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Impact of Indian Government Policies on NRI Property Ownership

by Ashiana / / 6518 views/ Reading Time: 4 minutes

Buying property in India is so much more than just an investment. We Indians have a great sentimental value in buying a home for ourselves, even if we’re not living in the country anymore. Most NRIs tend to buy property in India not just for monetary benefits but also for an emotional connection to their motherland. Having a place back home feels good, and it serves as a retirement pad, a constant rental income, and a place to return to. 

However, of late, certain government policies on taxation, foreign exchange, and ownership regulations have made NRI property dealings more complex than before for NRIs.

Impact of Indian Government Policies on NRI Property Ownership

Key Challenges for NRIs in Buying Property in India


1. Restrictions on Certain Property Types


Under the Foreign Exchange Management Act (FEMA), NRIs can freely buy residential and commercial properties in India. However, agricultural land, farmhouses, and plantations are restricted. The only way NRIs can own such properties is through inheritance or gifting.

2. Legal & Documentation Complexities


NRIs must ensure that all legal formalities are in place before purchasing property. Important requirements include:

  • PAN card– Mandatory for taxation and property transactions
  • Power of Attorney (PoA)– Required if the NRI cannot be physically present for legal procedures
  • Title verification– To confirm that the property is free from disputes

Additionally, under-construction projects should be RERA-registered, ensuring compliance with government regulations.

3. Payment & Financing Restrictions


NRIs cannot make property payments in foreign currency or cash. Transactions must go through NRE/NRO/FCNR accounts in Indian rupees (INR).

Indian banks offer home loans covering 80-85% of the property value, but approvals depend on:

  • Employment status abroad
  • Income level
  • Valid visa and passport

Repayments must also be made in INR, adding another layer of financial planning.

4. High TDS on Selling Property


NRIs face higher Tax Deducted at Source (TDS) when selling property compared to resident Indians:

  • Long-term capital gains (LTCG) (property held for 2+ years): Previously 20% (now 12.5%, but without indexation)
  • Short-term capital gains (held for less than 2 years): Taxed as per the income tax slab

To reduce the upfront TDS deduction, NRIs can apply for a lower TDS certificate from the Income Tax Department before selling.

Recent Taxation Changes & Their Impact on NRIs


1. No More Indexation Benefit for NRIs


One of the biggest tax changes in Budget 2024 is the removal of indexation benefits for NRIs. Previously, indexation allowed NRIs to adjust their property’s purchase price for inflation, reducing taxable gains.

Now, while the LTCG tax rate is lowered to 12.5%, NRIs can no longer adjust for inflation. This means older properties will be taxed at their original purchase price, increasing tax liability.

2. Implications for Inherited Properties


For NRIs selling inherited properties, the removal of indexation means a higher capital gains tax since the cost of acquisition remains static. Careful tax planning is now more critical than ever.

3. Double Taxation Considerations


NRIs may also need to pay taxes in their country of residence. Fortunately, Double Taxation Avoidance Agreements (DTAA) between India and several countries help NRIs offset taxes paid in India against their tax liability abroad. However, tax rules vary, so consulting an expert is advisable.

How NRIs Can Navigate These Challenges


1. Seek Professional Guidance


Given the legal and tax complexities, hiring a trusted lawyer and tax consultant can help NRIs navigate property laws, title verification, and tax planning.

2. Optimize Taxation Strategies


With the removal of indexation, NRIs can reduce tax burdens by:

  • Reinvesting in another residential property (Section 54)– Gains from the sale can be used to buy another home in India to claim exemption.
  • Investing in capital gains bonds (Section 54EC)– NRIs can invest in REC/NHAI bonds to defer capital gains tax.

Ref: https://tapinvest.in/blog/nri-real-estate-investment-in-india/ 

3. Use the Right Banking Channels


All transactions must be routed through NRE/NRO accounts. Proper banking setup ensures easy fund transfers and compliance with FEMA regulations.

4. Granting Power of Attorney (PoA)


A legally registered PoA allows a trusted representative (like a family member) to handle real estate transactions on behalf of an NRI, reducing logistical challenges.

5. Stay Updated on Policy Changes


Since real estate regulations evolve frequently, staying informed can help NRIs make smart investment decisions and avoid legal complications.

Finding a Reliable Real Estate Partner


Managing NRI property from outside of India is already a tedious task, hence, it becomes very crucial to invest in legally compliant and well-maintained properties. We at Ashiana Housing have been delivering prime NRI property options for more than 45 years. Whether you live at one of our properties or simply invest in one, our motto is to create convenience at each step.

If you’re an NRI looking to invest in NRI property Indian real estate, our focal points – community-centric living, best-in-class architecture, and hassle-free processes, will make your experience worthwhile.

Final Thoughts


Even though recent policy changes have introduced newer challenges for NRI property, the Indian real estate market continues to be an attractive investment option. To simplify the process of purchasing NRI Property, it is crucial to get a better understanding of tax laws, choose the right financing methods, and work with reputed developers.

If you’re an NRI or know someone who’s planning to invest in NRI property, staying informed and seeking expert advice can make all the difference in ensuring a smooth, financially sound property transaction.
Tags: Investment, ashiana housing, nri investment in india,
Category: Real Estate, Investment, NRI,

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What is the TDS rate if an NRI sells a property in India after two years?

If you’ve held the property for more than two years, it comes under long-term capital asset, and the buyer must deduct 20% as TDS on capital gains

Property sales before the period of two years will be taxed under Short Term Gains and the TDS rate for the same will be 30% of the total sale value.

The property buyer is responsible for deducting and depositing the TDS with the Indian tax authorities before making the payment to the NRI seller.

About The Author

Ashiana, Ashiana Housing build homes. Homes surrounded by vast green spaces and fresh breeze. Homes cocooned in secured gated complexes. Homes where futures are forged and there are opportunities to grow. And Homes in environments brimming with healthy activity, trust and respect. At heart, we build communities with care.

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