Non-resident Indians continue to buy real estate in their homeland. They are encouraged by the revival of the real estate market in India after a temporary stagnation. Investing in the right property back home can be a financially lucrative option. Moreover, a second home back in India is something to fall back on in case they ever decide to move back.
Most NRIs are somewhat daunted by the cumbersome processes involved in buying property in India. But changes in real estate rules and the introduction of goods and services tax (GST) have made things simpler. These have eased the process of purchasing property and getting the documentation in place here. Besides, it’s now easier than ever to send money to India for investing in real estate.
Which properties to invest in
As an NRI, you are free to invest in any residential or commercial property in India. However, you can’t purchase any kind of land that is agricultural or earmarked as plantation property. So, you can’t opt to buy a farmhouse.
But there is a small caveat: NRIs can own agricultural or plantation land if they inherit it or receive it as a gift.
Making payments for property purchase
When you buy property in India, you can’t pay for it in foreign currency or through traveler’s cheques. All payments will have to be made in Indian rupees. Say, you live in Australia and earn in Australian dollars. How do you transfer money to India from Australia?
The following points hold true regardless of whether you stay in Australia or any other foreign country:
- Send money to India through regular bank transfers.
- Route funds for the payment via your non-resident ordinary (NRO), non-resident external (NRE), or foreign currency non-resident bank (FCNR-B) account.
- Carry out an online money transfer to a bank account in India through services like RemitMoney.
You could also get a home loan from a lender in India. Typically, home loans cover up to 80% of the property value. The amount you receive will depend on your home loan eligibility. Once you get a home loan, paying the equated monthly installments (EMIs) is simple enough:
- Remit money to India through regular bank transfers.
- Link your NRO, NRE, or FCNR-B account to your loan account and give instructions for direct debit of the EMI.
- Use an online money transfer to send money to the bank account linked to your loan.
Taxation rules for NRIs buying property
When you buy property in India, you are free to put it on rent. But your rental earnings will be taxed in India as per your income tax slab.
Should you choose to sell the property, capital gains tax may apply on the profit you make.
- Suppose you sell the property within two years of the purchase date. A short-term capital gains tax of 15% will apply if securities transaction tax (STT) is applicable. If STT does not apply, the gains are taxed as part of your income according to your income tax slab.
- A long-term capital gains tax of 20% applies if you sell the property after two years from the date of purchase.
Managing the property
Taking care of the property can be difficult when you live overseas. But you could issue a Power of Attorney (PoA) to someone you trust. This person can carry out property-related transactions on your behalf. Anyone holding the PoA is authorized to manage matters related to mortgage, lease, collection of rent, settling of disputes, and others.
Do the due diligence
Buying real estate is never a cakewalk. So, follow all the essential steps. When shortlisting property you would like to buy, carry out thorough property verification. Ensure that you are permitted to buy the property and that it is free of legal wrangles. Find out about the formalities, arrange for all the needed documents, and figure out how best to make the payment. Having a reliable person back home can help you with the purchase.