NRI Buying Residential Property in India: Rules, Restrictions, and Tax Implications

Many NRIs consider investing in real estate back in their homeland. It may be a flat in the hometown, a place for the parents to reside, or even a long-term investment in the familiar environment. While the objective is generally straightforward, the means by which one can achieve this goal is not always clearly defined.

The property regulations in India have provisions favorable to NRIs, but they also have certain limitations, taxes, and procedures for the repatriation of funds that are not immediately apparent to an outsider. Here’s everything you should know before signing on the dotted line.

What NRIs Are Allowed to Buy

As per FEMA (Foreign Exchange Management Act), NRIs (Non-Resident Indians), which means Indian nationals living outside India, have the liberty to purchase real estate in India without obtaining any permission from the Reserve Bank of India.

This includes residential apartments, houses, and land for developing residential buildings. There is no cap placed on the number of residential properties that an NRI may acquire. One may buy one flat or ten; there is no limitation on the number of properties.

NRIs are not allowed to purchase agricultural lands, plantation lands, and farms. Special permissions have to be taken for these properties from the Reserve Bank of India, which are rarely granted.

How the Payment Has to Work

Here comes the tricky part in regard to NRI purchases – not due to the regulations themselves, but rather due to the improper way in which they are observed from the very beginning.

The payment of all transactions must be done in Indian rupees via conventional banking transactions. You will need to pay through your NRE, NRO, or FCNR account. Payments in foreign currencies sent from abroad are strictly prohibited for property purchases.

A home loan scheme is available for NRIs in India by any Indian bank, whether public or private sector. The EMI must always be deposited from your Indian bank accounts; it cannot come from overseas.

Tax on Rental Income

Should you happen to buy property in India and subsequently rent it out, then the income earned would be taxable in India regardless of where you may reside. It falls into the category of “Income from House Property” in the Income Tax Act, and thus will be taxable based on the applicable tax bracket.

For the rental income, an exemption of 30 percent would be applicable. Besides this, should there be any interest in relation to the house loan, the same would also be exempted from taxation. In case of TDS on rental income (should your monthly income exceed ₹50,000), it would have to be deducted at source.

Capital Gains Tax When You Sell

If you sell the property in the future, there would be capital gains taxes.

Short-term capital gains (when the property is sold within two years): This is taxed based on the income tax bracket. Long-term capital gains (when the property is sold after two years): This is taxed at 12.5% without any indexation benefit, as per the latest rule post-Budget 2024.

The buyer should withhold TDS at 12.5% on long-term capital gains and 30% on short-term capital gains at the time of purchase. If you are selling the property as an NRI, you will have to file an Indian tax return in order to claim the refund on excess TDS.

Repatriation: Getting Your Money Back Out

That is the question that most NRIs forget to ask before it is too late. Yes, you can repatriate the money from the sale proceeds, but only up to certain limits.

The entire investment and profit from the sale of the property, if the funds used for the investment were from NRE or FCNR accounts, can be freely repatriated. Nevertheless, if the cost of acquisition was drawn from an NRO account or earnings earned locally, the repatriation limit will be restricted to USD 1 million per fiscal year.

Always remember to maintain accurate records concerning the source of your investment funds so that life becomes easier for you later on.

One More Thing: Power of Attorney

The acquisition of most properties by NRIs requires the use of PoA, as it may not always be possible for the buyer to be physically present in India. This is okay and acceptable, but there is one condition: The PoA should be appropriately apostilled. An unapostilled PoA could cause severe complications during registration.

Buy Property in India the Right Way — with Alvis Estates

Through his expertise at Alvis Estates, Sameer Mahajan has assisted many NRIs in the US, Canada, UK, and Gulf regions in acquiring their properties in Mohali and Tricity areas, right from finding the best residential property to ensuring all documentation and builder verification is taken care of for you. If you want to buy a flat or an apartment or even a plot of land in Mohali, then contact us, and we will ensure that your investment is safe right from the beginning.