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An NRI’s guide to investing in Indian Real Estate

From the beginning of time, man has been a traveller. Moving from place to place in search of food, safety and better occupational and vocational opportunities. People have now begun to settle down and identify themselves as a native of a particular geography. They still move on to greener pastures in their youth but as the twilight years approach, they crave the comfort and emotional connect they had with their homeland. Hence like migratory birds, they come back to settle down for good. The sky is the limit when it comes to housing options for NRIs who want to settle permanently in India. They can invest in residential property and build a house to stay with their family. NRIs get a lot of tax benefits if they invest in properties, assets and for various loans as well. Or if they prefer to live in a community set-up with peers for company with recreational activities, then they can opt for apartments or senior living homes. Reputed real estate players have tapped into this market by providing residential options for buyers according to their convenience, size of family, need for facilities and budget.

Explaining NRI Investments In India’s Real Estate

NRI buy property in India
Can an NRI buy property in India?

home loan to purchase property
Can NRIs get a home loan to purchase property in India?
taxation-subsidy
Taxation & Subsidy


power-of-attorney
How Power of Attorney Helps NRIs to Manage their Property?
indian-investment
Why will NRIs invest in India?
property-selling-guide
NRI’s guide to selling property in India
property-renting
NRI renting the property







Can an NRI buy property in India Like migratory birds, NRI come back to settle down for good at their native places. One of my friends, Deepika was living in the US for the last 13 years and used to visit India every year. She now plans to come back permanently because of practical and emotional reasons. She has decided to invest in the real estate market here because it’s always better to sort out the residence aspect first and then move onto other things.


However, she is really worried about buying a property in India because she is unfamiliar with the entire procedure and it seems like quite a daunting task with all the legal and commercial paperwork. Beginning with her citizenship, she would be treated as an NRI under FEMA (Foreign Exchange Management Act) and Income Tax Act because she is of Indian origin and lives outside India and being an NRI in India has many benefits for her. For example her salary of $3500 p.m. earned in USA is non-taxable in India. Various deductions are also available to her for home loans, education loans, insurance, taxes, donations and many others.


Benefits of Being an NRI in India


  1. 1. Any income which is earned outside India by way of occupation or investment is not taxable in India.

  2. 2. As long as the NRI pays taxes on income earned abroad, money transfer to his/her NRE (Non-Resident Rupee) account in India will be tax free and fully repatriable (principal and interest earned). Under FEMA, having a savings account is illegal, hence NRE/NRO accounts are available for them.

  3. 3. An NRI is allowed to claim a deduction of 30% for principal repayment, deduct property taxes and take benefits of an interest deduction along with stamp duty and registration charges paid for the purchase of a property.

  4. 4. If the NRI has an ancestral property in India which he/she wants to sell and reinvest the capital gains; that amount will be exempted if the money is reinvested in a housing property.

  5. 5. An NRI is taxed at 20% when they invest in Indian assets. If the income from the investment is the only income they have incurred during the financial year, and TDS has been deducted on that, then they will not be required to file an IT return. However, unlike short term capital gains, exemption can be claimed under sections 54, 54F and 54EC.

  6. 6.In case of an insurance policy, deductions will be allowed only if the policy is in the NRI’s name or his/her family’s and the premium is less than 10% of sum assured.

  7. 7.Deductions are also included for interest paid on an education loan and tuition fees for full time education in school, college and university in India.

  8. 8. Deductions are available for premium paid for any health insurance taken. This deduction is available up to Rs 50,000 for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children.

  9. 9. Deduction can be claimed for donations made for charitable causes.


Liabilities of NRI

According to the IT Act, all income accruing or arising from employment or investment in India will be taxed. So my friend’s following income (if any) will be taxable:


  1. 1. From any business investment

  2. 2. Income arising from any property or asset

  3. 3. Capital gain on the transfer of an Indian asset

  4. 4. Salary for services rendered in India.

  5. 5. Salary payable to her by the Indian Govt. for services rendered outside India

  6. 6. Dividend paid by an Indian company

  7. 7. Any interest, royalty or fees received from the Central or State Government


Can an NRI buy property in India?
The answer is yes, Deepika being an NRI can buy a commercial or residential property in India.


  1. 1. She does not require any special permission to invest in real estate in India. However the payment needs to be made through banking channels in Indian currency only.

  2. 2. There is also no eligibility criterion for an NRI to buy property in India but in case she plans to avail a home loan then she would be scrutinised on all relevant aspects.

  3. 3. As per FEMA & RBI she will have to maintain a NRE/NRO or FCNR bank account for transfer of funds.

  4. 4. She can purchase as many commercial properties as she can afford/buy; residential properties are capped at two.

  5. 5. To acquire agricultural land/plantation property/farm house in India, she will first have to get the approval of the Govt. and the RBI. Such property can only be owned if it is inherited or gifted to the NRI

NRIs get a home loan to purchase property As mentioned above, my NRI friend Deepika who has been living in the US for the past 13 years and now wants to shift to India permanently. We had discussed topics regarding her NRI status and the number and type of properties she could buy. In this blog, we shall be covering topics regarding home loans. Due to weak rupee against dollar NRIs find it easier to buy property in India. However, if you’re buying your first property it’s always better to take loan to get tax benefits from the Govt.


Benefits of Being an NRI in India


Well the answer to the question is yes, an NRI can get a home loan just like any resident Indian by any Indian bank or Non Banking Financial Company (NBFC). The interest rate for NRIs is slightly higher and the loan tenure is lower because borrowers earn a handsome income abroad which indicates a higher repaying capability and they also wish to close the loan at the earliest.


An NRI or Person of Indian Origin can get a housing loan in the following cases:


  1. 1. For buying a flat or built house.

  2. 2. For purchasing a site to construct a house on it. Composite housing loans are available for home loan seekers which provide loans for purchasing and constructing a house but utilisation of the loan amount for purchase of plot is restricted to 60% of the total sanctioned amount. If one wants to invest in a vacant plot with no immediate plans to construct a house, then one can opt for a land loan or plot loan which is similar to a home loan but with few key differences.

  3. 3. For undertaking repairs, renovation and expansion of the house where the upper limit is Rs. 15 Lacs.

  4. 4. For acquiring a second house or apartment even if the borrower already has one which was taken with or without a loan.


Eligibility for NRI Home Loan


  1. 1.My friend Deepika is a 45 year old lady so she can easily get a home loan because NRIs between the age bracket of 21-60 years or retirement age (whichever is earlier) at the time of loan maturity are eligible for a loan. However, age limit varies from bank to bank.

  2. 2. It is also taken into consideration whether the NRI is salaried personnel or self-employed. Deepika is a salaried employee.

  3. 3. Overseas work experience should be at least six months with total work experience of 2 years. Her overseas work experience is 13 years so she is in a comfortable position financially.

  4. 4. Minimum income should be 5 lac per month INR but this also differs from country to country. Her salary is 12 lacs per month so she is in a safe bracket income wise.So now that we know that Deepika is eligible for the NRI home loan, let’s understand what all documents are required to get a home loan.


List of Documents Required for an NRI Home Loan


  1. 1. Proof of Identity like Passport, Green Card, PAN Card, Aadhar Card or Driving License.

  2. 2. Address proof such as Aadhar Card, Driving License, Voter ID, Govt. of India issued ID Card, Electricity/ Gas/ Landline Bill, Property Tax Receipt

  3. 3. Date Of Birth documents like Passport, PAN Card or Aadhar Card

  4. 4. Signature Proofs include Passport, PAN Card or Banker’s verification

  5. 5. Completely filled and duly signed application form for home loan along with all the applicants’ latest passport size photos

  6. 6. Processing Fee and relevant cheques

  7. 7. Self-attestation of borrowers on all original and/or photocopied documents submitted

  8. 8. Security also has to be provided like an equitable mortgage of a house or flat, a guarantor or a LIC policy.

The amount of home loan that Deepika can get depends on her income, requirement, repayment capacity and past credit history. The rate of interest varies from 8.2% to 12% p.a. including a processing fee which is payable one time and amounts to 0.25% to 3% of the loan. Loan is repaid in EMIs in Indian currency only. Duration given to repay loan ranges from 3 to 30 years.

The RBI states that the repayment of the loan must be done by utilizing NRE or NRO accounts. If the property is rented out, the rent receipt can be used against the EMI. The Indian Govt. has stated that an NRI can only own two residential properties in India even if they are being rented out. However, they can own any number of commercial properties but they cannot own land for agriculture unless its gifted or inherited.

Deepika is planning to appoint her brother who is an Indian resident, her Power of Attorney (POA). The main reason for appointing him as the POA is that he is responsible and trustworthy and will be able to handle urgent and important matters in her absence.
Although Deepika has no plans right now to pre-close the home loan but she would like to know the requisite steps in case a situation arises like that in future.


In case she plans pre-close the home loan, she will have to follow the following steps:


  1. 1. First and most importantly, she should inform the bank or financial institution of her decision to pre-close the loan in writing. The date should be mentioned clearly by which she would like to make the full and final payment. The outstanding amount plus interest should be informed thereon.

  2. 2. As and when the bank or financial institution responds, she can make her prepayment.

  3. 3. Before signing the final acknowledgement, it should be made sure that she has received all the original documents that she had deposited at the time of documentation.

  4. 4. A No Objection Certificate will be received from the bank.

  5. 5. In case of a lien, she and a senior bank official would have to go to the Registrar’s office and get it terminated.

  6. 6. Then she will apply for a new Encumbrance Certificate at the Registrar’s Office. The updated EC will reflect the full repayment of the loan.

  7. 7. Finally she can contact the bank and make sure that they inform CIBIL about the pre-closing of the loan and get her credit score updated.

Deepika was also wondering if she wouldn’t have to pay the loan if she renounces her Indian citizenship.


  1. 1. Citizenship has no role to play when it comes to repayment of any kind of loan. An individual is given a loan in good faith that it would be returned with the principal amount and interest. It is a contract between the lender and borrower and all the conditions should be fulfilled no matter what the situation.

  2. 2. Like a resident, if an NRI defaults on his/her loan repayment she/he would be declared a willful defaulter. It would destroy reputation, affect credit score and taking loan in the future would be quite a hassle.

  3. 3. If one becomes bankrupt, then one can surrender to the court and claim insolvency where one would have life protection but all earnings would be forfeited.


It is always advisable to limit the borrowing and not stretch one’s expenses beyond their repayment ability. Living a respectable life with limited means is better for physical and mental health.

Taxation & Subsidy In the last two blogs we covered topics on NRIs and if they can avail home loans in India to buy a residential or commercial property. In this blog, my friend Deepika who is an NRI looking to shift back to India permanently, would like to understand in depth about the taxation and subsidy policies available to NRIs while investing in real estate.


Is an NRI eligible for a subsidy under PMAY?


Pradhan Mantri Awas Yojana (PMAY), an initiative by Govt. of India was launched in 2015 to provide affordable housing to the urban poor with a target of 20 million affordable houses by 31 March 2022. However, there is no subsidy provided under the scheme for those who already own a house or want to undertake any modifications or reconstruction on a pucca house.


Yes, NRIs are eligible for a subsidy under PMAY and Deepika will be eligible for a subsidy under PMAY only if she fulfills the following requirements:


  1. 1. If the income of the whole family is under Rs. 18 lacs annually.

  2. 2. If the applicant or the direct family member have not have availed for the PMAY scheme already.

  3. 3. If the applicant or direct family member does not own a home anywhere in India.


Deepika has an annual income of more than 18 lacs so she isn’t eligible for the scheme. But if any NRI meets all the criteria, he/she can choose a bank which is associated with PMAY. Once the formalities are completed with the banker, they would be required to submit a subsidy claim form to the Housing and Urban Development Corp (HUDCO) or National Housing Bank (NHB). These organisations will then check the database for the NRI’s status and income level and if they already own a house in India. Once the scrutiny is completed successfully, they will be sanctioned a house loan.


Should NRI file tax returns in India?
Tax Rates for NRI on Indian Income & Investments 2019 – 2020

 

Income Tax Slabs

Tax Rate for Individual & HUF Below the Age Of 60 Years

Up to ₹2,50,000

Nil

₹2,50,000 to ₹5,00,000

5% 

₹5,00,000 to ₹10,00,000

20%

Above ₹10,00,000

30% 

(Source: www.incometaxindia.gov.in)

According to the Indian IT Act 1961, any individual whose income exceeds Rs 2.5 lacs earned in India is required to file an income tax return in the country irrespective of their citizenship status. For Deepika, only her income which is accrued or earned in India shall be taxable. Her USA salary of $3500 p.m. is not taxable in India since it was not earned in India. However, any interest earned in India will be taxable for her whether it’s from property, rent, investment in Govt. or public companies etc. Interest on NRO account is taxable whereas interest on NRE account is exempt from tax which is why Deepika chose the latter. If her tax liability exceeds Rs 10,000 in a financial year, she is required to pay advance tax. 


Tax benefits to Deepika for being an NRI in India:


  1. 1.NRE (Non-Resident Rupee) account, which as long as the NRI pays taxes on income earned abroad; money transfer to India will be tax free and freely repatriable (principal and interest earned).

  2. 2. An NRI is allowed to claim a deduction of 30% for principal repayment, deduct property taxes and take benefits of an interest deduction along with stamp duty and registration charges paid for the purchase of a property.

  3. 3.If the income from the investment in Indian assets is the only income an NRI has incurred during the financial year, and TDS has been deducted on that, then they will not be required to file an IT return. However, unlike short term capital gains, exemption can be claimed under sections 54, 54F and 54EC.

  4. 4. Exemption is available when capital gains from the sale of the first property is reinvested into specific bonds.

  5. 5. In case of an insurance policy, deductions will be allowed only if the policy is in the NRI’s name or his/her family’s and the premium should be less than 10% of sum assured.

  6. 6. Deductions are also included for interest paid on an education loan and tuition fees for full time education in school, college and university in India.

  7. 7. Deductions are available for premium paid for any health insurance taken. This deduction is available up to Rs 50,000 for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children.

  8. 8. Deduction can be claimed for donations made for charitable causes.

  9. 9. Investment in Equity Linked Savings Scheme (ELSS) from mutual funds on amounts up to Rs 1.5 lac are eligible for deduction.

  10. 10. Interest earned on Govt. issued bonds and savings certificates is eligible for deductions


Deepika will be required to pay taxes in the following situations:


  1. 1. If Deepika renders any service in India for which she receives a compensation/salary then that would be taxable In India irrespective of where she is receiving it. Vice versa, if her employer is Govt. of India and she’s the citizen of India, her salary will be taxed even if her service is rendered outside India.

  2. 2. Income from a property which is situated in India is taxable for her. The tax will be calculated in the same manner as for a resident Indian. It’s her decision to keep the property vacant or rent it out.

  3. 3. Deepika is allowed to claim a standard deduction of 30% on property taxes and claim an interest deduction if a home loan has been taken to buy that property. She is also allowed a deduction for principal repayment, stamp duty and registration charges paid on the purchase of the property.

  4. 4. Interest on NRE and FCNR account is tax-free whereas interest on NRO account is fully taxable.

  5. 5. Any income earned by her from a business controlled or set up in India will be taxable.

  6. 6. She will be paying taxes on capital gains from transfer of any capital asset located In India and investments in Indian shares and securities.

  7. 7. If Deepika invests in certain Indian assets, she is taxed at 20%. But if the special investment income is the only income she earns during the current financial year and TDS has been deducted on that, then she will not be required to file an IT return.


Deepika can avoid getting taxed on the same income twice in the country of residence and India (double taxation), by seeking relief from DTAA (Double Tax Avoidance Agreement) between the two countries. Tax relief can be claimed by two methods under DTAA- The Exemption Method where NRIs are taxed in only one country; and The Tax Credit Method where the income is taxed in both countries and tax relief can be claimed in the country of residence.


Can NRI claim TDS?


Indian IT laws are a little tough on NRIs. Any payment to Deepika will be made only after deduction of TDS even if her income is less than Rs. 2.5 lacs which isn’t the case with her but maybe the case for many NRIs. As an NRI, if Deepika’s tax liability is less than the TDS (tax deducted at source) deducted from her income, she can file an income tax return in India to claim a refund. The returns can also be filed online using the Income Tax e-filing portal.


Income on which TDS is deducted for NRIs:


  1. 1. Rent earned from property in India

  2. 2. Sale of property located in India

  3. 3. Interest earned on NRO Accounts

  4. 4. Sale of Indian companies shares, mutual funds and bonds

  5. 5. Amount received for any services rendered in India


Applicable Tax rates for NRI


Category

Tax rates

TDS rates

Short Term Capital Gain

 


Non-equity oriented scheme

As per income tax slab

30% for NRIs

Equity oriented scheme

0.15

0.15

Long Term Capital Gain

 


Listed Non-equity oriented scheme

10% without indexation or 20% with indexation, whichever is less 

20% for NRIs

Unlisted Non-equity oriented scheme

10% without indexation

10% for NRIs

Equity oriented scheme

Nil

Nil


Deepika was wondering if it is possible to take a loan in the USA to invest in property in India. The good news is that it is possible and for an NRI, it is the most cost and time effective solution as well.
Reasons to take a loan in the USA:


Interest Rates In India


The interest rates in most Indian banks for personal loans start at 11.49% which can go up to 30% which is extremely expensive and in most cases double of what one would get charged in America.


Hidden Fees


Many Indian lenders charge hidden fees like non-refundable application fee or processing fee which is 1% and 2% of the principal amount. On a loan of 1 lac INR, that is an additional charge of 2,000 INR.


Uncommon Collateral Practices


Many Indian banks require collateral to serve as security for the loan. Some banks can even require collateral to the value of $5,000. This can be a tough requirement to fulfill for many loan seekers.


Slow Disbursements


Some Indian banks have lengthy procedures to clear applications for bank loans. It takes a lot of time which can make one lose a good opportunity to buy their desired property.


So Deepika can avail a loan in the USA to buy property in India. The terms and rates she can get for a loan for land purchase in India will vary from lender to lender. Generally, one can expect:


  1. 1. Loan amounts between $1,000 and $100,000

  2. 2. Repayment terms between 6 months and 7 years

  3. 3. Interest rates between 5% and 20% (although this depends on her credit history and if there is a cosigner).

power-of-attorney

Deepika is currently in the States and is completing the procedure to come back to India permanently by the end of this year. She was in India for a little while and had chosen a property to buy for residential purpose. Now she has gone back and won’t be coming before completing the formalities to shift base to India which could take some time, hence she has handed over the Power of Attorney to her brother who would be handling the rest of the formalities regarding the property and building the residence.

PoA refers to a written legal document executed by one or more persons (principal) giving explicit authority and empowerment to one or more persons (agent) to act on their behalf in their absence.



Types of PoA:


  1. 1. Limited PoA- It gives the agent the power to act in place of the principal for a very limited purpose. For example, it could give Deepika’s brother the right to sign a deed to property for her on a day when she isn’t in the country. It usually ends at a time specified in the document.

  2. 2. General PoA- It gives wide-ranging powers to the agent as no specific purpose is mentioned. The agent is given powers only to act on behalf of the principal in a wide range of matters.

  3. 3. Special PoA- In this case, the principal authorizes the agent to act on his behalf in specific matters only and limited powers are granted to the agent. For eg, SPAs may be used for the purpose of (including but not limited to) negotiating and executing specific agreements, performing specific business-related tasks, closing or operating bank accounts, undertaking sale or purchase of equities and other investments, filing tax returns, or representing the principal before the statutory authorities.

  4. 4. Durable PoA- It can be general or limited in scope, but it remains in effect after Deepika becomes incapacitated. Without a durable power of attorney, if she becomes incapacitated, no one can represent her unless a court appoints a conservator or guardian. A durable power of attorney will remain in effect until her death unless she rescinds it while she is not incapacitated.

  5. 5. Springing PoA- Like a durable power of attorney, a springing power of attorney can allow Deepika’s attorney to act for her if she becomes incapacitated, but it does not become effective until she is incapacitated.


In real estate, PoA could be used for the purposes mentioned below:


  1. 1. Mortgage, exchange, sell, lease, collect rent, grant, borrow

  2. 2. Manage and settle the disputes

  3. 3. Performing activities required by banks, insurance companies

  4. 4. Enter into contracts, deal with bonds, etc.


Important points to note on PoA by NRI


  1. 1.Any person who is above 18 years of age and of sound mind can be a PoA and appoint one.

  2. 2. Even after a PoA is granted, Deepika will still have the power to act on the concerned matters herself. Hence, it is not a complete delegation of the original rights, but only an authority given to someone to act on her behalf.

  3. 3.By inserting a date of expiry, she can make it time bound and it can also be revoked.

  4. 4. If Deepika dies during the term of a PoA, the latter stands automatically revoked and her legal heir will take over.

  5. 5. It’s also important to state clearly in the PoA the exact purpose for the execution of a POA, as well as the circumstances due to which the power is being granted.

  6. 6. A property transaction through a PoA executed by Deepika will call for in-depth analysis. A sale deed can be declared null and void even if there is a small error anywhere in the execution of PoA.

  7. 7. As an NRI, Deepika can’t be sued or held responsible for the fraud of the representative, unless it is proved that the fraud was done in connivance with her.


Deepika is staying outside India and has properties and financial transactions within India and it is not possible for her to be physically present all the time in the country to deal with the same; therefore she has given the power to transact and deal with the properties, banking and tax payments to her brother who is trustworthy and reliable person who resides in India and will take care of the dealings in her absence in an efficient manner.


A PoA deed is drafted in the following manner:


  1. 1. The deed can be drafted online or a lawyer can be hired to draft the same.

  2. 2. The deed needs to be attested by the Indian embassy or Consulate or Notary in the country.

  3. 3. The deed should be signed in all the pages by the Grantor, the person who makes the deed.

  4. 4. The attested deed is then sent to a known person with an Indian address by registered post or courier.

  5. 5. Finally the person to whom the deed is sent should get it registered from the local Sub-Registrar office or Sub-Divisional Magistrate office in India by paying the appropriate registration charges applicable in that State.


The PoA deed includes the following details:


  1. 1. The name, age, foreign address, Indian address and occupation of the person making the deed

  2. 2. The name, age, address, relation with the principal, father’s name and occupation of the person in whose favour the deed has been made

  3. 3. General or Specific purpose for which the deed is being made

  4. 4. When exactly the PoA comes into force

  5. 5. Signature of all required parties


Drafting PoA Online


Many DIY online sites like Quicklaws.com, Legaldesk.com help NRIs in preparing a PoA with minimum cost and without leaving the comfort of one’s home. It can be done in the following way:

  1. 1. Select the state in which you’re currently residing and start preparing the PoA document

  2. 2. Fill the form and make payment online

  3. 3. Print the document and register it


Deepika can also execute a PoA from the USA or any residing country through the Indian Embassy/ Consulate. A PoA can be executed from abroad in two ways:

  1. 1. Legalisation: Signatures of the notary or judge before whom the PoA is executed are required to be authenticated by a duly accredited representative of the Indian Embassy or Consulate. Such a POA needs to be stamped within three months from the date of receipt of the POA in India.

  2. 2. Apostalisation: Also known as super legalisation, apostille is a certificate which confirms and verifies the signature or seal of the person who authenticated the document. However, this deed, too, needs to comply with Indian laws.


Advantages of Having a PoA


  1. 1. A PoA is an easy way to have another person handle legal or financial matters for NRIs when they are away or otherwise unable or incompetent to handle it themselves.

  2. 2. A durable PoA is a protection against costly court proceedings in the event the principal become incompetent. In that situation, the agent can handle any financial affairs without the need for a guardian or conservator being appointed by a court.


Disadvantages of Having a PoA


  1. 1. A PoA ends at the principal’s death. Therefore, it is not a substitute for a last will and testament or a trust that designates a representative to handle the affairs upon his/her death.

  2. 2. A PoA can be abused by the agent because there is no oversight of his activities by anyone other than the principal. If one become incompetent or incapacitated, the agent will have no one overseeing his actions. The best way to protect oneself is to choose someone who is reliable, responsible and trustworthy.



Procedure to Revoke a Power Of Attorney
PoA can be revoked because of the following reasons:


  1. 1. Deepika may revoke the PoA during her lifetime if she finds any misdeeds on behalf of the agent.

  2. 2. It will also be revoked if she dies or becomes insane or is declared insolvent.

  3. 3. It can be revoked on mutually agreed terms between the principal and the representative.

  4. 4. It will be revoked when the specific transaction for which it was executed has been accomplished.

Revocation of PoA is done in the same manner in which it was executed. If the PoA was registered with the Sub-Registrar, she will have to get it cancelled from the same office. Also, all the concerned parties need to be duly informed about the cancellation of the PoA.


Power of Attorney should be given after much deliberation and only to trustworthy and responsible individuals who have your best interests at heart. It will also help if the person is street smart and understands transactions related to finance and property. Nowadays it is easy for naive buyers to fall prey to frauds. One would like to build their dream house in the most stress free manner possible. So it’s better to take your time and make decisions which would lead to a secure future.

Why-NRI-invest-in-india

My NRI friend Deepika who had been staying in the USA for the past 13 years is finally coming back to India to spend her golden years here. The decision is a mix of emotional and practical reasons. Of course the States was better than India in a lot of aspects and she also had community support of fellow Indians there but according to her it never felt like home. She has jointly bought a residential property in India with her brother as NRIs are allowed to jointly buy properties with residents. She has taken a loan to build a house on it and given PoA to her brother who is overseeing all the tasks while she completes her formality to shift back permanently.

NRIs may leave their country for occupation or vocation but the country never leaves their hearts or minds. Therefore they invest in their homeland so that they have some financial connection with it and their family who maybe still living there.



Below are some reasons as to why NRIs invest in India:


  1. 1. For building a foundation for retirement and financial security for current and future use.

  2. 2. Utilise savings to invest and grow the financial portfolio.

  3. 3. To flow the money back to relatives in home country.


Best Investment options for NRIs in India as follows:


  1. Bank Fixed Deposits: This is the most common mode of investing by NRIs because banks provide high interest rates on the fixed deposits. Three different types of accounts can be opened in India i.e. NRE, NRO and FCNR accounts in a bank which is authorised to deal in foreign exchange.

  2. 2. Mutual Fund: To invest in Mutual funds, an NRI needs to have any of the 3 bank accounts i.e. NRE/NRO or FCNR account and the investment has to be made in Indian currency only. But some countries don’t allow NRIs to invest in mutual funds in India.

  3. 3. Real Estate: Investment in property in India is a traditional and favourite investment tool for most NRIs. Having a home or property back in your own country is considered as a practical and valuable possession. In addition to financial appreciation, it also gives a sense of emotional security.

  4. 4. Direct Equity: NRIs can also invest directly in the Indian stock market under the Portfolio Investment scheme (PINS) of RBI. 10% of paid up capital of the Indian company is the maximum investment allowed for NRIs. One would need a Demat account and a brokerage account with a SEBI registered brokerage firm. An NRI can transact only through a stock broker.

  5. 5. Investment in Bonds/Govt. Securities: An NRI has the freedom to invest in bonds and government securities. One gets fixed returns on such bonds and if purchase is done through NRE/FCNR accounts, the proceeds are easily repatriable to the country where one lives.

  6. 6. Certificate of Deposits: Certificate of Deposits are also available to NRIs on a repatriable basis. These are non negotiable money market instruments issued in the demat form or as promissory notes. It yields a higher rate of interest than bank deposits and the maturity period ranges from 7 days to 1 year. Best suited for investors with short term financial goals.

  7. 7. National Pension Scheme (NPS): NRIs between the ages of 18-65 years who are Indian citizens or have dual citizenship can contribute to this scheme by fund transfers from their NRE/NRO accounts.



A great option in real estate that senior NRIs are investing in nowadays are luxurious retirement homes, a concept gaining momentum in India. It serves both as a long term investment and residence in the twilight years. It’s a very good opportunity for NRI investors considering they invest in a reputed builder’s project after doing ample research.


According to statistics, almost 62% of senior citizens living overseas stated that they would like to settle in India after retirement, even if their children planned to settle abroad. A survey conducted by Moneycontrol.com lists out the main reasons why NRIs want to settle in India and look for lifestyle-driven senior housing:


  1. 1. 38% prefer familiarity of their hometown in their golden days

  2. 2. 36% refer to poor quality of life abroad

  3. 3. 26% refer to personal reasons


The first half of an individual’s life is spent getting a good education and making a stable career to fulfill financial and emotional responsibilities. One doesn’t always get time to pursue hobbies and passions. Hence, a person’s golden years are the perfect time to pursue those dreams because responsibilities have been fulfilled and one finally has ample time and energy to focus on individual needs and goals. Builders are tapping into the niche market of senior living homes that cater to the needs of senior citizens and offering them homes accompanied with all luxurious amenities. The number of senior citizens in India is likely to be doubled by the year 2030 (source: Economictimes.com). This statistic alone calls for a large retirement home market which can reap rich dividends for both domestic as well as NRI investors.

Senior living homes are the perfect place to spend one’s twilight years. It is filled with enriching activities, contemporaries to share memories with and uber class ageing related facilities like tie-ups with medical establishments, meeting food and nutritional needs and an infrastructural design that suits senior citizens. It is a personal space which one can decorate and beautify in their own unique style. Residents can host their family and spend as much quality time with them as they want. These changes are made to reflect changing times where age doesn’t mean giving up on life, but on the contrary living an independent luxurious life to the fullest. Reports suggest that demand for retirement units has exceeded 3 lac units. Options are available for every pocket with unit sizes varying from 300 sq ft to 2500 sq ft. basic apartment costs upto 33 lcs while a mid-sized one can cost 50-60 lacs. Luxury villas are also available for the uber rich costing 1 crore and above. Monthly service charges start from 5K INR and can go upto 50K INR based on services rendered.


Ashiana Housing is the pioneer in the retirement home market and has been awarded three times in a row for the same. The retirement home markets’s substantial growth has witnessed the entry of companies like Antara Senior Living, Tata Housing and few others. This gives NRI investors the option to choose their desired location and an opportunity to avail the facilities of the retirement home for personal use as well as for investment.



Points to take into consideration before investing in a retirement home:


  1. 1. Commitment of the builder: It’s important to see how many years the builder has been creating the senior living homes and how many seniors are enjoying life in their society.

  2. 2. Continuing Care Retirement Communities (CCRC) concept: Does the senior living provide CCRC, since as we age we would need an assisted living facility. Does the senior living community provides the CCRC facility or not becomes the critical area. read more

  3. 3. Security: It’s a major concern for senior citizens and their families. The society should have CCTV cameras at vantage points, sufficient guards for the premises and sufficient security measures should be in place for the residents’ safety.

  4. 4. Amenities: The project should have many avenues for pursuit of hobbies and passions. Facilities like swimming pools and courtyards for tennis, volleyball and other sports should be available. Recreational activities should be planned for seniors so that they’re always engaged and have an active and healthy lifestyle and a well maintained clubhouse where they can spend quality time with their peers.


After much searching and consideration, Deepika has zeroed in on Ashiana Nirmay, a senior living home in Bhiwadi. The decision to settle down permanently in Ashiana Nirmay, Bhiwadi was taken after considering the following points:


  1. 1. Ease of buying- Deepika came to know about Ashiana Nirmay from a friend who stays there. She got in touch with the Ashiana team and the rest of the details were taken care of by them very effectively. She even had a trial stay at one of the homes to know about the day-to-day functioning. The property was convenient from all aspects including amenities, safety, leisure activities, ambiance, accessibility etc. and hence she decided to shift there permanently.

  2. 2. Ease of payment- The booking payment can be done online and rest of the amount is paid through cheques. Maintenance charge can be paid online as well. The entire process was transparent and handled with great efficiency by the representatives.

  3. 3. Ease of maintenance- Since it is a senior living facility, everything has been constructed keeping in mind the convenience of the residents. Maintenance is taken care of by experts, even at short notice so that residents aren’t hassled.

  4. 4. Ease of resale and rental- In case Deepika changes her mind of shifting or stalls it for sometime, she can resale the property or put it on rent. The entire process of selecting buyers or tenants is handled by the team at Ashiana which is another positive aspect of choosing Ashiana.

NRI's guide to selling property in India

My NRI friend Deepika has bought a residential property in India because she plans to shift permanently to India by the end of this year. She also has a property in a different state of the country which she would like to sell. She wants to sell the property because she has already bought a new residential property in a metropolitan city and since she’s an NRI it’s difficult for her to manage the property without being physically present and asking relatives to pay the property taxes and maintaining the property on her behalf is over-extending the welcome. In this blog we would venture on the various aspects of selling a property by an NRI.

An NRI can sell his/her residential or commercial property to either a person residing in India, another NRI or a person of Indian origin (PIO). One can also mortgage the property to an authorised real estate dealer or a financial institution dealing with home loans. However, if the property is an agricultural land or farming development, it can only be sold to a resident Indian citizen.
In case the property has been inherited from an Indian resident, no special permission is required from the RBI but on the other hand, if it has been inherited from someone who is not of Indian origin, the NRI will need to seek permission from the Central Bank. Income arising from transfer of property is taxed under Capital Gains and rental income from letting out the property is taxed under the head ‘Income from House Property. The capital gain is calculated as the difference between the sales value and indexed cost of purchase.



Related Blog:- NRIs Guide to Buying and Renting a Home in India



The process of selling a property owned by an NRI in India is as follows:


  1. 1. Hire a brokerage company to conduct a comprehensive valuation of the property and determine its value.

  2. 2. Carry out all the necessary paperwork related to the sale of the property. If one isn’t physically available then a trustworthy person can be granted PoA to do the needful.

  3. 3. Understand the tax liabilities. Capital gains are taxable in the year in which the property is transferred, irrespective of whether the sale payment has been received in full or not.

  4. 4. The taxation details have been explained in brief below:

    1. a. If one is selling the property within 2 years (changed from 3 years after Budget 2017) of purchase, then short term capital gains tax will be applicable and selling after 2 years makes the long term capital gains tax applicable.

    2. b. Taxes on short term capital gains are based on an individual’s income slab.

    3. c. Taxes on long term capital gains are fixed at 20%.

    4. d. When a resident Indian purchases a property from an NRI, then the buyer is liable to deduct TDS at 20% on long term capital gains (LTCG). In case the property is being sold before 2 years, 30% TDS will be deducted. A TAN (Tax Deduction and Collection Amount Number) needs to be obtained by the buyer before deducting the TDS.

    5. e. In case the property has been inherited, the date of purchase by the original owner is considered for calculating whether it’s a long term or a short term capital gain. In such a case the cost of the property will be the cost that the previous owner incurred on the respective property.

  5. 5. TDS is deducted at the time of making the payment to the NRI. All the information regarding the TDS and it’s rate have to be mentioned in the sale deed between the NRI seller and the buyer.

  6. 6. The amount can be received only in a FCNR or NRE/NRO account.

  7. 7. The NRI would be exempt from tax if he/she re-invests the capital gains of the property in another property or tax exempt bonds.


Documents required by NRI for selling property in India:


  1. 1. Passport- It serves as a proof of identity for the person involved in the transaction

  2. 2. PAN Card- It is required if one plans to apply for a tax exemption certificate after the sale of the property. NRIs of select countries are given PAN numbers which have their foreign residence address.

  3. 3. Tax Returns- If the NRI has been earning money from the property, tax returns for the ownership period should be kept handy.

  4. 4. Address Proof- Documents in support of address in India and abroad have to be provided. This includes ration card, telephone bills, electricity bills, life insurance policy statements, aadhar card etc.

  5. 5. Sale Deed- Sale deed is a legally binding agreement between the parties who are buying and selling a legally owned property.

  6. 6. Documents From The Society- Documents from the society are needed to establish that the seller has no outstanding payments to the society. An occupation certificate states that the flat has been occupied and the allotment letter bestows official authority on the owner of the property or flat.

  7. 7. Encumbrance Certificate- An encumbrance certificate is necessary to assure that the property has no dues to any legal authority.

NRI-renting-the-property

Being an NRI Deepika can rent out her Indian property and receive the rental income or rental yield in her NRE or NRO account which can be easily repatriated. The IT Act allows NRIs attractive rebates on rental income from house property resulting in tax rates being significantly lower on rental income as compared to normal income.

However, Deepika has bought the senior living facility in Ashiana Nirmay located in Bhiwadi. But in case someone would like to rent out the home, Ashiana has an in-house resale and rental division which helps the owners with the entire procedure.
Yield is the rental money received from tenants. It’s the rent a property provides over a year, expressed as a percentage of its purchase price. Rental income is considered ordinary or business income and not capital income.
A property owner can also rent out his/her house along with other assets like sofas, beds, kitchen appliances, air conditioners etc. Hence, the rent received by the owner will include the cost of assets which are being provided. Such rent is called composite rent.




Related Blog:- Why NRI children are worried about their parents?




Calculation of Net Rental Yield :-


  1. 1. Annual rental income-Annual expenses or loss of rental income x 100
    Property Value
    So, Deepika’s net rental yield from her ancestral property in Rajasthan will be calculated as follows:
    120000-12000 x 100 =  6.2%
    (
    3500000)

Expenses or loss of rental income mainly includes the following:


  1. 1. Purchase and transaction costs like property purchase price, legal fees, building inspections etc.

  2. 2. Annual costs such as vacancy costs (loss of rent and advertising)

  3. 3. Repairs and maintenance

  4. 4. Property management fees

  5. 5. Insurance


The income from house property is included in the gross total income of the assessee only in the following conditions:


  1. 1. The assessee is legally the owner of that property.

  2. 2. The property consists of houses, buildings and/or land.

  3. 3. The property is used for any purpose other than for professional purposes by owner himself.

The benefit of buying a property with Ashiana is that they have an in-house team that helps owners with renting out the property and also takes care of the documentation for you.


But in case someone buys a property with another developer and want to rent out the property, below is the detailed procedure of drafting a rental agreement:


Procedure To Draft A Rental Agreement:


  1. 1. Draft the agreement.

  2. 2. Agreement is printed on Stamp paper of due value.

  3. 3. Agreement is signed by owner and tenant in the presence of two witnesses.

  4. 4. Register agreement at the Sub-Registrar office by paying the registration fees.

  5. 5. Documents required for a rental agreement are 2 passport size photos, Aadhar card and any ID proof with address.


Procedure to Draft a Rental Agreement Online:


  1. 1. Either tenant or owner can fill in the required details online.

  2. 2. The Rent agreement should be documented and duly signed by all parties in the presence of 2 witnesses.

  3. 3. The agreement document is then printed on the stamp paper of the requisite amount.

Online websites like Legaldesk, Rent Mantra, Lawdepot, Paymatrix provide services for drafting rental agreements online.


Income Tax Implications

Since the income has been earned in India, tax will also be payable on the same. In fact, TDS is paid by the payer of the rent. The payer of the rent is required to obtain a TAN (Tax Deduction and Collection Account Number) and deduct TDS of 30% from the rent amount.

A TDS certificate is also provided to the NRI. The payer is held responsible in case tax isn’t paid on the rental income. NRIs need to refer to the DTAA to avoid taxation on rental income in India and country of residence. For instance, In the US rental income is taxed in the country in which the property is situated. So rental income is taxed in India and NRIs get credit for taxes paid in India while filing IT returns in the US.


The IT Act of India has a specific head of income titled ‘Income from house property, to tax rental income from a property. So, any rent received from property, whether its residential or commercial is taxable under this head. The property is taxable on the basis of its annual value which is determined on the basis of whichever is higher; market rent or received rent. Rental income is always taxable on an accrual basis and not on receipt basis.

In the latest Finance Act 2017 (effective from FY 2017-18), the Govt. has limited the amount of loss from House Property that can be set off against other incomes to INR 2 lacs. Balance loss can be carried forward for set off against income from house property in the subsequent 8 years.

The following deductions can be claimed from the net annual value of the property while calculating the total income under ‘Income from House Property:
  • Standard deduction of 30 % on the net annual value for repairs and maintenance
  • Interest on housing loan including interest for the pre-construction period (claimed in equal instalments over a period of 5 years from the year in which the property is acquired or constructed)
  • Municipal taxes payable for the property
  • If an NRI owns more than one house properties which are self- occupied, then one of the houses will be treated as ‘deemed to be let out’ and the annual value of the property will be the market rent. One can choose which house can be self occupied and which house is to be considered as deemed to be let out.



    Read More:-


    Indian real estate investment checklist for NRI’s

    8 points for NRIs to know before making a real estate investment in India

    How RERA Impacts Property Buying For NRIs

    Why NRI children are worried about their parents?



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    Athira Kumari,

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