NRI investments in Indian Real Estate – It will give you glimpse of investment in the real estate sector which is one of the most popular investment avenue for non-resident Indians (NRIs).
There are some important tax and regulatory considerations that non-residents should take note of before making investments in this sector, as generally, these investments are from a long-term perspective
Who can invest
Investments in Indian real estate can be done by NRI i.e. an Indian citizen who is resident outside India and by Overseas Citizen of India (OCI) i.e. a person residing outside India who is registered as an OCI Cardholder.
Types of permitted real estate
An NRI/ OCI can invest in any immovable property in India, other than agricultural land, plantation property or a farmhouse.
Ways to invest
Investment in real estate may be in different forms. This includes, by way of direct purchase or as a gift from a person resident in India or a gift from an NRI/ OCI relative. ‘Relative’ as per foreign exchange regulations means husband, wife, brother or sister or ascendant or descendant of an individual.
Real estate may also be received by way of inheritance from a person residing in India or from a person residing outside India with the provisions of the foreign exchange law in force at the time of acquisition.
Further, there is no restriction on the number of permitted immovable properties that both NRIs or OCIs may hold.
Mode of payment
Investment in real estate by way of purchase must be done through regular banking channels. These channels are :
Payment cannot be made by any other mode, for example, traveller’s cheque or foreign currency notes.
Whether spouse of NRI/OCI can invest
Investment is permitted in joint name in only one immovable property. Such property is required to be jointly owned in the name of the NRI/OCI and his/her spouse. It is pertinent to note that the marriage should have been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property.
Repatriation of rental income
Rental income can be repatriated freely from India without taking any specific permission.
Transfer/sale of immovable property
NRI/OCI can transfer any kind of immovable property to a person resident in India or another NRI or OCI. In case the transfer is by way of gift, the transferee NRI or OCI should be a relative. Further, agricultural land, plantation property or a farm house received by way of inheritance can be transferred only to Indian residents.
Repatriation of sale proceeds outside India
In case the transferred property was acquired when NRI/OCI was resident in India or such property was inherited from a person resident in India, then the NRI/OCI is permitted to remit up to $1 million per financial year out of the sale proceeds. Any remittance of an amount in excess of the aforesaid limit would require a specific approval from the Reserve Bank of India (RBI).
In cases where the property is acquired from remittances made from outside India while the person was an NRI / OCI, the funds can be freely remitted from India on transfer / sale of such property, provided that the acquisition was made in accordance with the foreign exchange regulations existing at that point in time.
It is pertinent to note that in the case of sale of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. Any repatriation for more properties would require an approval from the RBI.
There will be no income tax implications at the time of acquisition, if the consideration paid for acquiring the property is equal to or more than the stamp duty value of the property. However, in case the stamp duty value is higher than the consideration and such difference between stamp duty and purchase consideration is higher of the following, then the differential shall be taxable in the hands of the buyer.
a) 5% of the consideration, or
b) ₹50,000.
The above tax implication shall not arise in case the property is received from a relative or on the occasion of marriage or under a will or inheritance or in contemplation of death of the payer or donor. The term ‘relative’ as per the tax laws includes spouse, brother, sister, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant of self or spouse, and spouse of the aforesaid persons.
Further, a person buying immovable property (other than agricultural land) from an Indian resident (resident as per the domestic tax laws of India) is required to withhold tax at source @ 1% of the sale consideration if it exceeds ₹5 million.
Consideration shall include all incidental charges like club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature.
Under the domestic tax laws of India, any lease rent earned on a property situated in India is generally liable to tax under the head ‘income from house property’. Accordingly, tax is required to be paid on the lease rentals.
There are certain deductions allowed from the lease rental income like a standard deduction @ 30%, property taxes actually paid and mortgage interest paid during the year, as specified. The net lease rental amount would be subject to tax as per applicable slab rates on the basis of which individuals are liable to pay taxes in India.
Recently, a new personal tax regime has been introduced which provides for lower tax rates; however, the aforementioned interest deduction shall not be available as per this regime. A taxpayer can calculate his/her tax liability under the old tax regime as well as under the new tax regime and choose the one whichever is more beneficial.
At the time of sale of immovable property: On sale of immovable property, tax is required to be paid on capital gains in India. The rate of tax would depend on the period for which the property is held. Gain arising on a property held for less than 24 months is treated as a short-term capital gain, which is taxable as per applicable slab rates in the hands of the seller. Long-term capital gain is taxable @ 20%.
If the stamp duty value of the property sold is higher than the sale consideration, then the stamp duty value would be regarded as sale consideration.
Also, one can optimize tax on long-term capital gains by re-investing the same, as per the provisions of the Income-tax Act. For example, long-term capital gain from the sale of a residential property can be re-invested in the purchase or construction of another residential property located in India, subject to certain conditions.
The amount of capital gain not utilized before the due date of filing return of income can be deposited in a capital gains account scheme as notified by the central government.
Taxes can also be optimised by investing long-term capital gain in bonds issued by the National Highways Authority of India or by Rural Electrification Corp. Ltd or in any other bond specified by the central government. However, investment in such bonds should not exceed ₹5 million and the investment should be made within six months from the date of transfer.
Lastly, in addition to income tax, implications under the goods and services tax and stamp duty laws should also be considered.
Real estate continues to attract investments from NRIs. As it’s a long-term investment, it’s important that necessary care and caution is exercised, along with complying with various requirements under the tax and regulatory regime in India.
The tax rates mentioned in this article are exclusive of applicable surcharge and education cess, as applicable. This should be taken into account to compute the actual / effective rate of tax. Further, NRIs can avail the benefit of lower tax rates under the Double Tax Avoidance Agreement between India and the country of their residence, as applicable.
NRIs have to pay taxes on the capital gains made from selling house property. If they sell their property within two years of its date of purchase, Short-Term Capital Gain tax (STCG) rates are applicable. STCG rate is as per the applicable income tax slab rate of the NRI based on his taxable income in India. Slab as of 13-Oct-2020
As per rule 114C, it is not compulsory for an NRI/PIO to have an Aadhar card for Buying/selling his/her property in India. Rule According to publication on 14-Jun-2019.
A NRI may transfer any immovable property in India to a person residing in India. He may transfer any immovable property (other than of the ones of agricultural land or plantation property or farm house) to an Indian Citizen resident outside India or a PIO resident outside India.
As per the Indian Income Tax Act, when a resident purchases any property from a non-resident, he has to deduct income tax (TDS) and pay the balance amount to the seller. TDS must be deducted at the time of making the payment to the NRI.
An NRI can sell his/her residential or commercial property to either a person residing in India, another NRI or a person of Indian origin (PIO). One can also mortgage the property to an authorised real estate dealer or a financial institution dealing with home loans.
PAN Card is required by an NRI if that NRI has got a taxable income in India. According to the new, rule of SEBI, any NRI not having PAN card cannot do the share trading by depository or broker. PAN Card is also mandatory for an NRI if the NRI would like to invest in Mutual Funds. Publication of 11-Jan-2020.
Aadhaar Card enrolment is presently available to residents in India. OCI Cardholders who stay in India for a long time (over 182 days in twelve months immediately preceding the date of application for enrolment) and have an Indian address can also enrol for Aadhaar Card in India.
5 Ways to Transfer Property in India's
Particulars |
TDS rates |
Income in respect of investment made by a NRI |
20% |
Income by the way of long term capital gains in Section 115E in case of a NRI |
10% |
Income by way of long-term capital gains |
10% |
Short Term Capital gains under section 111A |
15% |
When an NRI sells property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 2 years(reduced from the date of purchase) a TDS of 30% shall be applicable.05-Jan-2021.
NRIs/PIOs are eligible to remit an amount up to USD One Million per Financial Year, out of: Balances held in NRO account, Sale proceeds of assets (inclusive of assets in India acquired by way of inheritance/legacy or under deed of settlement by parents or specified relative).
Deductions Under Section 80C. Most of the deductions under Section 80 are also available to NRIs. For FY 2019-20, a maximum deduction of up to Rs 1.5 lakhs is allowed under Section 80C from gross total income for an individual.03-Feb-2021.
Yes, NRIs can have a Pan Card. An NRI PAN Card is same as a normal PAN Card. It is just a phrase used to differentiate between the card holders; whether they are Residents or Non-Residents. Publication 23-Mar-2020.
IIn simple terms, an Indian citizen residing outside India for a combined total of at least 183 days in a financial year is considered to be an NRI. NRIs are eligible to vote, and most importantly, only the income that they have earned in India is taxable in India.
Yes. According to the FEMA regulation, it is illegal for NRIs to hold resident savings account in India. You will need to convert your resident savings account into an NRO account. If you continue to use your resident account, you might incur huge penalties.
Section 192- TDS on Salaries: TDS on salaries is deducted at the rate of the income tax slab for the relevant year. For the assessment year 2020-2021 the exemption limit for an individual is Rs 2,50,000. 01-Feb-2021.
Under the exchange control law, NRIs cannot own an agricultural land in India. However, they may acquire such agricultural land through inheritance from a person residing in India. Accordingly, you may inherit an agricultural land. Accordingly, you cannot sell your agricultural land in India to your NRI friend.
The Constitution of India does not allow holding Indian citizenship and citizenship of a foreign country simultaneously. Based on the recommendation of the High Level committee on Indian Diaspora, the Government of India decided to grant Overseas Citizenship of India (OCI) commonly known as 'dual citizenship'.
An Non Resident Indian (NRI) is an Indian Citizen who resides in India for less than one hundred & eighty two days during the course of the preceding financial year, or. who has gone out of India or who stays outside India for the purpose of employment, or.
Key Takeaways: If you are living abroad and have roots in India, your residency status is either as a Non-Resident Indian (NRI), Person of Indian Origin (PIO) or that of an Overseas Citizen of India (OCI).20-Oct-2020.
OCI is a lifelong visa to live and work in India as any other Indian citizen or NRI. But unlike visitors on other long-term visas (for example, work permits, student visas), OCI holders do not have to register with their local FRRO. OCI holders, just like NRIs, can open bank accounts and buy property in the country. Publication 08-Nov-2019.
NRI Certificate will be provided only to Indian Passport holders. For non-Indian passport holders, having OCI card, NRI certificate will be issued only for admission to their family members in India at the Indian University under NRI Quota (Link for the specimen).
For non-Indian passport holders, having OCI card, NRI certificate will be issued only for admission to their family members in India at the Indian University under NRI Quota (Link for the specimen). How to Apply (in Person): 1. Download the Miscellaneous Application form and fill it up carefully.
The High Commission issues certificates confirming Non Resident Indian (NRI) status to Indian nationals who have resided in Singapore for over 6 months, for the purpose of college admission, loan application etc.
Funds from NRO account cannot be transferred to an NRE / FCNR account since funds in an NRO account cannot be repatriated outside India.
"If you have been outside India continuously for 10 years with NRI status and returned to India for permanent settlement, you can continue the status of 'not ordinarily resident' for two years after arrival".
Section 195 of the Income Tax Act, 1961, covers TDS deductions on transactions/payments of Non-Resident Indians. Any entity (resident or non-resident) who pays any amount other than salary to a non-resident has to deduct tax.
To start with, Selling of property by NRI is taxable under u/s 195 of the Income Tax Act, 1961. Let me clarify most common confusion first, TDS of 1% u/s 194IA is not applicable if seller is NRI. TDS u/s 194IA is only applicable for resident Indian sellers.
The buyer is required to have a TAN number, if he/she is purchasing a property from a non-resident Indian (NRI).
Previous Year is period of 12 months from 1st April to 31st March. Number of days stay in India is to be counted during this period. Both the Day of Arrival into India and the Day of Departure from India are counted as the days of stay in India (i.e. 2 days stay in India).
Having an NRE or NRO account is necessary if you want to invest money in India or to collect the income generated in India in INR once you become an NRI. NRO (savings/current) account can be opened for the purpose of putting through bona fide transactions denominated in INR.
Sr. No |
What can be repatriated |
Limit for repatriation |
i) |
Current Income: |
Without limit |
ii) |
Repatriation of Sale Proceeds of Assets (other than Immovable Property): |
USD 1 million per Financial Year |
iii) |
Repatriation of Sale Proceeds of Immovable Property (other than agricultural land/farm house/plantation property)(Also refer Note 5): A) Property acquired in Forex: 2. Residential accommodation purchased out of funds raised by way of loan in accordance with Foreign Exchange Management Act, 1999 and repayment of such loan out of foreign inward remittance/funds held in NRE a/c or FCNR a/c 3. If sale proceeds are more than (1) or (2) above. B) Property acquired otherwise than in Forex:
|
Equivalent to Forex investment
Equivalent to repayment of loan in Forex
Excess amount upto USD 1 million per Financial Year |
Remittance of assets may be allowed by a foreign national where:
The remittance should not exceed USD 1 million per financial year. This limit, however, will not cover sale proceeds of assets held on repatriation basis. In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same Authorized Dealer (AD) Bank.
The remitter of funds is required to submit following documents to AD Bank for remittance of funds to NRE account or overseas bank account:
Undertaking by the remitter to be signed either physically or through a digital signature and submit online on the Tax Department website.
Certificate to be obtained from a Chartered Accountant confirming that applicable taxes are paid on the remittances.
iii) Form A2/Outward Remittance Form in case of transfer of funds from NRO account to overseas bank account.
iv) FEMA Declaration/Transfer Request in case of transfer of funds from NRO account to NRE account.
v) Any other documents required by AD Bank.
RBI may approve repatriation beyond limits specified in case where hardship will be caused to a person if remittance from India is not made to such a person. Accordingly, RBI may grant permission for medical purpose, education, home purchase or similar requirements at their discretion.
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