How Can NRIs Buy Property in India?

Buying property in India? With the real estate sky rocketing to being one of the most lucrative means of investment, it certainly is a good idea, whether you’re a resident or a Non-resident Indian. If you are an NRI, don’t hesitate to invest in property in India. You can earn while away too! But before delving into the property buying process, it's crucial to understand who qualifies as an NRI (Non-Resident Indians). According to the Reserve Bank of India (RBI), an NRI is an individual who is of Indian origin but resides outside India for employment, business, or any other purpose that indicates an indefinite stay abroad.

Investing in real estate is a significant milestone for many individuals, including NRIs. However, navigating the process of purchasing property in India can be complex, especially for those residing abroad. Just as it is for residents, it is a good idea to explore real estate in India which is booming to ludicrous heights. 

Today, the process is streamlined with many restrictions lifted, for NRIs and OCIs (Overseas Citizens of India) and their rights to invest in real estate within the country. 

If you, as an NRI or OCI, have been contemplating buying property in India, but are sceptical about the fact that it may be more challenging maintaining and owning property living away, this blog will give you an insight on how to go about it. Here are some Key Points to Consider Before Making a Property Investment by NRIs-

1. Properties NRIs Can Buy

NRIs and OCIs have the privilege of purchasing various types of properties in India, including both commercial and residential properties. However, there are certain restrictions in place regarding the types of properties they can acquire.

Commercial Properties: NRIs and OCIs are allowed to invest in commercial properties such as office spaces, retail outlets, warehouses, and industrial buildings. These properties are intended for business or income-generating purposes.

Residential Properties: NRIs and OCIs can also buy residential properties in India, including apartments, villas, condominiums, and independent houses. These properties are primarily used for personal dwelling purposes or as investment assets for rental income or future resale.

Yet, there are certain types of properties that they are restricted from purchasing:

Agricultural Land: NRIs and OCIs are prohibited from acquiring agricultural land in India. This restriction is in place to safeguard agricultural resources and prevent speculative investment in agricultural land by non-residents.

Farmhouses: NRIs and OCIs are not permitted to purchase farmhouses in India since they are located in rural or semi-rural areas, often with extensive land for agricultural or recreational purposes. Similar to agricultural land, the restriction aims to prevent non-residents from acquiring properties primarily used for agricultural or farming activities.

These restrictions on the types of properties that NRIs and OCIs can purchase are established to regulate land ownership and usage in India, promote agricultural sustainability, and safeguard the interests of local farmers and communities.

2. Central Bank Intimation 

One of the advantages for NRIs and OCIs when purchasing property in India is that they are not required to submit any intimation or communication to the Central Bank. This means that NRIs and OCIs can proceed with their property transactions without the need for formal notification to the Central Bank of India.

Instead, NRIs and OCIs can directly engage in property transactions with the seller or developer, following the standard procedures and legal requirements.

Currency and Accounts

When it comes to property transactions in India, NRIs and OCIs must adhere to specific currency and account maintenance regulations. These guidelines are governed by the Foreign Exchange Management Act (FEMA) and regulated by the Reserve Bank of India (RBI).

Firstly, property transactions must be conducted in Indian Rupees (INR). NRIs cannot use foreign currencies for property transactions in India. This requirement ensures uniformity and compliance with Indian financial regulations.

Also, funds for property purchases by NRIs and OCIs must be maintained in designated accounts known as Non-Resident Accounts. These accounts are established under FEMA and are subject to RBI regulations. NRIs can maintain different types of Non-Resident Accounts, such as Non-Resident External (NRE) Accounts, Non-Resident Ordinary (NRO) Accounts, and Foreign Currency Non-Resident (FCNR) Accounts, depending on their specific financial needs and preferences.

3. Repatriation of Funds

Repatriation of funds from the sale of immovable property in India is subject to specific guidelines outlined by the Reserve Bank of India (RBI) and the Income Tax Act. When an NRI or OCI sells a property in India, they are required to deduct Tax Deducted at Source (TDS) from the proceeds of the sale. The TDS rate applicable to the sale of immovable property is typically between 20% and 30%, depending on whether the capital gain is categorized as short-term or long-term.

4. Ownership

NRIs and OCIs enjoy the freedom to acquire property in India either independently or jointly with other individuals, including Resident Indians (RIs) or other NRIs/OCIs. This flexibility allows them to invest in real estate according to their preferences and requirements.

Whether purchasing property independently or in partnership with others, NRIs and OCIs have equal rights and entitlements as any other property owner in India. They can hold the property title in their name and exercise full ownership rights, including the right to sell, lease, or mortgage the property at their discretion.

5. Leasing

NRIs and OCIs have the option to generate rental income by leasing out properties they own in India. Rental income earned from such properties can be repatriated abroad, subject to certain conditions and tax obligations.

When NRIs and OCIs receive rental income from their properties in India, they are required to comply with the tax regulations outlined by the Indian government. One of the primary tax obligations is the deduction of Tax Deducted at Source (TDS) from the rental income. As of the current regulations, the TDS rate applicable to rental income is typically set at 30% of the total rental amount.

6. Key Documentation

NRIs must produce several documents to facilitate the property purchase process in India. These documents are essential for verifying their identity, citizenship status, and financial eligibility. Here are the key documents required:

Valid Passport: NRIs must provide a valid passport, and it should contain the necessary visa stamps or endorsements indicating their NRI status.

Overseas Citizen of India (OCI) Card (if applicable): NRIs who hold OCI status must submit their OCI card as proof of their eligibility to purchase property in India. The OCI card is issued to individuals of Indian origin who are citizens of other countries but have certain rights in India, including property ownership.

Proof of Indian Origin: NRIs must provide additional documentation proving their Indian origins, such as birth certificates, ration cards, or other government-issued identity documents. 

Proof of Residence Abroad: NRIs must also submit proof of their residence abroad, such as a residence permit, visa, or utility bills in their name from their country of residence. This helps verify their non-resident status in India.

Know Your Customer (KYC) Documents: NRIs are required to fulfil Know Your Customer (KYC) requirements as mandated by financial institutions, including banks and housing finance companies. 

7. Financing Options

Non-Resident Indians (NRIs) have several options to finance their property purchases in India. One such option is NRI home loans offered by Indian banks and financial institutions. These loans are specifically designed for NRIs and come with terms and interest rates that cater to their unique circumstances. The eligibility criteria and interest rates for NRI home loans differ from those for loans available to residents of India.

NRIs can also use funds from their Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts to finance property transactions. These accounts allow NRIs to maintain their earnings and savings in India in Indian currency, effectively manage their finances and invest in property in India.

8. Tax Implications

NRIs need to be mindful of the tax implications related to owning property in India. Rental income generated from properties in India is taxable under the Income Tax Act, for both, a resident and an NRI property owner. Hence, NRIs are obligated to file income tax returns for any rental income earned from their properties in India.

Also, if an NRI decides to sell their property in India, they may be liable to pay capital gains tax on the profit made from the sale. 

9. Due Diligence

Before finalising a property to buy in India, Non-Resident Indians should undertake due diligence to minimize risks and facilitate a seamless transaction process. This involves verifying the following:

Verification of Title Deed: This is extremely important to confirm its authenticity and the legal ownership status. This ensures that the seller has the lawful authority to transfer ownership rights to the buyer.

Confirmation of Ownership Status: It is essential to verify that there are no disputes or conflicting claims regarding ownership. NRIs should obtain relevant documents from the seller, such as property tax receipts and possession certificates, to validate ownership.

Check for Legal Liabilities: NRIs should conduct a thorough search to identify any legal liabilities associated with the property, such as mortgages, liens, or pending legal actions. 

Assessment of Market Value: NRIs should assess the fair market value of the property to determine if the purchase price aligns with prevailing market rates. 

Buying property in India as an NRI is possible seamlessly, with the right knowledge and guidance. By understanding the legal framework, fulfilling documentation requirements, exploring financing options, and conducting due diligence, NRIs can successfully invest in Indian real estate. However, it's essential to seek professional advice and assistance to manouvre through the intricacies of property transactions and ensure compliance with laws and regulations.