How can NRIs invest in Real Estate in India?

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In the previous chapter of this module, we saw how Indian startups are a good NRI investment option and how you, being an NRI, can invest in them. In this one, we’re going to be looking at another NRI investment option that’s getting increasingly popular - real estate.

Despite residing outside of India, an NRI is still permitted to buy properties in India. In fact, the Reserve Bank of India has made NRI real estate purchases hassle-free and easy. Let’s take a look.

How can NRIs invest in Indian real estate?

Previously, NRI real estate investments were restricted by the Reserve Bank of India, requiring approvals from RBI and the Foreign Investment Paper Board (FIPB). However, this has now been done away completely with the introduction of the automatic route. Thanks to the automatic route, NRI investment in Indian real estate no longer requires any permissions from authorities.

Non-Resident Indians wanting to purchase real estate can proceed to do so just like a regular resident Indian. However, they can only purchase residential or commercial properties. Properties such as agricultural land, farm houses, or plantations cannot be purchased without the prior approval of the Reserve Bank of India. Although NRI real estate investment is restricted in these properties, it can be inherited without any restrictions or approvals.

Things that NRIs should keep in mind when investing in real estate in India

Now that you’re aware of the fact that the NRI investment process in Indian real estate is akin to that of a regular resident Indian individual, let’s take a look at a few points that you, as an NRI, should keep in mind when investing.

1. Do adequate due diligence

Being an individual who doesn’t reside in India, you may not be fully aware of the quality or the track record of the builders. And so, doing proper due diligence on the properties that you’re looking to purchase is of paramount importance. An adequate due diligence exercise can not only bring out any discrepancies or mismanagement to light, but can also help you make informed decisions.

2. Give a Power of Attorney (PoA)

Throughout the entire NRI real estate investment process, you may have to visit India multiple times. That said, it may not always be possible or feasible to make multiple trips back and forth, right? So then, what do you do in such situations? Here’s where a Power of Attorney (PoA) comes into play. A Power of Attorney is a legal document that gives another individual the right to carry out specific activities on your behalf.

If you find yourself unable to make multiple trips to India, you could give a Power of Attorney to another person to carry out the registration process and other legal formalities on your behalf. However, keep in mind that a PoA is a powerful legal document and can be misused. Therefore, only issue a Power of Attorney to an individual who you absolutely trust.

 

3. Take advantage of home loans

Being an NRI, you don’t always have to use your own money to invest in real estate. Many banks and financial institutions currently offer home loans for NRIs at attractive rates of interest. The only drawback to this is that the paperwork might be slightly more tedious than usual.

The Reserve Bank of India has begun issuing approvals to banks and housing finance institutions that are currently registered with the National Housing Bank to offer house loans to NRIs looking to buy property in India.

Wrapping up

With this, we’ve come to the end of yet another chapter of this module. In the forthcoming chapter, we’re going to be looking at the Indian rupee as an investment option. Sounds exciting, doesn’t it?

A quick recap

  • Previously, NRI real estate investments were restricted by the Reserve Bank of India, requiring approvals from RBI and the Foreign Investment Paper Board (FIPB). 
  • However, this has now been done away completely with the introduction of the automatic route. Thanks to the automatic route, NRI investment in Indian real estate no longer requires any permissions from authorities. 
  • Non-Resident Indians wanting to purchase real estate can proceed to do so just like a regular resident Indian. 
  • However, they can only purchase residential or commercial properties. Properties such as agricultural land, farm houses, or plantations cannot be purchased without the prior approval of the Reserve Bank of India.

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FAQ'S

If you are an NRI who has purchased a property in India, you do not have to pay any taxes right away. However, when you eventually sell that property, your gains on the sale of that house will be taxable in India, under the head ‘capital gains,’ since it is deemed to have its source in India.
Yes, the rental income is again taxable, since it is earned in India. The rental income will be taxable under the head ‘income from house property.’
Yes, they most definitely can. The principal component is deductible under section 80C of the Income Tax Act, 1961, and the interest component under section 24.
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