Things NRIs need to know before making investments in the Indian Real Estate sector

When it comes to investing in the real estate sector, there are certain tax and regulatory considerations which need a look in. This becomes all the more important when non-residents want to make investments in the Indian real estate sector as the investments are made from a long-term perspective. Read on to know more about it.

Types of real estate where investments can be made

A non-resident Indian (NRI) can invest in any immovable property in the country. However, the investments cannot be made in agricultural land, farmhouse or plantation property.

Who can make investments in the sector

Investments can be made in the Indian real estate sector by non-resident Indians (NRIs)s and by an overseas citizen of India (OCI) who is registered as an OCI cardholder.

Ways to invest

There are different forms of investing in real estate. They include:

• Direct purchase
• Gift from a resident Indian or an NRI/OCI relative
• Relatives as per foreign exchange regulations
• Inheritance from a person resident in India or from a person resident outside India.

Modes of payment

When it comes to payment modes, investment in real estate by way of purchase should be made through regular banking channels. The purchase can also be made through:

• Non-Resident (External) Rupee Account Scheme (NRE Account)
• Non-Resident Ordinary Rupee Account (NRO Account)
• Foreign Currency (Non-Resident) Account (Banks) Scheme
• FCNR Account held by the NRI/ OCI in India.

Tax implications

1. When investing in an immovable property
   • There will not be any income tax implications at the time of acquisition if the consideration paid for acquiring the property is equal to or more than the stamp duty value of the property.
   • In case, the stamp duty value of the property is higher than the consideration then the differential shall be taxable in the hands of the buyer. He/she will need to pay 5 percent of the consideration or Rs.50,000.
   • If immovable property is brought from a resident Indian, the buyer is required to withhold TDS at the rate of 1 percent of the sale consideration, if the amount exceeds Rs.5 million.
2. When selling an immovable property
   • In India, tax is required to be paid on capital gains at the time of sale of immovable property. The tax rate is dependent on the period for which the property is held by the individual.
   • The amount of capital gain not utilized before the due date of filing return of income tax can be deposited in a capital gains account scheme.
   • The stamp duty value is regarded as sale consideration if the stamp duty value of the property sold is higher than the sale consideration.
   • Taxes can be optimized by investing long-term capital gain in bonds not exceeding Rs.5 million which are issued by National Highway Authority of India or Rural Electrification Corporation or in any other bond specified by the union government. It must be noted here that tax on long-term capital gains can also be optimized by re-investing the same as per the provisions of the Income Tax Act.
3. Lease Rentals
   • As per tax laws in the country, tax is required to be paid on lease rentals.
   • Certain deductions are allowed from the lease rental income.
   • The net lease rental amount would be subject to tax as per applicable tax slabs.

FAQs

1. Can the spouse of NRI or OCI invest?

   It is permitted in joint name in only one immovable property. The marriage should be registered and subsisted for a continuous period of not less than 2 years immediately preceding the acquisition of such property.

2. Can rental income can repatriated freely from India?

   Yes, it can be repatriated freely from the country.

3. I am an NRI. Can I transfer the immovable property to a resident Indian or a fellow NRI?

   Yes, you can transfer immovable property to a resident Indian or an NRI/OCI.

4. Does remittance of an amount in excess of $1 million per financial year out of the sale proceeds need specific approval from RBI?

   Yes, specific approval is required if remittance is in excess of $1 million per financial year.

5. Is there a limit on the number of immovable properties that an NRI may hold?

   No, there isn’t any limit on the number of immovable properties that an NRI may hold.