Investing in Indian real estate is a significant decision for anyone, but for Non-Resident Indians (NRIs) buying property in India, it comes with a unique set of considerations and challenges. The allure of owning property in their home country is strong, driven by emotional ties, potential financial returns, and the desire to maintain a connection with India. However, navigating the Indian real estate market requires a comprehensive understanding of various factors, from property types to tax implications and repatriation rules. As per the Economic Times, there has been a 35% year-on-year rise in investments by NRIs in the Indian residential real estate market. This blog aims to provide NRIs buying land in India with a detailed guide on the seven essential aspects they must keep in mind when investing in Indian real estate.
Why Should an NRI Invest in Property in India?
NRIs buying property in India can enjoy several benefits. They can capitalise on favourable currency exchange rates, making real estate investments more affordable compared to other global investment markets. Additionally, the Indian government offers various incentives, such as tax exemptions on income from property rentals and long-term capital gains. The growing Indian real estate market promises attractive returns on investment, driven by rapid urbanisation and economic growth. So, NRIs buying a property in India can develop a sense of connection to their homeland and a potential retirement or vacation home, enhancing their ties to the country. However, just like any other investment, investing in property must also be done with great thought behind it. Hence, we’ve put down some notes that an NRI should remember before buying a property in India.
1. What Type of Property Can NRIs Buy in India?
First and foremost, the nature of the property is a critical factor for NRIs buying property in India. NRIs have the option to invest in residential, commercial, or agricultural properties. However, there are specific regulations regarding what type of property an NRI can buy in India.
- Residential and Commercial Properties: NRIs investing in Indian real estate are free to purchase any number of residential or commercial properties. These types of properties are usually the most attractive due to their potential for rental income and appreciation in value.
- Agricultural Land, Farmhouse, and Plantation Property: The big question is: Can an NRI buy agricultural land in India? The answer is yes. However, NRIs are only allowed to purchase agricultural land, farmhouses, or plantation properties with approvals from the RBI. These types of properties can also be inherited or gifted to NRIs. Hence, understanding these restrictions is crucial to avoid any legal complications.
2. Tax Policies for NRI Buying Property in India
Understanding the tax implications is crucial for NRIs investing in Indian real estate. The taxation rules for NRIs differ slightly from those applicable to resident Indians, particularly in the context of capital gains tax and tax benefits.
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Capital Gains Tax for NRI Buying Property in India
- Short-Term Capital Gains (STCG): If the property is sold within two years of purchase, the gains are considered short-term and are taxed at the applicable income tax slab rates.
- Long-Term Capital Gains (LTCG): If the property is sold after two years, the gains are classified as long-term and are taxed at 20% with the benefit of indexation.
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Tax Benefits for NRIs
NRIs making property investments in India are entitled to certain tax benefits similar to resident Indians.
- Deductions under Section 80C: NRIs can claim deductions up to INR 1.5 lakh for principal repayment on a home loan.
- Deductions on Interest Paid: Under Section 24, NRIs can claim deductions up to INR 2 lakh on interest paid on a home loan for a self-occupied property.
3. Double Taxation Avoidance Agreement (DTAA)
To avoid being taxed twice, NRIs should be aware of the DTAA between India and their country of residence. This agreement ensures that income is not taxed twice in both countries.
3. How Can an NRI Secure Home Loans/Property Loans?
Getting a home loan is often a significant part of the property-buying process for NRIs buying land in India. NRIs can obtain home loans from Indian financial institutions, but there are specific requirements and criteria to meet.
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Can NRIs Buy Property in India With a Low CIBIL Score?
The CIBIL score reflects your creditworthiness based on your borrowing and repayment history, as shared by lenders. Your CIBIL score ranges from 300 to 900, and the higher your score, the better your chances of getting a loan approved. A good CIBIL score is essential for NRIs to get a home loan approved. Financial institutions typically look for a score of 750 or above.
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Minimum Income Requirement
Lenders have specific minimum income criteria for NRIs buying property in India, which vary based on the country where the NRI resides. It’s essential to check these requirements before applying for a loan.
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Documentation Requirements
The documentation for NRI home loans includes:
- Copy of passport and visa
- Proof of residence in the foreign country
- Work permit or employment contract
- Salary slips and bank statements for the last six months
- Power of Attorney in India
4. Return on Investment for NRIs
Evaluating the potential return on investment (ROI) is a vital step. Real estate investments should be viewed in terms of potential appreciation, rental income, and overall market trends.
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Rental Income
Properties in urban areas with high demand can yield substantial rental income for NRIs investing in Indian real estate. You should research rental trends in the area where you plan to invest.
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Appreciation
Historical data and future projections about property appreciation in the selected region are crucial. Urban and suburban areas, especially in growth corridors, tend to appreciate faster. Hence, the developing areas in South India are likely to be great investment options for NRIs.
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Market Trends
Staying informed about the real estate market trends, government policies, and infrastructural developments can significantly impact the ROI. You must read up thoroughly on why you should invest in land in India if you’re an NRI to make the most of your ROI.
5. Best Region for NRIs Buying Property in India
Choosing the right region is paramount for maximising returns and ensuring a smooth investment process. The southern region of India is currently a hotspot for real estate investments due to its robust infrastructure, economic growth, and favourable IT development.
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Tamil Nadu
Known for its IT hubs and automobile industries, Tamil Nadu offers a variety of residential and commercial properties with high appreciation potential. You can take a look at some of the best plots for sale in TamilNadu, and as an NRI, you can benefit immensely from it.
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Karnataka
Mysore, Karnataka, is an attractive destination for NRIs. The city’s real estate market is booming, with numerous residential projects planned to surface in the coming years. You can check out some great options for residential properties in Mysore and decide for yourself.
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Telangana
With its thriving IT and pharmaceutical industries, Hyderabad offers affordable property options with excellent growth prospects for NRIs buying land in India.
For NRIs investing in Indian real estate in the southern region, there are only a few good companies that offer a range of real estate solutions, from residential plots to commercial spaces, ensuring a seamless investment experience. G Square is one of them.
6. Repatriation of Funds
Repatriation of funds is a critical aspect for NRIs buying property in India. Repatriation refers to the conversion or exchange of foreign currency into someone’s home currency. It involves transferring the proceeds from the sale of your property in India back to your country of residence.
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Repatriation Rules
According to RBI regulations, NRIs buying property in India can repatriate up to $1 million per financial year, including the sale proceeds of immovable property. For repatriation, NRIs need to provide proof of the property sale, along with Form 15CA and 15CB, certified by a Chartered Accountant.
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Foreign Exchange Management Act (FEMA)
Adherence to FEMA guidelines is essential for the smooth repatriation of funds. NRIs should consult with financial advisors to ensure compliance.
7. Why NRIs Must Go for The Complete Home Solutions Package
NRIs buying property in India can consider the entire home solutions package. This includes everything from legal assistance and home loans to construction and property management. Here’s a prominent example of a major real estate company that offers this solution: G Square Build Assist. This feature can be very helpful for an NRI.
1.Build Assist
G Square provides comprehensive home solutions, including assistance with legal documentation, home loan processing, and construction services. Their end-to-end support ensures that NRIs can buy property in India with confidence and convenience.
2.Property Management
For NRIs who cannot frequently visit India, hiring a property management service can also be beneficial. These services take care of tenant management, rent collection, and property maintenance.
Investing in Indian real estate can be a rewarding venture for NRIs, provided they are well informed about the various aspects involved. With comprehensive support from firms like G Square, NRIs buying property in India can navigate the complexities of the real estate market with ease and confidence. Whether it’s leveraging tax benefits, ensuring a high return on investment, or managing repatriation of funds, being aware of these key factors will help NRIs make informed and profitable real estate decisions in India.
