Non-resident Indians (NRIs) often find themselves confused and uncertain about the process of investing in property in India. Many are unclear about the rules and procedures involved, leading to hesitation in making such investments. This article aims to clear those doubts by addressing key aspects of property dealings for NRIs, ensuring a smoother and more confident investment process.

Understanding NRI, PIO, and OCI Status

Let’s begin by clarifying what constitutes an NRI. A Non-Resident Indian (NRI) is an individual who holds an Indian passport but resides abroad for more than 180 consecutive days in a financial year. Along with NRIs, two other categories of individuals are eligible to buy property in India:

Persons of Indian Origin (PIO): This status previously granted a 15-year visa to non-Indian citizens, but it was discontinued on January 9, 2015. All existing PIO cardholders have been reclassified as Overseas Citizens of India (OCI).

Overseas Citizens of India (OCI): Currently, only OCI cards are issued, and while it’s not mandatory for PIO cardholders to convert their cards, they can do so free of charge if desired.

Restrictions on Property Purchase for NRIs

NRIs, PIOs, and OCIs can buy residential or commercial properties in India without special permission from the Reserve Bank of India (RBI). However, they cannot purchase agricultural land, plantations, or farmhouses. To make a purchase, NRIs will need the following documents:
– A valid passport
– Address proof
– PAN (Permanent Account Number) card
– Recent photograph

Funding Property Purchases

NRIs can finance property purchases using funds from Non-Resident External (NRE), Non-Resident Ordinary (NRO), or Foreign Currency Non-Resident (FCNR) accounts in India. Cheques drawn from these accounts can be used for transactions, and overseas funds can be remitted through authorized banking channels.

Power of Attorney (POA) for NRIs

If an NRI cannot personally be present in India for property registration, they can appoint a close relative in India as their representative through a Power of Attorney (POA). This document, signed in the presence of a notary or consulate officer in the NRI’s country of residence, allows the relative to sign contracts and register the property on behalf of the NRI. Once sent to India, the POA must be adjudicated within three months at the local registrar’s office to be legally valid.

Repatriation of Funds and Tax Implications

When an NRI sells property in India and transfers the proceeds abroad, this is known as repatriation. NRIs are exempt from paying taxes on their property unless they earn rental income. However, if the property is sold, capital gains tax applies:

Short-Term Capital Gains (STCG): If the property is sold within three years of purchase, the profit is taxed as per the seller’s income tax slab.

Long-Term Capital Gains (LTCG): For properties sold after three years, indexation benefits apply, and the profit is taxed at 20.6%. Reinvesting the profits in certain government bonds (Section 54EC) or purchasing another property within a specified period can exempt the seller from LTCG tax.

Tax on Rental Income for NRIs

Rental income from properties in India is taxable for NRIs, and the applicable tax must be filed under the NRI’s PAN. If an NRI owns multiple properties, only one can be classified as self-occupied, and tax must be paid on deemed rent from the others. NRIs can claim 30% of this rental income as maintenance costs, similar to the benefits available to resident Indians.

Home Loans and Tax Benefits

NRIs, PIOs, and OCIs can all avail themselves of home loans in India, with various multinational banks offering tailored loan schemes. Banks often require a POA when extending loans to NRIs.

Under Section 24 of the Income Tax Act, NRIs can claim a deduction of up to ₹2 lakh per year on home loan interest for self-occupied properties. For other properties, the actual interest paid is deductible. Additionally, up to ₹1.5 lakh is deductible under Section 80C for principal repayment.

Conclusion

A well-informed decision is the key to a successful investment. By understanding the intricacies of property purchases, legal formalities, and tax implications, NRIs can confidently navigate the property market in India and make sound investment decisions.