Investment in Indian Property – As an NRI investor know your facts

Investment-in-Property-–As-an-NRI-investor-know-your-facts

The first question in the minds of any potential property investor is mostly regarding the safety of such an investment. 

The answer, though not difficult, does involve an analysis of the economy and exercise of due diligence in the area of investment.  The relief factor, however, is that there are competent Professionals and Law firms who assist and guide the investor to decide prudently.

Investment in Indian Property is a lucrative option. It is supported by investor-friendly policies of RBI and the guidelines of FEMA. The introduction of RERA (Real Estate Regulatory Authority) has driven the NRIs to invest in India. There is a rise in accountability, which has helped to gain their confidence.

Investment decisions are broadly based on profitability and governmental policies.  

For NRIs, there is another significant factor that motivates them to invest in India. It is the opportunity to stay connected with the roots and the native place.

NRIs must remember:

NRIs can invest in any commercial or residential Indian Property, except agriculture land, plantation, and farmhouses.  

NRIs can purchase more than one residential or commercial property without any permission from RBI or Government. There is no need to inform the RBI about such a transaction.  

Read More: NRIs Alert! Buying property in India? The guidelines

For Investment in Indian Property, NRIs must know:

  • Conformity to rules: NRIs must comply with the guidelines of RBI and FEMA for investment.
  • Loan Availability: 

RBI has issued general permission to all banks to provide loan facilities to the NRIs for the purchase of Property in India. NRIs have to meet the eligibility criteria and must possess the requisite documents, like valid passport, PAN Card, Photographs and other prescribed documents.

  • Mode of payment: All payments have to be made in Indian Currency. NRIs who buy the Indian property can make the payment,
  • By remitting through proper banking channels from abroad.
  • By making use of funds in the NRE/NRO/FCNR accounts. Even, the housing loan that has been availed is repaid using funds from these accounts.

Taxation Policy:

  • Income from investment in the property is either in the form of rental income or capital gains. This income is taxable. 
  • Under DTAA (Double Taxation Avoidance Agreements), an NRI can claim the tax credit in his country of residence, for taxes paid in India.
  • The income tax (TDS) rate is 1% of the value of the property if the value of the property bought is more than Rs 50 lac. The rate is higher if the seller of the property is also NRI. 
  • If NRI avails home loan to buy a property, the interest paid on loan is deductible from the taxable income.
  • In case NRI sells the Property, TDS is deducted at the rate of 20% on short term capital gains and 30% on the long term capital gains.

Repatriation of sale proceeds: 

The limit for repatriation of sale proceeds is US Dollars One million per financial year. The sale amount is deposited in NRO account and repatriated after payment of tax. For repatriation, the proper procedure of the bank is followed. If the amount exceeds the limit, the permission of RBI is required. 

Read More: FEMA – How it defines citizens

There are many factors existing today in India to lure the NRIs to invest in Indian property – all that one needs is due diligence and proper analysis.

NRIs AND COMMERCIAL PROPERTY

NRIs and commercial Property

Like other resident Indians, NRIs too have become conscious of putting in their money where the bigger buck is!

Hence, investment in commercial property is being preferred over-investment in residential properties by NRIs. 

Why?

Well, the rise in rental income from commercial property and growth in demand for commercial property is the main reason behind the shift in the trend. The growing economy and liberal policies of the Government of India are attracting investment by NRIs in the commercial sector.

Also Read: Can NRIs buy property jointly with resident Indian?

 What kind of properties can NRIs invest in?

  • NRIs are permitted to invest in commercial property, i.e. those purely intended for business purposes.
  • An investment in commercial property could broadly mean purchasing factories, office spaces, industrial units, retail complexes, malls, medical centers, hotels, retail outlets, warehouses, and garages, etc.  Or for commercial renting.
  • Residential Properties

Can NRIs finance the investment?

  • Fact is, NRIs purchase commercial property by using funds from their bank accounts in India (through funds in NRE/NRO/FCNR account) or through remittances using normal banking channels. 
  • NRIs can also avail loans for the purchase of property in India just like resident Indians. They can claim benefits under Section 24 and Section 80C of the Income Tax Act.
  • The added advantage being that, by availing loan from a bank, an NRI gets the facility of getting the property papers evaluated by bank officials who exercise due diligence before sanctioning the loan. 

How to avail a loan: 

The conditions are general and may vary from bank to bank.

Also Read: Saving yourself from fraud while buying or selling a property

  • The NRI can be a salaried person or self-employed. Different banks have different eligibility criteria. 
  • The income of NRI matters while taking a loan. The income slab is different depending upon the country of residence of the NRI. 
  • Many banks require a co-applicant who is a resident Indian, preferably a person who is a close relative of the NRI and should ideally be from the place where the loan has been applied for. 
  • The period of loan also varies from bank to bank. The period of repayment in case of commercial loans for NRIs varies from 5-15 years. The period is shorter for NRIs as their repaying capacity is more than resident Indians.
  • The rate of interest depends upon the loan amount and the repayment period selected.
  • 80-85% (some banks allow only 60-65%) of the loan amount is permitted against the value of the property. The loan amounts that can be availed depends upon the income also.

What are the required Documents and concerned rules for availing a loan?

An NRI would require the following:

Also read: Transfer of Property on the basis of Registered or Unregistered Will

  • Passport
  • Work permit
  • Salary certificate
  • Proof of residence
  • IT returns
  • IDs – photographs

Please Note: The Aadhar Card is not mandatory for availing a loan. 

Loan Document rules:

  • NRIs can execute the documents on their own by ensuring their physical presence in India or through a Power of Attorney.
  • This would be subject to all rules related to the execution of the POA by NRIs.

Loan to NRIs for business activities against bank deposits:

  • RBI permits sanction of loan to NRI for doing business activities in India against their bank deposits.
  • This loan is not for investment in real estate business but is granted only for carrying a business activity other than this. 
  • RBI issues guidelines for permitting the amount of loan to NRIs for carrying business activities against the NRE/FCNR/NRO accounts.
  • The bank may fix minimum and maximum limits as per the said guidelines. 
  • The loan amount is sanctioned after scrutiny of all documents. NRI also has to make a personal contribution towards the commercial property purchase before a loan is disbursed.

How do NRIs repay their property loans?

  • The loan amount is repaid as per decided EMIs. For repayment of the loan, an option of prepayment of the loan amount is also available to NRI subject to the foreclosure charges.
  • Repayment is made through Internet Banking or ECS from NRE/NRO account as permitted by RBI.