NRI property acquisition in India has become a popular option for Non-Resident Indians (NRIs) seeking to invest in the country’s thriving real estate market. However, owning property in India as an NRI is subject to specific rules outlined under the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) regulations.
This guide provides an overview of the legal framework, eligibility conditions, and the step-by-step process for acquiring and transferring immovable property in India.
For information on selling property, please see our guide on Sale of Immovable Property by NRIs in India.
Who Can Acquire Immovable Property in India?
1. Non-Resident Indians (NRIs)
NRIs can acquire:
- Residential properties (houses, apartments, villas)
- Commercial properties (office spaces, retail outlets, warehouses)
However, NRIs cannot purchase:
- Agricultural land
- Farmhouses
- Plantation properties
2. Persons of Indian Origin (PIOs)
PIOs can acquire:
- Residential and commercial properties through:
- Purchase using funds from NRE, NRO, or FCNR(B) accounts
- Gifts from NRIs, PIOs, or Indian residents
- Inheritance from an Indian resident or an NRI
Like NRIs, PIOs are also restricted from purchasing agricultural land, farmhouses, and plantations.
3. Foreign Nationals
Foreign nationals who are not of Indian origin:
- Cannot purchase property in India unless they receive prior approval from the RBI.
- Can inherit immovable property from an Indian resident, subject to RBI regulations.
Modes of Acquiring Property
1. Purchase
- Payment must be made through normal banking channels (inward remittance or funds in NRE, NRO, or FCNR accounts).
- Payment cannot be made in foreign currency, traveler’s cheques, or cash.
2. Gift
- NRIs and PIOs can receive residential or commercial property as a gift from:
- Indian residents
- Other NRIs or PIOs
Note: Agricultural land, farmhouses, and plantations cannot be gifted.
3. Inheritance
- NRIs and PIOs can inherit any type of property, including agricultural land, from an Indian resident.
- The property must have been legally acquired by the previous owner under FEMA regulations at the time.
Transfer of Immovable Property in India
1. By NRIs and PIOs
- Residential and commercial properties can be transferred:
- By sale to an Indian resident
- By gift to an NRI, PIO, or Indian resident
Note: Agricultural land, farmhouses, and plantations can only be transferred to Indian citizens residing in India.
2. By Foreign Nationals
- Foreign nationals who inherit property must obtain RBI approval before transferring it.
- Property cannot be transferred to another foreign national.
Repatriation of Sale Proceeds
When NRIs sell property in India, they often wish to repatriate the proceeds to their country of residence. To do so legally and efficiently, it’s important to comply with FEMA regulations:
- Repatriation Limit: NRIs can remit up to USD 1 million per financial year from property sales or investments.
- NRO Account Requirement: The sale proceeds must be transferred to an NRO (Non-Resident Ordinary) account for remittance.
Tax Implications for NRIs and PIOs
1. Tax on Rental Income
Rental income from property in India is taxable under the Income from House Property category. TDS (Tax Deducted at Source) applies at 30% if rent is received by an NRI.
2. Capital Gains Tax on Sale of Property
- Short-Term Capital Gains (STCG): If the property is sold within 24 months, gains are taxed according to the applicable income tax slab rate.
- Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, the gains are taxed at 12.5% (no indexation benefit, for properties registered after July 23, 2024)
3. Tax Benefits & Exemptions
- Section 54: LTCG exemption if proceeds are reinvested in another residential property in India.
- Section 54EC: Exemption if gains are invested in government-approved bonds (e.g., NHAI, REC) within six months of sale.
How NRI Edge Can Help
NRI Edge offers specialized services for NRIs involved in property transactions in India:
- Legal Assistance: Help with legal heir and succession certificates, property mutation, and FEMA compliance.
- Tax Advisory: Guidance on capital gains tax, TDS compliance, and tax exemptions.
- Estate Planning: Assistance with creating or updating wills to streamline the inheritance process.
- Power of Attorney Execution: Managing transactions on behalf of NRIs for seamless property transfers.
Conclusion
Understanding the process of NRI property acquisition in India and adhering to legal and tax regulations is crucial for successful investments. Whether you are an NRI looking to invest, a PIO managing inherited property, or a foreign national seeking compliance assistance, expert guidance is essential to ensure smooth transactions.
For more expert guidance on NRI property ownership, tax planning, and real estate compliance, NRI Edge is here to help you make informed decisions and streamline your property management process in India.
Frequently Asked Questions (FAQs)
Q1. Can NRIs purchase agricultural land in India?
No, NRIs cannot purchase agricultural land, farmhouses, or plantations in India.
Q2. Can NRIs transfer property to another NRI?
Yes, NRIs can transfer residential or commercial property to another NRI or PIO, but agricultural land and farmhouses can only be transferred to Indian citizens residing in India.
Q3. How can NRIs repatriate the proceeds from the sale of property?
NRIs can remit up to USD 1 million per financial year from the sale of property, provided the sale was compliant with FEMA regulations.
Q4. Do NRIs need to file an ITR for property sales in India?
Yes, NRIs must file an Income Tax Return (ITR) after selling property in India, regardless of TDS deductions.
