Being a Non Resident Indian (NRI), if you are planning to invest in a property back home, now is definitely one of the best times to start. With favorable currency rates and the Indian real estate sector witnessing a price correction, you can look forward to lucrative deals. There are several reasons why NRIs prefer to invest in India. The present generation of NRI adults still maintain a close connection with the subcontinent and by investing in a property in India, they have the option of returning to their country of origin after retirement. The lower value of the rupee against foreign currencies like the dollar or the pound makes it possible for NRIs to purchase in real estate at seemingly low prices.
Rules and regulations
Recent changes to the Foreign Exchange Management Act (FEMA) by the Government of India have made it easier for the NRIs to invest in the Indian property. An NRI can own both residential and commercial property in India and there are no restrictions on the number of properties which he can buy. However, there are restrictions on purchase of farm house, plantation property and agricultural land by an NRI. An NRI can own these agricultural properties only if they have been inherited or been gifted by someone else.
An NRI will not require a special permission to buy an immovable property in India but the payment for such property cannot be made in any foreign currency. The purchase can be made in Indian Rupees through funds which are received through normal banking channels. As per the FEMA and the RBI, the funds have to be maintained in a non-resident (NRE) account. The NRI investments are treated at par with the investment made by the resident Indians except for a few restrictions as below:
- RBI allows banks and housing finance companies registered with National Housing Bank to provide NRIs with loans to buy residential property in India. These loans are termed as NRI Home Loans. Once the loan is sanctioned in rupees it has to be repaid in the same currency. However, as per regulations the loan amount cannot be credited directly to the NRIs bank account but has to be deposited into the seller’s account.
- A maximum of 80% of the funds can be financed by the financial institution through an NRI home loan. The rest of the amount such as down payment, etc. has to be provided by the NRI.
- As NRIs reside outside India, they are provided with the option of giving the power of attorney (PoA) to relatives and friends who can complete the property purchase in India. The Power of Attorney can be either general or specific about the rights which your representative can exercise in your absence.
Adhering to basic rules
A property can be a good tax saving tool as tax benefits for NRIs are similar to that of resident Indians. They can claim a deduction of Rs. 1 lakh under section 80 C. If you are a non-resident Indian, adhering to certain rules will help you explore the Indian real estate market:
- Make sure that you determine the nature of the property.
- It is important to examine the legal documents before purchasing the land.
- Ensure that you take a look at the original title deed which bears the name of the prior seller. Initiate a thorough check to avoid pitfalls later. If the seller produces a photocopy instead of the original, there is a possibility of fraud.
- It is advisable that you seek the services of a lawyer to ensure that all the legal aspects have been covered at the time of purchase.
- NRIs have the opportunity to claim a maximum deduction of Rs. 2,00,000 in lieu of interest paid on a home loan. This is in addition to the Rs. 150,000 tax exemption under section 80C.