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RBIInvest

What are the RBI instruction’s for an NRI for Real Estate Investments in India ?

The Reserve Bank of India (RBI) governs real estate investments in India by Non-Resident Indians (NRIs) under the Foreign Exchange Management Act (FEMA). Below are the key RBI guidelines and instructions for NRIs regarding real estate investments in India:

1. Types of Properties NRIs Can Purchase

Permitted:

  • Residential Property: NRIs can purchase residential properties (houses, apartments, villas, etc.) without requiring RBI approval.
  • Commercial Property: NRIs can purchase commercial properties (offices, shops, retail spaces) freely.

Restricted:

  • Agricultural Land, Farmhouses, or Plantation Property: NRIs are generally not allowed to purchase these unless explicitly permitted by the RBI or inherited.

2. Mode of Purchase

  • NRIs must transact in Indian Rupees (INR).
  • Payment must be made through:
    • NRE (Non-Resident External) Account.
    • NRO (Non-Resident Ordinary) Account.
    • FCNR (Foreign Currency Non-Resident) Account.
    • Remittance from Abroad (via banking channels).
  • Payments in cash are not allowed.

3. Loans for Real Estate Purchase

  • NRIs can avail of home loans in Indian Rupees from:
    • Indian banks.
    • Housing finance companies registered with the National Housing Bank.
    • Non-Banking Financial Companies (NBFCs) approved by RBI.

Loan Conditions:

  • The repayment of loans must be done through:
    • NRE, NRO, or FCNR accounts.
    • Rental income earned in India.

Loan Limit:

  • Banks typically finance up to 80% of the property value. The rest must be paid by the NRI.

4. Repatriation of Funds

Principal Amount:

  • NRIs can repatriate the sale proceeds of properties subject to the following conditions:
    • The property was acquired following FEMA regulations.
    • Repatriation is limited to two residential properties.
    • If the property was purchased using funds from an NRO account, the repatriation limit is USD 1 million per financial year.

Rental Income:

  • NRIs can repatriate rental income after payment of applicable taxes.

5. Tax Implications

  • Stamp Duty and Registration Charges: Applicable to all property purchases.
  • TDS (Tax Deducted at Source):
    • If an NRI sells a property, the buyer must deduct TDS at 20% (if property held > 2 years) or 30% (if property held < 2 years).
  • Capital Gains Tax:
    • Short-term capital gains: Taxed at applicable slab rates.
    • Long-term capital gains: Taxed at 20% with indexation benefits.
  • NRIs must obtain a Tax Deduction Account Number (TAN) for property transactions.

6. Rental Income from Property

  • NRIs can rent out properties without RBI approval.
  • Rental income is taxable in India and subject to Double Taxation Avoidance Agreements (DTAA) between India and the country of residence.

7. Inheritance of Property

  • NRIs can inherit residential, commercial, agricultural, or plantation property.
  • Inherited property can also be sold, and the proceeds can be repatriated after paying applicable taxes and following RBI guidelines.

8. Joint Ownership

  • NRIs can jointly purchase property with another NRI or a resident Indian.
  • Joint ownership with a person who is not eligible (e.g., a foreign citizen) is prohibited unless explicitly approved by RBI.

9. Selling Property in India

  • NRIs can sell:
    • Residential or commercial property to:
      • An Indian resident.
      • Another NRI.
      • A Person of Indian Origin (PIO).
    • Agricultural land, farmhouse, or plantation property can only be sold to Indian residents who are eligible to hold such properties.

10. Power of Attorney (PoA)

  • NRIs can appoint a Power of Attorney (PoA) holder in India to manage property-related transactions, such as purchase, registration, or renting out property.
  • The PoA should be notarized and ideally registered in India for better legal standing.

Key Points to Remember

  1. RBI Approval:
    • Not required for most residential and commercial property transactions.
    • Required for the purchase of restricted properties (agricultural, farmhouses, plantations).
  2. Reporting Requirements:
    • Property purchases do not need to be reported to the RBI.
    • Sale proceeds must be routed through appropriate banking channels.
  3. Compliance:
    • Transactions must comply with FEMA and income tax regulations.
    • NRIs must file their Income Tax Returns (ITR) in India for income from property sales or rentals.

Important Documents Needed

  1. Passport (valid Indian or foreign with PIO/OCI card).
  2. PAN Card (Permanent Account Number) for tax purposes.
  3. Address proof (Indian and overseas).
  4. Proof of funds or loan sanction letter.
  5. Sale deed, allotment letter, or agreement for sale.

Conclusion

NRIs are provided with flexible yet regulated options to invest in India’s real estate market, offering substantial opportunities in residential and commercial segments. However, adhering to RBI guidelines, FEMA regulations, and tax compliance is essential for seamless transactions.