Real estate Investment in India has been the most sought-after sector for NRIs (Non-Resident Indians) more than ever before. This is because the government has implemented RERA and the Benami Property Act. This has brought more clarity, answerability, and consumer confidence in real estate transactions.
NRI investment in real estate is growing as it tends to give high returns on low initial capital investment. But being an NRI, if you want to make any property investment in India, you need to be aware of the rules and regulations to avoid any legal hassles in the future.
RBI Regulations for NRI Investment
The Reserve Bank of India has formulated the following regulations for NRI investment.
What Are Different Types of NRI Accounts?
Non-Resident External (NRE) Account: NRE accounts can be in the form of savings, recurring, current, or fixed deposit accounts. These funds are freely repatriable.
Non-Resident Ordinary (NRO) Account: NRO accounts can be in the form of savings, current, recurring, or fixed deposits. The funds that are a part of NRO accounts have restricted repatriability.
Investments in Stocks
NRIs can invest in the Indian stock market through the Portfolio Investment Scheme (PIS) route. For this, they need to open a separate PIS account with a bank authorized by RBI.
Mutual Funds
NRIs are allowed to invest in mutual funds, both on a repatriable and non-repatriable basis.
Investments in Real Estate
NRIs can invest in commercial and residential properties in India. Subject to certain conditions, they can also repatriate the sale proceeds of immovable property in India.
Government Securities and Bonds
NRIs can invest in government securities and bonds under certain terms and conditions.
Bank Deposits
NRIs can open NRE, NRO, and FCNR (Foreign Currency Non-Resident) deposit accounts with authorized banks in India.
Power of Attorney
NRIs can grant a Power of Attorney to a resident in India to manage their finance and property matters.
Tax Implications
NRIs are subject to certain tax implications on income generated in India.
Understanding the Properties Where NRIs Can Invest
NRIs can invest in the following properties in India to secure their future.
Residential Property
NRIs are allowed to invest in residential properties in India without any restrictions for themselves or for renting out.
Commercial Property
NRIs can invest in commercial properties, such as office spaces and shops for self-use or rental income.
Agricultural Land
Generally, NRIs are not allowed to buy agricultural land in India. However, there are certain exceptions and specific states where this restriction may not apply. However, in some cases, NRIs can inherit agricultural land.
Plantation Property
NRIs are generally allowed to invest in plantation properties. However, they may need permissions and terms may apply.
Development Projects
NRIs can invest in real estate development projects in India but they may need to comply with the Foreign Exchange Management Act (FEMA) regulations.
Repatriation of Sale Proceeds
NRIs can repatriate the sale proceeds of residential and commercial properties. The repatriation is subject to certain conditions and limits according to RBI.
Joint Ownership
NRIs can jointly own properties with other NRIs or with residents of India. However, joint ownership with residents may have some conditions.
Why Should NRI Have NRE & NRO Accounts?
Non-Resident Indians (NRIs) generally maintain both NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts for various financial reasons. Here’s why NRIs typically have both NRE and NRO accounts:
Benefits of NRE Account
- Repatriation of Funds
NRE accounts let NRIs maintain their income earned abroad in Indian currency. The principal amount and interest earned in an NRE account are freely repatriable, that is it can be transferred back to the foreign country without any restriction.
- Tax-Free Interest
The interest earned on deposits in NRE accounts is tax-free in India.
Benefits of NRO Account
- Income Earned in India
NRO accounts are meant for income earned by NRIs in India. This includes rental income, dividends, or any other source of income generated in India.
- Limited Repatriation
The funds in an NRO account have limited repatriation. There are restrictions on repatriation of the principal amount. However, the interest earned is repatriable up to a certain limit.
- Income Tax
Income earned in an NRO account is taxed in India. Taxes are deducted at the source. So, NRIs may need to file income tax returns in India.
- Purpose of Transactions
NRIs use NRE accounts for transactions in foreign currency. NRO accounts are used for transactions in Indian currency.
NRIs often use NRE accounts for making investments in India. However, NRO accounts may be used for managing income related to properties and rent.
- Tax Planning
Maintaining both types of accounts allows NRIs to separate their income earned in India and abroad. This helps in better tax planning and compliance.
Having separate accounts helps in avoiding confusion and issues related to TDS (Tax Deducted at Source) on income in India.
- Regulatory Compliance
The Reserve Bank of India (RBI) regulations and the Foreign Exchange Management Act (FEMA) guidelines have certain requirements for NRIs. Maintaining separate NRE and NRO accounts helps in following these regulations.
- Simplified Banking
Having both accounts makes it easier for NRIs to manage their finances, handle transactions, and track income and expenses related to India.
Documents Required for Purchase of Property in India
The NRI buyer must have a PAN (Permanent Account Number) card. This is important ID proof for all monetary transactions related to property purchases. Also, a passport, address proof, and a recent photograph are the other documents required.
How can NRIs Get Home Loans in India?
Yes. NRIs can apply for home loans from banks and housing finance institutions currently registered with the National Housing Bank to buy residential property in India. It is necessary that all transactions have to be made in Indian currency only.
Also, the loan cannot be directly credited to the NRI’s account. The loan amount can only be disbursed either to the seller’s or the developer’s bank account directly. However, loan repayment can be done using funds in an NRI’s NRO (Non-Residential Ordinary) /NRE (Non-Resident External) account or FCNR (Fixed Deposit Foreign Currency account) deposits.
What is the Home Loan Eligibility for NRIs in India?
A wide choice of home loans is available to NRIs to purchase their home. Here is a general guide:
You may be a salaried person or self-employed to avail a home loan. You can apply for a home loan either individually or with co-applicants who may or may not be co-owners of the property. However, all co-owners need to be co-applicants.
You may opt for a housing loan for the purchase of new homes, resale homes or to construct your home on a plot owned by you. You can also avail a loan for the purchase of a plot, for home improvement and extension, or for refinancing your existing home loan availed from another financial institution in India.
Documents Required for Home Loan
The following are the key documents needed to apply for a home loan:
- Proof of identity, residence, and income
- Photocopy of a valid passport and visa
- Copy of property allotment letter/buyer agreement or agreement to sell, if property is already shortlisted
- Passport-size photographs
- Cheque towards processing fees
- Power of Attorney
Home Loan Process:
To apply for a home loan, you need to submit the duly filled home loan application form along with the necessary documents to the lender either directly or through a POA holder.
Power of Attorney:
It is desirable to appoint any of your relatives as the Power of Attorney (POA) holder in India. This means that your physical presence need not be required at all times for processing/facilitating your home loan.
Maximum Loan Amount:
Typically between 75% and 90% of the property cost is given as a loan.
Tenure:
You can avail a maximum term of up to 20 years.
Interest Rate:
You may opt for an adjustable-rate home loan or a fixed-rate loan.
The Funding and Financial Transactions
When buying property in India NRIs need to do the transaction in Indian currency through local banks. They should have their NRI account authorized in any of the Indian banks.
Those NRI investors who want to buy property in India must route their transactions through the Indian banks. They must make use of NRE/NRO accounts for complete inward money remittances.
Before reaching out to any bank for a loan, NRIs need to verify all documents. They need to get a certificate from a seller that says that there is no lien attached to the said property. If the property is jointly held or inherited by a seller, ensure that the title deed is clear. NRIs need to see that no other dues or bills with any authority are to be cleared.
Final Thoughts
The only thing to remember when NRIs buy property in India is that they have to comply with RBI regulations at all times.
The acceptable residence proof for NRI is a Valid Passport copy as ID proof. Valid Work Visa or Employment Visa or Residence Permit as NRI status proof.
Yes, an NRI cannot visit India to purchase the property. Only an individual with a valid power of attorney can do so on behalf of that NRI. NRIs can own any number of properties in India as he/she wants to.
If an NRI buys an immovable property in India from a resident, he must deduct TDS at 1%. This is applicable if the sale consideration value exceeds Rs 50 lakh.
Yes, an NRI needs to open Non-Resident External (NRE) or Non-Resident Ordinary (NRO) Account, to do any banking transactions in India.
As an NRI, you should consider your needs and income sources. You can use an NRE bank account to store foreign currency that is converted to Indian rupees. An NRO account is used to keep both foreign income and money earned in India.
- PAN Card.
- Passport for signature, and ID proof.
- Aadhaar card or utility bills for address proof.
- Salary statements or Income Tax returns for proof of income.
Yes, an NRI can take loans to buy property in India.
