NRI Investment in Real Estate

NRI Community is one of the richest communities of expats in the world. The presence of NRI’s is omnipresent across the globe and they have also been able to garner a sizeable portion of wealth. With the Real Estate growing in India, NRI investment in real estate is also increasing day by day. As per reports of various experts, India has emerged as a lucrative spot for International Capital. According to a survey, almost 30% of the total global real estate transactions in India will be cross border.
Any cross-border monetary transaction either to or from India is governed by FEMA (Foreign Exchange Management Act) 1999, which came into effect after the FERA act was repealed and regulates all transactions that deal with foreign exchange. FEMA (Foreign Exchange Management Act, 1999) Rules are applicable on Real estate transactions and NRI’s must keep in mind these rules while investing.

Who comes under the definition of NRI in FEMA?
In terms of Regulation 2 of FEMA, Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India. Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan who
(a) had at any time held Indian passport or
(b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955
(c)  the person is a spouse of an Indian citizen or a person referred to in (a) or (b).

1. Acquisition and transfer of immovable properties:
All NRI’s and PIO can purchase all types of residential and commercial real estate in India. The exceptions to this are following:
(a) Agricultural Land
(b) Plantation
(c) Farm homes
The above mentioned properties can be owned only if it is inherited or gifted to the NRI. If an NRI opts for under-construction property, then to complete the deal they have to give a Power of Attorney to a trusted associate.

2. Repatriation of sale proceeds of residential property purchased by NRIs / PIO out of foreign exchange
Repatriation of sale proceeds of residential property purchased by NRI / PIO is permitted to the extent of the amount paid for acquisition of immovable property in foreign exchange received through banking channels. The facility is restricted to not more than two such properties. The balance amount can be credited to the NRO account and can be remitted under USD One Million facilities. The remittances will be allowed to be made by the Authorized Dealer banks on production of an undertaking by the remitter and a certificate from a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, and the Government of India.



3. Financial Transaction by NRI’s
When it comes to property transactions in India, NRIs/ PIO can make payments out of:
(a) Funds remitted to India through normal banking channel.
(b) Funds held in NRE/ FCNR (B) / NRO account maintained in India.
(c) No payment can be made either by traveller’s cheque or by foreign currency notes.

4. Loan eligibility for NRI’s
NRIs/PIOs too can avail of home loans in Indian rupees for their property purchases, up to 80 per cent of the property value, depending upon individual eligibility. Such a loan can be repaid through:
(a) By way of inward remittance through normal banking channels
(b) By debit to his NRE / FCNR (B) / NRO account.
(c) Out of rental income from such property.

5. Taxation for NRI’s
NRI can earn return in real estate either through rent or through capital gain. The rental income earned from a property in India is taxable as income is accrued in India under Section 9 of the Income Tax Act, 1961.
Short term capital gains earned by NRI’s are taxable according to the slab rate of the NRI. While, Long term capital gains are taxable @20% on which exemption like 54, 54F and 54EC can be claimed.