Non-Residents Indian (NRI) is one of the most prominent segments contributing in Indian real estate. A major chunk of inward remittance in India is through NRIs, which is mostly invested in land and properties. NRIs’ investments in Indian realty are pouring in as the last connect of them with their motherland. These properties are used by them when they visit India or kept as a place to retire and settle in the future. Though they can invest in India just like other Indian citizens, however, they enjoy various perks and more tax benefits. With the recent depreciation in Indian Rupee, it is a very lucrative time for NRIs to buy properties in India.  Plus the recent government reforms have made foreign investments easier, hence, creating a favorable environment for Indian real estate sector.

NRI Investments in India

Defining NRI

NRIs (Non- resident Indians) also known as PIOs (Persons of Indian Origin) are people who are of Indian origin, birth or descendant but living outside India. An NRI can purchase any immovable property in India except agricultural land. The investments should abide by the rules and regulations of the Reserve Bank of India and the Foreign Exchange Management Act (FEMA).

Type of Property for Investment

The investment option depends on the objective of purchasing the property. NRIs first preference has always been residential properties. However, if the objective is to have regular returns then commercial properties like office spaces, logistics spaces, REITs (Real Estate Investment Trusts) etc. are recommended for investment in Indian real estate.

Payment modes

Financial transactions by NRIs at the time of purchasing any property in India can be processed through funds held in Non-Resident External (NRE), Foreign Currency Non-Resident (FCNR) or Non-Resident Ordinary (NRO) accounts maintained by them in India. NRIs can also avail home loans in India currency for buying property in India as per their respective credit eligibility. Loan can be taken up to 80 percent of the property value. The loan can be further repaid via NRE/NRO/FCNR accounts or inward remittance through banking channels.

Tax Implications

As per the Foreign Exchange Management Act (FEMA), there are certain tax deductions available for NRIs. Income generated or accrued in India will be taxable in India as per Indian rules and regulations. Hence, any rental income accrued by NRI from the property in India is taxable. It is also implied on any sale of property in India which is taxable for an NRI as per applicable slab rates.

An NRI can claim the standard deduction of 30 percent, deduct property taxes and benefit from interest deduction in case of home loan. Under Section 80C of Income Tax Act, 1961, NRI is allowed a deduction of principal repayment as well.

A careful assessment of Foreign Exchange Regulations and tax implications on buying property in India can help NRIs to make wise decisions and make the most out of their investments in Indian real estate. The regulations include the limit of remittances from India, type of bank accounts, Income tax deductions, required documents, etc. Prior to an investment in India, it is suggested that NRIs confirm on their resident status to avail maximum benefits and hassle-free transactions at the time of purchase.