What Are The Rules For NRI Investments In Indian Real Estate?

It started with heavy investments from the non-resident Indians (NRIs) in the property market in the National Capital Region (NCR) of Delhi. After decades of such investments going to Kerala (and not necessarily in its property market), the investment from the NRIs has also been moving to Mumbai and Bangalore.

It is only expected to grow, according to an ASSOCHAM report in 2014.  NRI property investment is expected to surge by 35% with interest coming in from NRI property buyers residing in the Middle Est, the US, Singapore, Australia, UK, Canada and South Africa. They have shown inclination towards high-end residential and commercial properties in Bangalore, Ahmedabad, Pune, Goa and Chennai.

It is not tough for an NRI to make an investment in property in India. The paperwork has reduced after the automatic route was introduced by the Indian government. This means there would be less running around the Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB) for approvals for such investments. The rules for any such property transaction fall under the Foreign Exchange Management Act (FEMA).

Though there are no complex maze of approvals required, here are the rules and guidelines NRI investors have to follow when investing in property in India:

1. Citizenship: If you are an NRI who holds an Indian passport, you would require no approvals. Under general permission category too, Persons of Indian Origin or PIOs require no approvals unless they are citizens of countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.

2. Land type: NRIs are allowed to purchase any number of immovable property, both residential and commercial, which is neither agricultural land, plantation property nor a farm house. Ownership of any such property (agricultural land, farm house and plantation property) is possible for the NRIs only when it's been gifted or inherited.

3. Payments: NRIs can make payments for property acquisition by funds received in India through normal banking channels by way of inward remittance from any place outside of India. They can also pay by debit to their Non-Resident Rupee (NRE) accounts or a Non-Resident Ordinary Rupee (NRO) accounts or a foreign currency non-resident deposits or FCNR(B) accounts. It does now allow payment in foreign currency cash or via Traveller's Cheques.

4. No rules governing inheritance: RBI has no rules to govern any sort of inheritance or gift of immovable property to NRIs. RBI does not restrict the leasing or renting of the property acquired by an NRI.

5. Loans: NRIs can take loans in Indian Rupee for their property purchases of up to 80% of the property value. The rest has to be funded by the NRIs themselves. The loans however have to be paid back in INR only.

6. Taxation: Every property investment will come with stamp duty and registration charges. Apart from these two, property buyers also need to take the service tax into account. This tax depends on the property being purchased. In the case of an under construction property, a service tax of 12.36% on 25% of the total price for apartments up to 2,000 square feet and 30% for bigger apartments will need to be paid.

For a ready to move in property, stamp duty is to be paid on purchase of the property that varies from from state to state. However, there are three slabs for payment of stamp duty in Delhi - 4% of the property value if the new owner is a woman, 5% if it is the property with joint ownership and 6% if the buyer is male. A registration fee of 1% is applicable on all property transactions.

7. Repatriation: Repatriating the money that is made through real estate investments is little tougher than either buying or selling them. They require a permission from the Reserve Bank of India to repatriate the sales proceeds. The repatriation should fulfill the conditions that the property was acquired in accordance with foreign exchange law in force at the time of the acquisition.

In addition, the amount repatriated should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels.

The repatriated amount should also not exceed the amount paid out of funds held in Foreign Currency Non-Resident Account. It should not exceed the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property.  

If the case in point is a residential property, an NRI can only take back the sales proceeds of two such properties.

7. Taxes: All the taxes on the property should be paid in accordance with the Indian rules.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)