India’s real estate market is estimated to grow at a CAGR of 19.5% between 2017 and 2028. While there may be short-term ups and downs in the market, the sector continues to grow, driven by rapid urbanization, economic expansion, and increasing demand for residential and commercial spaces.
For Non-Resident Indians (NRIs), this growth presents a dual opportunity. It offers a lucrative investment option and an opportunity to own a home as many NRIs aspire to return to India and need a place to stay when they do.
We explore the key factors NRIs must consider before investing in real estate in India, balancing financial goals, aspirations, and legal aspects to make an informed decision.
Read – Top NRI Investment Options in India
What can NRIs buy?
NRIs can buy both commercial and residential property in India. As an NRI, you can purchase a property independently or jointly. You can purchase jointly either with a Resident Indian or another NRI. NRIs cannot buy agricultural land, plantations, or farmhouses in India unless they have special approval from the RBI and the government. There is no restriction on buying the number of properties as an NRI in India.
NRIs can buy:
- Both commercial and residential property in India. Check – NRI investment in Commercial Property
- Property independently or jointly either with a Resident Indian or another NRI
- Any number of properties. There is no restriction on the purchase.
NRIs cannot buy:
- Agricultural land, plantations, or farmhouses in India unless they have special approval from the RBI and the government.
NRIs should preferably avoid:
- Investing in vacant land, especially on the outskirts of cities. It can be risky due to potential illegal encroachment, and the high cost and efforts involved in managing properties, handling civil suits, and trespasser claims remotely. If the property is stuck in a legal dispute, the legal process can take years, cost a lot of money, and become very stressful.
Importance of research and due diligence
Thorough research and due diligence are essential before investing in property in India to mitigate risks and avoid investment mistakes.
- Ensure the property has a clear title and the seller has undisputed ownership. Verify there are no pending loans or legal disputes.
- Investigate the property’s history and how it has changed hands over time.
- Review municipal records to confirm that the documents shown to you are legitimate.
- Always ensure that the sale agreement or gift deed is in place.
- Register the agreement of sale to prevent future disputes or double-selling.
- Check the developer’s reputation and past projects. If it is commercial property, figure out their success rate in leasing properties, and if they have any signed lease agreements or MOUs with potential tenants.
- Ensure that the relevant permissions, such as approval from RERA, validity of approval and clearances from relevant authorities, are in place.
- Physically check the property and the progress of construction or ensure there is someone to do it if you are unable to do so
- Avoid relying solely on the builder’s legal opinion, as it may be biased; seek independent legal advice.
Power of Attorney
Delegating authority to a trusted person through a Power of Attorney (PoA) is beneficial. It can simplify the process of purchasing property. It allows NRIs to authorize the person residing in India to act on their behalf as it may not always be feasible for the NRI to travel to India to take action on the transaction. The process involves:
- Drafting the PoA, which can be done through the Indian embassy in the NRI’s country of residence
- Adjudicating the PoA in India through a representative to ensure its validity.
It might be better to give a specific (restricted to particular actions, such as buying property) PoA to prevent misuse of authority. The procedure takes about two months and is not very expensive. It is better for the NRI to plan this step in advance before buying property.
Loan eligibility
NRIs can take a home loan for funds to purchase property. Key aspects to consider are:
- You have to pay 20% of the home loan amount through owned money while the rest can be paid with borrowed money.
- There is no restriction on the number of housing loans if you are purchasing more than one property provided you have income to service all the loans.
- You will be required to provide documentation regarding residency, income, bank account statements (for accounts in India and country of residence), identity documents, etc.
- Appoint a resident Indian as a guarantor for the loan.
Tax implications for selling property as NRI
Understanding the tax implications of selling property in India is crucial for NRIs. It requires time and effort and if ignored, can lead to complications in the future:
| Tax type | Tax rate |
| LTCG tax | 12.5% +surcharge + cess |
| STCG tax | Per applicable income tax slab rates for NRIs, based on total taxable income in India +surcharge + cess |
- NRIs have to pay capital gains tax based on the period of holding. If the property has been held for more than 24 months, the gains from the sale are subject to long-term capital gains (LTCG) tax. Conversely, if the property is sold within 24 months of acquisition, the gains are subject to short-term capital gain (STCG) tax. If the property has been inherited, the holding period and cost are calculated based on the original owner’s date of purchase and acquisition cost, respectively.
Read – How can an NRI transfer inherited property
Surcharge and education cess are also applicable. The surcharge depends on the property’s value and education cess is pegged at 4% of the tax computed for now. NRIs will not be eligible for indexation benefit on the acquisition cost of any capital asset from FY 2024-25. This can significantly impact tax payments.
- When NRIs sell property in India, it is the responsibility of the buyer to deduct TDS. If the buyer does not do so, there can be legal consequences. The buyer is liable to deduct TDS @ 20% for property considered as a long-term holding. If the property is sold before completion of two years from the date of purchase, the buyer is liable to deduct TDS @ 30%. Once the TDS is paid, Form 16A is issued. The buyer has to give this to the seller. The NRI seller must obtain this certificate before finalizing the sale, as it confirms that the tax deduction aligns with their tax liability.
Tax in case of Long-Term Capital Gains
| Sale value | < ₹ 50 Lakhs | Between ₹ 50 Lakhs – ₹ 1 Crore | Between ₹ 1 Crore – ₹2 Crores | > ₹ 2 Crores |
| TDS | 20% | 20% | 20% | 20% |
| Surcharge | NIL | 10% of tax | 15% of tax | 25% of tax |
| Health & Education cess | 4% of tax | 4% of tax | 4% of tax | 4% of tax |
| Total tax rate | 20.8% | 22.88% | 23.92% | 25.8% |
Tax in case of Short-Term Capital Gains:
STCG tax is as per the applicable income tax slab rates for NRIs, based on their total taxable income in India. TDS has to be calculated at the highest tax bracket of 30% and include surcharge and cess.
The NRI can reduce the TDS amount by filing an application for a lower with the Income Tax Officer. This is usually done through a Chartered Accountant in India who would submit the application along with other documentation. The officer will assess the case and make the appropriate decision and provide a certificate in case a lower TDS can be deducted. This process takes around two months, so NRIs need to plan their transaction timelines accordingly. If this process is not followed, the TDS will be deducted at a higher rate. You can claim a refund while filing your tax return, which may take additional time.
Renting property
As an NRI, you can rent out or lease the property. The key points to consider are:
- You can receive rent income in the NRO account without any restrictions.
- The rent income can be repatriated.
- If your income exceeds the basic exemption limit as per the applicable income tax slab rates, you must file tax returns in India.
Manage currency fluctuations and financial planning
Currency fluctuations can impact the real estate transaction. The exchange rate between your home country’s currency and the Indian rupee can affect the total cost of the investment, making financial planning a critical component. You must:
- Plan for possible fluctuations in exchange rates, especially if you’re purchasing through remittances or by taking a loan.
- Consult financial advisors specializing in financial planning for NRIs to help manage your currency risks.
- When buying a property, set aside extra funds to account for unexpected increases in property prices due to currency depreciation. Similarly unexpected gains should also be managed optimally.
Read – NRI Real Estate Investments outside of India
Repatriation of Funds
NRIs can repatriate sale proceeds of property subject to the following conditions:
- The repatriation amount cannot exceed the original purchase amount paid in foreign exchange through regular banking channels or debited from an FCNR or NRE account.
- For residential properties, repatriation is limited to proceeds from the sale of up to two properties.
- If the property was purchased using an NRO account or when the NRI was a resident Indian using funds from a resident Indian account/home loan, the sale proceeds must first be credited to the NRO account. These funds can then be transferred to an NRE or overseas account, subject to a limit of USD 1 million per financial year.
Check – Estate Laws in India
Get professional advice
Dealing with property involves many aspects. It also takes time and effort. Additionally, managing a real estate investment remotely can be more challenging, especially regarding legalities, documentation, and property verification. Professionals with relevant experience can make the process smoother.
- Real estate agents can provide detailed insights into the market, help negotiate deals, and ensure you get a fair price. They can also help in managing the documentation.
- Lawyers can verify property documents, perform due diligence, and handle legal compliance, ensuring you are not defrauded.
- Financial advisors can guide you through taxation, financing, and managing currency exchange, optimizing your investment strategy.
Navigating real estate transactions as an NRI requires understanding the market and legalities, proper documentation, and financial planning. With proper research, due diligence, and professional guidance, you can maximize the value of your investments and minimize risks.
