When it comes to smart investing, timing is of essence. So if you are a non-resident Indian (NRI) wondering where to invest, real estate could be a good option given that the rupee is still floundering. “NRIs have always been interested in investing in India as they are familiar with the location, and realty has traditionally yielded good returns in the short to medium term,” says Shveta Jain, director, residential services, Cushman & Wakefield. There are two distinct types of purchasers. One comprises pure investors, who want to reap good returns on their investment, and the other category is the end-users, who purchase property to provide for their families in India. Says Anand Narayan, director, residential services, Knight Frank: “NRIs look at their property in India as a second home, a place they may want to come back to when they retire.”
Where can NRIs invest?
All the options that are available to resident Indians are also open to NRIs, but apartments are the most sought-after. “Almost 70% of the purchases are residential units,” claims Narayan. However, commercial office spaces are also worth considering. This may be particularly useful if the NRI has a business in the country and is planning to set up an office here. Says Ashish Bhakta, partner, Advaya Legal: “NRIs can also buy commercial land as there is no restriction on such purchases.” Agricultural land, on the other hand, is not an option since it is only available to farmers.
How to finance a purchase?
If you are considering financing your property, you needn’t worry. “NRIs can avail of a home loan from approved banks or financial institutions to purchase a property or for repair/renovation of their house,” explains Suresh Surana, founder, RSM Astute Consulting Group. However, one has to adhere to the RBI guidelines before taking a loan (see graphic). An NRI needs to route the down payment as well as EMI payouts through legitimate banking channels, either via remittances or through non-resident banking accounts. Before applying for a loan, you may also have to get a power of attorney made in favour of one of your relatives. “Since an NRI is usually out of the country, he may require a relative to do the documentation on his behalf. This is the reason that banks insist on a power of attorney, though it is not mandatory,” says Bhakta.
What are the applicable taxes?
NRIs are entitled to the same tax benefits on their home loan interest payments as a resident Indian. “When an NRI purchases a property in India, there is no income tax implication at the time of purchase. However, he will have to pay stamp duty and registration charges,” says Surana.
The tax angle becomes trickier if you lease out the property. If you are staying in countries like the US and Australia, you are liable to pay tax on your worldwide income. “The taxability of income from an NRI’s property in India needs to be considered on the basis of regulations applicable in his country of residence and the Double Tax Avoidance Agreement with India,” says Surana. “The rent proceeds can be credited to his NRE or NRO account. This is freely repatriable provided a chartered accountant certifies (Form 15 CB) that the amount is eligible for remittance and that the applicable taxes have been paid,” he adds.
What to watch out for?
NRIs need to be cautious while buying real estate because it is difficult to monitor property while staying abroad. “It is advisable to physically inspect the property before finalising a purchase,” warns Jain. To avoid getting a raw deal, make sure that you verify the title of the property. If you are unsure, seek a lawyer’s help. While buying property directly.
An easier way to dabble in realty is to hire a reputed real estate firm. They will take care of the entire process for you in exchange for a fee. “You can opt for reputed intermediaries like real estate agents or brokers, who will give you a good idea about the various options in the market as well as the prices, and let you know if you are getting a good deal,” says Narayan.