Buying your own home is definitely everyone’s most cherished dream. India is also a highly lucrative market for foreigners and Non-resident Indians, for real estate investments. Indian real estate regulations and laws have been relaxed, making investments in this sector rather easy for investors. Let us give you all the information you need about NRI investments in property in India.
Who governs Indian real estate transactions?
Real estate transactions in the country are managed by the Reserve Bank of India. These investments come under the jurisdiction of the Foreign Exchange Management Act (FEMA).
Who is considered a Non-resident Indian?
The Foreign Exchange Management Act (FEMA) defines a Non-resident Indian as a citizen of the country who resides outside India.
Now that we’ve understood the meaning of the term ‘Non-resident Indian’, let us get down to decoding the rules about real estate investments for them.
Can Non-resident Indians purchase property in India?
Why, absolutely. Yes. A Non-resident Indian can buy a residential property or a commercial property in the country.
How many properties can Non-resident Indians buy in India?
Sky’s the limit, you know. There is no specific limit on the number of properties that Non-resident Indians can purchase in the country.
Hold it. Here’s an exception
There are a few categories of land and property that Non-resident Indians cannot buy in India. A Non-resident Indian cannot buy agricultural land, a farm house or plantation land in India. But they can inherit such property.
Additional Reading: Investment Options For NRIs In India
Do Non-resident Indian investors require permission from the Reserve Bank of India?
No. Non-resident Indians do not require permission from the Reserve Bank of India to purchase commercial or residential property in India.
Non-resident Indians can make payments on purchasing property through funds remitted to India from overseas via regular banking channels. They can also make payments using the funds held in NRE, NRO or FCNR accounts.
Income Tax and house property in India
As per the Indian Income Tax Act, if an individual resident or Non-resident Indian owns more than one house property, only one of these properties will be considered as self-occupied. A self-occupied property is exempt from Income Tax.
A second property held by an individual will be deemed as given on rent, irrespective of whether it really is rented or not.
In case you have not given the second property on rent, you will be required to calculate deemed rental income earned on the property. This calculation is based on specific valuations that are prescribed under Income Tax regulations. You will need to pay taxes based on this calculation.
However, the Income Tax Act fails to specify whether one or both properties should be only situated in India. Let’s clear the air on that for you. The mention of ‘more than one property’ applies to properties held by individuals worldwide.
Confusing, huh? If you are a Non-resident Indian and own only one property in the world, and that is in India, you will not be required to pay Income Tax on the property in India.
Let’s say you are a Non-resident Indian in the United States of America. You own and live in a house property in the United States. You also own a residential property in India. If your Indian property has not been rented out, you will have to pay Income Tax on deemed rent in India.
What’s more, in case you inherit a property in India and the inherited property is not the only property you own, you will be required to pay tax on the deemed income.
Disclaimer: It is advisable to consult a tax advisor if you have any clarifications on taxes with regard to property investments overseas.
Additional Reading: Did You Know About These Tax Benefits On Home Loans?
Is the deemed income from residential property taxed overseas?
To get some clarity on whether the deemed income from house property is taxed overseas, you will have to review the tax regulations prevalent in the country of your residence.
For Non-resident Indians in the United States, the US Tax code does not levy a tax on deemed income. However, you will still need to declare the property if it is an investment property, as a part of your tax returns in the United States. This should be done even though you do not earn any rental income. In case you do not declare this investment property in your tax return, you will face a few hiccups when you have to sell the property.
Investment properties with rental income
Any investment properties that earn an individual rental income and has related expenses should be declared in Form Schedule E in the United States tax returns. Rental activities are considered as passive investments. These have restrictions on the deducted net rental losses.
Are Home Loans an option?
Certainly. Non-resident Indians are permitted to apply for a Home Loan to purchase property in India. Did you know you can also apply for a Home Loan to fund any repairs and home renovations? Yes, you can.
EMI payment guide
You can repay the Home Loan EMIs in these ways.
- By transferring money from an overseas bank account through regular banking channels.
- You can also issue post-dated cheques or an Electronic Clearance Service (ECS) mandate from your NRE, NRO, or FCNR bank account.
- You can pay the EMIs from the rental income you earn on the property.
- Cheques can be issued towards the EMI payments from your local relative’s bank account.
Tax benefits on Home Loan repayment
There are several tax benefits you can avail on Home Loan repayment.
Under Section 24 of the Income Tax Act, interest on a Home Loan is deductible from the income from house property. You can get tax deductions up to Rs. 1,50,000 per year. This interest component can be deducted from the rental income.
A further deduction of up to Rs. 1 lakh on the principal amount of the Home Loan can be claimed under Section 80C of the Income Tax Act. Remember, the total amount allowed to be claimed as deductions under Section 80C of the Income Tax Act is Rs. 1 lakh per annum.
Additional Reading: Tax Saving Options Under Section 80C
If you have a self-occupied property, you can still claim deductions on the interest up to Rs. 1,50,000. This will be translated as a loss from house property.
You can offset this loss against income from any other sources such as capital gains, interest income and so on.
If you do not make up for the loss in a particular year, you can carry it forward for a period of eight years in your consecutive tax return forms.
There you have everything you need to know about Non-resident Indians buying property in India.
Additional Reading: More On Tax Benefits For Non-Resident Indians
Ready to explore Home Loans?