Easily with SBNRI
NRIs can now download the SBNRI App and choose to invest in different NRI/OCI investment schemes from commercial real estate, mutual funds, pre-IPO, micro-VC funds, and more in India with ease. You can also get detailed mutual fund advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
FAQs
Can NRIs buy property in India?
- Yes, 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. Please refer to the above blog for a detailed guide.
Can OCI card holders invest in real estate in India?
- Yes, OCI cardholders can invest in real estate in India in the same manner as NRIs.
How can OCI holders buy property in India?
- Yes, OCIs 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. Please refer to the above blog for a detailed guide.
How many properties can NRIs purchase in India?
- There are no such restrictions on the number of properties that an NRI or OCI can purchase in India. An NRI or OCI can own multiple residential and commercial real estate properties in India.
Can OCI buy farm house?
- No, OCIs can only buy both residential and commercial properties in India. They can not buy any Agricultural Land, Farm House or Plantation property. They can only be inherited or received as gifts. Please refer to the above blog for a detailed guide.
Can NRI buy farm house?
- No, NRIs can only buy both residential and commercial properties in India. They can not buy any Agricultural Land, Farm House, or Plantation property. They can only be inherited or received as gifts. Please refer to the above blog for a detailed guide.
Can NRI transfer property in India?
- Yes, NRIs can transfer one’s immovable property in India to a resident Indian. The NRI can transfer any immovable property (other than agricultural land or farmhouse) to a citizen of India residing abroad or a PIO cardholder resident outside India.
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.
How can NRIs avoid paying TDS on property sale?
- If an NRI is selling property in India, the buyer is required to deduct TDS at the rate of 20% in case of long-term capital gains. However, if the property is sold before two years, TDS shall be deducted at the rate of 30% as a short-term capital gains tax.
What is the TDS rate on sale of property by NRI?
- Long-term capital gains on the sale of property held for more than 2 years: 20%
- Short-term capital gains on the sale of property held for less than 2 years: As per the income tax slab rates of the seller
Do NRIs pay capital gains tax?
- Yes, capital gains tax provisions for an NRI are similar to those for a resident individual except for the applicability of TDS provisions. Like resident investors, capital gains tax for an NRI depends on the holding period and the type of property sold.
