A tool that serves as a retirement abode for NRIs in India is Real Estate Investment. Over the years, Real Estate has grown exponentially in India, making it a separate niche for NRIs. But, when it comes to real estate investment by NRIs in India, the process is different compared to the procedure followed by a permanent resident of India.
Be it Residential or Commercial, NRIs can buy both kinds of properties. But, they cannot buy any agricultural land, farmhouse, or plantation property. These lands can only be inherited or received as gifts.
NRIs can invest in the Real Estate properties allowed to them through the following mediums:
NRI can be repaid through:
Note: No payments can be made by traveller’s cheque (pre-paid, pre-printed fixed amount cheques for payments across countries) or in foreign currency notes. All payments must be made in India only.
NRIs prefer to invest in Real Estate in India due to following Reasons:
1. Rental income – a handsome real estate income can be generated depending upon what lies in the neighbourhood of the purchased Property. The rent, however, is liable for TDS (tax deducted at source), whereby the tenant will remove 31.2% of the rent as tax before sending it to you. Despite that, it’s a fair deal, and rental income can bring sizeable Property.
2. Price benefits and long-term Returns – The Real Estate Industry in India appreciate at a rate of 19.5% per year. With time, the investment value is expected to be multiplied exponentially, and it can be easily labelled as a very fruitful Investment. Also, the Real Estate sector in India is expected to reach a Market Size of US $1 TRILLION BY 2030. The investment that you put in today will bring in Multifold profits in the long run.
3. Retirement Plan – Reverse mortgage ( A type of loan where people over 62 years of age with considerable home equity can borrow money against the value of their home as a lump sum, fixed monthly payment, or line of credit) is gearing up in India. So, NRIs can invest in Property and use it as a source of income posts their retirement.
4. Tax exemption - NRIs, if you buy Property on loan in India, you can claim an exemption on the interest you pay for your home loan (section 24). Under section 80C, you can claim an exemption on the repayment of the principal amount. Also, there are ways to save taxes on Capital Gains from selling out Property in India and much more.
Taxation on Real Estate is complex. It can be further subdivided into rent and capital gains. Additionally, TDS on buying a property is also an essential instrument that must be deducted and paid to the government authorities.
|Property Bought From||Condition||Tax deducted at source|
|Resident||50 Lakhs or above||1% TDS of Purchase Value|
|NRI||No Condition||20% plus surcharge and cess for long term gains and 30% plus surcharge and cess for short-term gains|
2. Income from Rent – The Property that an NRI owns is subject to a TDS of 30%, which has to be deducted by the tenant. The rent received after its deduction of TDS is added to the total income of the NRIs and is applicable for tax according to the tax slab of NRI. NRIs can choose to pay taxes themselves and file the returns. However, certain deductions must be considered – municipal taxes paid, the standard deduction for the property repayment of the principal amount of a home loan up to 1,50,000.
The minimum holding period for long term capital gains for real estate is 2 years.
|Nature of gains||Tax Liable||Tax Deducted at Source (TDS)|
|Short Term Capital Gains||As per tax slab||30%|
|Long Term Capital Gains||20%||20% (plus surcharge and cess) with indexation|
Taxation On Multiple Properties – If NRI owns more than one residential property which are self-occupied, then only one of the houses will be treated as self-occupied and all others will be treated as deemed to be let out. In such cases, a notional rent is computed and offered to tax as if the property was rented out.
Conclusively, India is a resurgent economy, and the real estate sector is bound to flourish in the near future. The NRI community must keep investing to reap the benefits in the long term.
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