Indian real estate market is observing a rising trend of investment by NRIs since last few months. However, the global real estate market is witnessing slowdown, but the same is rising in India. Real estate investment in India by NRIs is a rewarding proposition due to transparent, simpler tax provisions, and easier repatriation. However, while venturing into investment, the NRIs should take care of the provisions contained in the Foreign Exchange Management Act (FEMA) as well as the Income-tax Act. A fair knowledge of these two enactments will help to take a wise decision keeping in view the provisions of laws affecting real estate investment. According to FEMA, an Indian citizen who resides outside India is permitted to acquire any immovable property in India other than agricultural/plantation property or a farm house. Thus, it is very clear that NRIs enjoy almost all the privileges which are enjoyed by a resident Indian with reference to purchase of immovable property in India. FEMA states that an NRI has the permission for the following activities with reference to acquisition and transfer of immovable property in India:
- Acquisition of property by inheritance,
- Transfer of any immovable property other than agricultural/plantation property or a farm house by way of sale to a person resident in India.
- Transfer of agricultural land/plantation property or a farm house by way of gift or sale to an Indian citizen resident in India.
- Transfer of residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.
- Acquisition of immovable property other than agricultural land/plantation property or a farm house by way of purchase, subject to the RBI rules mentioned in clause (a) of the Regulation.
- Acquisition of any immovable property other than agricultural land/plantation property or a farm house by way of gift from an Indian citizen resident outside India or from a PIO (people of Indian origin).
Property for Self-Use
NRI can make investment in a residential property for his own use. This property can be in the form of an ownership flat or buying a piece of land and constructing a house thereon. In both the situations it is beneficial for an NRI to make investment in a residential self-occupied property by taking a loan. The NRI would enjoy a deduction from his Indian income in respect of interest paid on loan taken for such self-occupied residential property.
An NRI can make investment in a residential property or in a commercial property with the objective of receiving a regular flow of rental income. The provisions of taxing rental income are simple, easy and investor friendly. Broadly speaking, from the rental income derived by an NRI, deduction is available in respect of actual payment of house tax and also a special 30 per cent deduction is available towards repairs, maintenance and collection charges of the property. This special deduction is permissible irrespective of the fact whether you spend on repairs or not. Another important feature of taxation relates to complete deduction, without any upper limit, of the interest paid by the NRIs for purchase of property which is given on rent.
The Tax Saver Tips for NRIs in Case of Property Investment
If an NRI makes a real estate investment with the sole objective of making money by selling such property, then for such NRIs, it is strongly recommended that they should not sell their property at least within three years of purchase. To make things very simple and clear, it may be noted that whenever a property, whether commercial or residential, is sold by an NRI, then just like resident individual, income-tax is payable on the capital gains received by selling the property.
Within the provisions of FEMA, it is possible for an NRI to repatriate the rental income received from investment in real estate in India. Similarly, it is possible within the framework of FEMA to repatriate the proceeds of sale of immovable property in India more particularly in a situation where such property has been purchased by remittance from abroad or from a Non-Resident External (NRE) Account.
Income-tax Compliances for NRIs
Whenever an NRI makes investment in immovable property in India, he just has to complete the registration formalities and relax. However, it is advisable that the NRIs obtain a PAN Card i.e. Permanent Account Number Card so that if they have certain income by way of rent from property in India, then it is easy for them to make tax compliances. They should also file Income-tax return in India in respect of their rental income especially when rental income coupled with their other incomes arising in India exceeds the basic income-tax exemption limit.
Reverse Mortgage Benefit
The concept of reverse mortgage, which is very popular and prevalent in USA and other countries of the world, is slowly becoming a buzz in India. Now the senior citizens in particular can take advantage of reverse mortgage in respect of the real estate owned by them in India. The amount taken from the bank consequent to reverse mortgage is not added as income of the NRI. Thus, in old age, reverse mortgage really happens to be a wonderful tool of enjoying the self-owned property in India and getting regular cash installments from the bank.
The Circle Rate
The circle rate has been announced by the government in respect of properties in different parts of India. At any point of time whenever an NRI is interested to purchase a property in India, he/she should take care to ascertain the circle rate of the property and this is mainly because of the fact that the stamp duty will be payable on the minimum value of the circle rate or the actual price whichever is higher. Likewise, the importance of circle rate is also to be noted especially when NRIs are interested in selling the property. When property is sold at a price lower than the circle rate, whatever is the circle rate, the same will be treated as the minimum sale price and consequently, the capital gains will be calculated accordingly.
Alok Kumar Upadhayay