Buying and Selling Property in India – Refresh your facts!

Investing in Indian real estate has long been an attractive option for Non-Resident Indians (NRIs), whether to stay connected to their roots, generate rental income, or build wealth through property appreciation. However, the process of buying and selling property in India comes with its own set of legal, financial, and regulatory considerations, making it essential for NRIs to navigate this landscape carefully. In this article, we will explore the key steps, legal frameworks, and tax implications that NRIs need to be aware of when engaging in property transactions in India, ensuring a smooth and successful investment experience.

Can an NRI buy/invest in immovable property in India?

An NRI can invest in real estate in India except in agricultural land/farmhouse/plantation property or land. There is no limit on the number of commercial or residential property an NRI can buy.

How can an NRI invest/buy property in India?

Indian Origin NRIs

Under Section 31 of The Foreign Exchange Regulation Act (FERA) foreigners can invest in two ways:

1. Foreign currency investment sent from abroad.
2. The local capital in INR.

Non-Indian origin NRIs

The NRIs of non-Indian origin can invest in property if:

1. The estate is purchased for residential purpose only
2. The purchase amount must be done from foreign exchange sent from abroad through specified banking channels.
3. Income resulting from the property in question shall not be forwarded outside India.

In what kind of property an NRI can invest/buy?

An NRI can invest or buy any number of:

• Residential property
• Commercial property

Except for agricultural land/farm house/plantation property

The investor doesn’t need to ask for any specific permission from the RBI. He also doesn’t require sending any intimation about such investment to the RBI.

Can an NRI acquire Indian property from Indians?

An NRI can receive the Indian Property from Indians only through:

• Inheritance:

The Reserve Bank of India has given permission to the NRIs to obtain Indian property through inheritance.

• Gifts:

The NRIs can acquire property as gifts from their relatives. They cannot only get residential or commercial land as a gift but can also receive agricultural land/farm house/plantation property or land.

Who can inherit the property?

Any foreign citizen can inherit Indian property, even if they haven’t visited India

NRIs can inherit not only residential and commercial property but also agricultural, farm house or plantation land/property.

• The only exception is that

The NRIs of most countries can inherit property in India without any permission from RBI. However, the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan have to ask for permission from the Reserve Bank of India.

Can an NRI rent his property in India, if not in use?

The Reserve Bank has given permission to the NRIs for renting out immovable property in India.

What are the advantages for NRIs buying property now in India?

There are several advantages for an NRI who invests in property in India. Some of them are:

• Real exchange rate
• Easier availability of loans for NRIs to buy property, for remodelling and repair of the asset
• Excellent source of income from rentals

What kind of tax is levied when inheriting a property?

As per law, in the case of inheritance, there is no tax in India.

• If a person owns more than one property, then as per Indian tax rules, only one of the properties can be claimed as being self-occupied.
• The second property in such a case cannot be claimed as self-occupied, even if the owner keeps the property for their use. Whether you rent out the second property or not, it will be assumed to be given on rent and in this case, the rent will have to be calculated as per certain valuations, and the owner will have to pay tax on this deemed rental income.

Saving Taxes on Rental Income

• 1/3rd of rent can be deducted as maintenance
• Saving Taxes on Rental Income
• 30% of rental income can be claimed as maintenance
• Any property taxes paid can be claimed as deduction
• Interest paid on property loan can be claimed

Save tax on second property you own

For second property, you may be able to claim full interest paid for the EMI of the second house.

As per tax laws, you may request full deductions for the amount paid as interest on the loan for second house whereas for the first house you can claim up to 1.5 lakh Rupees in interest, however for your second home you can claim the full amount of interest. EMI refers to Equity Monthly Instalment and this includes principal and interest.

As a generalisation, having all this information helps in deciding about the preferences and guidelines related to property buying and selling.