In this section, we talk briefly about the most important issues and aspects of investing in Indian real estate that you as an NRI should be well aware of to have a smoother and hassle-free investment experience.
The topics we cover are :
- Why Invest? – Overview
- Repatriation – Overview and Link to Blog Article
- Taxation of NRI Investments in India
- NRI Home Loans – Introduction and Process of Applying for a Loan in India
- NRI Bank Accounts Explained & Comparison of NRO and NRE Accounts
- Power of Attorney – Uses and Benefits Explained
- PAN Card – Is it Required and How to Apply for It
- Overview of Double Taxation Avoidance Agreement between India and other countries.
Here are the top 5 reasons why you as an NRI should invest in Indian real estate :
- Substantial Returns : While returns of upto 20% can be safely taken for granted, many a times, you can easily end up with as high as 50% to 100% in 2 to 4 years time.
- Liberalization of Repatriation Rules : Unlike earlier when you could repatriate sale proceeds of only 2 properties in your lifetime, you can now repatriate sale proceeds of an unlimited number of properties (upto $1 Million per annum per person), making it very easy for you to repatriate your money without the fear of having it stuck in India.
- Ease of Investing : As opposed to earlier times when an NRI had to struggle with various taxation issues, municipal rules and highly cumbersome and bureaucratic legislations, NRIs now enjoy a stress-free and fairly straightforward investment experience.
- NRIs can get Home Loans in India : TAs an NRI, you can get home loan to fund your property investments in India. The process is very simple, takes just 30 to 45 working days to get done and best of all, you do not have to travel to or be present in India to get all of this done!
- Increasing Availability of Certified Professional Assistance : You no longer have to depend on your family or friends to help you make investments in India as a growing number of highly professional and well trained agencies are available to give you a truly one-stop-shop solution and help you with the entire investment process, from start to finish. From short listing properties and negotiating the sale to handling all the paperwork, processing your home loan and ultimately selling your property at a later date, these agencies can do it all for you, all from the comfort of your home anywhere across the world.
While there are many more reasons to justify you investing in India, we are sure that the above 5 are more then enough for you to get excited!
Repatriation of Sale Proceeds of Real Estate Property in India by NRIs
Good news! NRIs are allowed to repatriate upto $ 1 Million per annum per person out of sale proceeds of their real estate properties in India and there is NO LIMIT on number of properties that can be bought, sold and repatriated by NRIs.
And when it comes to repatriation of rental income, an unlimited amount of money can be repatriated every year.
As a couple, you can both repatriate upto $ 1 Million each per annum, which means you can collectively repatriate upto $2 Million or approx Rs.6 crores based on current exchange rate, out of sale proceeds and an unlimited amount of rental income every year.
To read a more detailed note on repatriation, please click here.
THE BIGGEST MISCONCEPTION IN REPATRIATION
One of the biggest source of fear and discomfort for NRIs in repatriating their money is the clause that states :
“in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.”
This does not mean that NRIs can repatriate capital of only 2 properties in their lifetime. What this actually means is that FREE & UNLIMITED REPATRIATION of sale proceeds is allowed only for the first 2 properties and from the 3rd property onwards, repatriation is restricted or limited to an amount of $1 Million per person per year.
From the 3rd property onwards, the sale proceeds must be deposited into an NRO account and out of this balance, a total of upto USD 1 Million (approx Rs.6 crores) can be repatriated per person per financial year – a limit that has already been explained above.
Example : If the sale proceeds of your property are say Rs.8 crores, you can repatriate Rs.6 crores this year and balance Rs.2 crores must be deposited into your NRO account in India and you can repatriate this in the next financial year.
Hence THERE IS NO REAL RESTRICTION on the number of residential properties whose sale proceeds an NRI can repatriate in his lifetime.
You must first fill out and submit Form 15CA – an online application form with IT Department of India. This can be done by you or you can have a Chartered Accountant in India do this for you on your behalf.
You must then obtain form 15CB from a Chartered Accountant – this form certifies that you have paid necessary taxes on the amount that is going to be repatriated.
You must then submit both Form 15CA and 15CB to an authorized agent or bank who will help you obtain foreign currency and repatriate the same to your overseas bank accounts.
The process is as simple as explained above and can be done in 7 to 15 working days depending on how well prepared you are.
Taxation of NRI Investments in India
Taxation of real estate investments by NRIs is a very straightforward process and you need to know just the following 2 points to understand what taxes are applicable to you as an NRI investing in Indian real estate and when such taxes are applicable to your transactions :
- Capital Gains Tax or Taxes on Profits from Sale of Property : When you sell a property, you are required to pay Capital Gains tax on the profits earned by you. If you have sold the property within 3 years from date of purchase, you pay 30% of total profits as Short Term Capital Gains tax and if you have sold the property after 3 years from the date of purchase, you have to pay 20% of profits as Long Term Capital Gains. This tax is calculated only on the PROFITS and not on the entire capital.
- Taxes on Rental Income : If you are earning rental income from properties, the entire rental income is combined with your other taxable income in India and is charged at the applicable tax slab under which you fall for that financial year. In most cases, this ends up being 30% as most NRIs fall into the highest tax bracket.
You may be eligible for certain exemptions as below :
- Capital Gains Taxes : If you reinvest the capital gains into another property within a fixed time period, you are exempt from paying any capital gains taxes. But this is subject to a number of terms and conditions. To know more, read our article titled “Taxation of Real Estate Investments in India”.
- Tax on Rental Income :
By default, you are allowed to deduce 30% of total rental income as expenses involved in maintaining the rented property. This means that effectively, you are paying tax only on 70% of the rental income.
Apart from this, if you have taken a loan on the rented property, you are allowed to deduct the entire interest being paid on that loan from the income of the property and the remaining / leftover income is then taxed.
There is NO TAX on purchase of property.
You may have to pay 2 other types of taxes – The Wealth tax and Property Tax. But since these taxes are so miniscule, they barely affect your finances and hence you do not need to bother by studying them in depth.
This is all there is for you to know about taxation of real estate transactions for NRIS. For more detailed information on how these taxes are calculated, terms and conditions for exemptions mentioned above and other related details, please read our article titled “Taxation of Real Estate Investments in India”
NRI Home Loans – Introduction and Process of Applying for a Loan in India
Investing using a home loan can help you earn upto 100% greater ROI than investing using your own funds. In this regard, you will be happy to know that NRIs can apply for home loans in India to fund their property purchase.
Some key points to note :
- How Much Can You Borrow : You can fund upto 80% of property cost through a home loan. Your eligibility depends on your income and repayment capacity and there is NO LIMIT on the number of loans you can take.
- Your Physical Presence is NOT Required : You do not have to be physically present in or travel to India to apply for a home loan. You can appoint a relative as your Power of Attorney who will sign and accept all loan documents on your behalf (this Power of Attorney does NOT give them a right to sell the property and hence your interests and completely protected).
- How Long Does the Process Take : The entire process takes between 30 to 45 working days and can be completed entirely via 3 couriers to India and a couple of emails.
- No Penalty for Pre-Closing a Loan : You can pre-pay or pre-close the loan at any point of time without paying any penalty or damaging your credit rating india.
- We Can Help You with the Complete Process : At G&C, we take care of the entire process from start to finish which means that neither you nor your family or friends in India have to interact with the bank or bother about the paperwork and we become your single point of contact.
Courier your loan application along with the processing fee cheque and all supporting documents (click here for an indicative list of documents that you need to submit).
Once banks study your documents, verify your employment and calculate your eligibility, you will be issued a sanction letter which states the amount of loan and interest rate you are being offered and all other terms and conditions of the loan.
You have to submit your original property documents with a few other supporting papers and pay any other applicable loan related charges to get the loan disbursed.
The entire process will be coordinated by us and we will literally spoon-feed and handhold you till the end!
To know a more accurate figure or any other query on home loans, feel free to consult with our in-house loan expert Sridhar Kumar on +91 9686627071 or email@example.com who will be happy to assist you without any obligation.
Visit our “Home Loan Corner” to :
- Understand how you can benefit from using home loans
- See how affordable it is to invest via home loans using an EMI calculator
- Access a comprehensive knowledge base of all home loan related FAQs
- View additional resources on important topics such as comparison of fixed v/s floating rate loans, single v/s joint home loans, difference between Pre-EMI and EMI, tax benefits of home loans and much more.
NRI Bank Accounts Explained & Comparison of NRO and NRE Accounts
While there are various types of bank accounts that an NRI can open and maintain in India, the 2 most commonly used and popular types are the NRO Account and NRE Account. This is a brief overview of these 2 account types, what purpose each of these accounts serve and most importantly, why you as an NRI need to have both these accounts open and active in India as each is dedicated for a separate purpose as explained below.
NRO – Ordinary Non-Resident Rupee Accounts
This account is essentially used to accept and hold any income earned by you in India and any Indian Rupees received by you from any person or entity WITHIN India.
- Inward remittances of foreign currency into India from any foreign country can be deposited into your NRO account (i.e. you can receive payments from outside India into your NRO account).
- Any Indian currency earnings or payments received by you WITHIN India have to be deposited ONLY into an NRO account, as NRE account can only accept foreign currency or inward remittances.
- Money in this account is NOT freely repatriable, although certain balances (such as proceeds from sale of property, rental income and other repatriable earning that are deposited into NRO account) can be repatriated subject to overall limit of $1 Million per person per annum, after you have paid applicable taxes.
- Interest earned on the balances in this account are taxable in India.
NRE – Non-Resident External Rupee Account
This account is essentially used to bring money INTO INDIA from foreign countries (i.e foreign currency remittances) and to use those funds to make local payments to any person or entity in India.
- You can only deposit foreign remittances (and in very exceptional cases, certain permissible repatriable income generated in India), but deposits are mostly restricted to inward remittances from OUTSIDE INDIA.
- You CANNOT deposit Indian earnings or Indian Currency (ie.Rupees) into this account (only certain repatriable income generated in India can be deposited in exceptional cases).
- Any other income earned by you in India or money received from any person or entity WITHIN India CANNOT be deposited to this account (instead such earnings must be deposited only to an NRO account which is explained above).
- Any funds remaining in the account can be freely repatriated without prior permission or approvals.
- You do not pay taxes on any interest earned on this account.
NRO and NRE accounts can both be used to bring in money from outside India and to make local payments but only an NRO account can accept deposits of Indian Currency or any income earned WITHIN India (NRE account cannot accept earning accrued in India or Indian currency except in exceptional cases).
As an NRI, you should have both NRO and NRE accounts as each serves a different purpose and you WILL need both these types of accounts at some time or the other if you are actively investing or transacting in India. As the minimum balance that has to be maintained is only Rs.10,000 per account, it is quite easy and practical to have both accounts and hence we highly recommend you to do so.
Read our article titled “Ready Reckoner – Bank Accounts for NRIs” for more detailed information on each account type, the repatriability and taxation of funds in these accounts and the type and currency of deposits and withdrawals that can be made from each of these accounts.
Power of Attorney – Uses and Benefits Explained
For NRIs living across various parts of the world, it is neither easy nor practical to travel to India everytime they purchase or sell a property or to conduct various other financial/legal transactions that require their physical presence in India. And this is where a Power Of Attorney (or General Power of Attorney – as it is popularly known) helps.
What is a Power of Attorney?
A POA (Power of Attorney) is a legally binding and enforceable document that a NRI can use to authorize a Resident Indian to represent him in any general or specific transaction in India.
How is POA helpful to NRIs in making Real Estate Investments?
A Power of Attorney enables an NRI to empower his or her relatives in India to legally represent them and conduct all formalities related to the purchase or sale transaction on the NRI’s behalf, so that he or she does not have to travel to or be physically present in India to conduct the transaction.
- Purchasing Property : To execute all contracts and agreements with the builder, register your property and apply for a loan for that property.
- Renting Out Your Property : To lease your property and collect rent on your behalf.
- Selling Your Property : The right to sell your property and negotiate the sale price. It is important to note that this right to sell can be granted ONLY IF YOU EXPLICITLY state so in the GPA and can be completely excluded from the purview of the GPA if you do not want to grant the same.
- Applying for a Home Loan in India : Since the NRI is not based in India, the banks need a representative in lieu of the NRI to deal with and a POA can be used by NRIs to authorise their relatives in India to represent them.
- Any Other Matter Pertaining to Your Property : To manage, compromise, settle, and adjust all matters pertaining to your property such as paying property and income tax on your behalf, maintaining your property, and any other such property related matters.
Types of Power Of Attorney
There are two types of power of attorney : “General” and “Special” (or limited).
- General Power of Attorney : This allows the grantor (the NRI) to empower the appointee (the NRIs relative in India) with the rights to carry out all legal acts on the former’s behalf without restricting it to a particular transaction or act and gives the appointee very broad powers to act on behalf of the grantor.
- Special or Specific Power of Attorney : This kind of POA restricts the authority of the appointee to act only on a particular kind of transaction or to carry out a specific legal transaction for the grantor (mostly just one / single activity). This is the more commonly used format in India for real estate transactions.
Read our article titled “Ready Reckoner – Power of Attorney for NRIs” to know more on how a GPA / POA is created, what is its validity and what you should keep in mind while appointing a GPA.
Caution : Every act performed by your agent within the authority of the Power of Attorney is legally binding upon the persons granting it. Hence a power of attorney should be given only to a trustworthy person, preferably an immediate family member.
PAN Card – Is it Required and How to Apply for It
Do NRIs need a PAN Card to Purchase & Sell Real Estate in India?
The short answer is YES. NRIs do need a PAN card to conduct any kind of financial transactions in India.
- PAN or Permanent Account Number is a 10 digit alphanumeric number issued by the Income Tax Department in India and acts as a document of identity proof.
- The primary purpose of PAN is to keep a central record and identification of all financial transactions of a person or entity.
- The PAN is unique to each person and is valid for the life-time of the PAN-holder.
- PAN is almost mandatory to conduct financial transactions such as opening a bank account, applying for a loan, receiving taxable income such as salary or professional fees, purchase or sale of assets above specified limits etc.
PAN Card Is Required If You Buy, Own or Sell Real Estate Property in India
You will need a PAN when you have to pay applicable taxes on the income generated by the property – either capital gains earned when you sell a property or in rental income generated on a regular basis.
Applying for a PAN Card
You can apply for a PAN card from anywhere across the world in 3 simple steps as explained below :
Fill the Application Form
Based on your citizenship status (whether you are an Indian passport holder or not), you will have to fill out the appropriate application form.
Courier Your Documents to Our Office in Bangalore
Along with a signed hard copy of the above application form, you will have to courier a set of documents that establish your identity, age, address and citizenship proof. You can either pay the fee in cash or send us a Demand Draft for the required amount.
Your done! As simple as that
You can chose to have the PAN card delivered to your overseas address or have it delivered to your representative in India. Fill out the form below to have one of our managers get in touch with you to send you the application form, list of documents required and then help you through the entire process.
Complimentary Assistance at No Charge To You
At G&C, we can help you apply for a PAN card and this assistance is provided free of charge to build a long term relationship with you. Feel free to reach out to Sridhar Kumar on firstname.lastname@example.org (Mobile : +91 9686627071) to get started with your application process.
Double Taxation Avoidance Agreement (DTAA)
India has these agreements with close to 84 countries including USA, UK, Canada, Singapore, Australia, UAE, Germany and more where any amount repatriated from India will not be taxed again (i.e. no double taxation) in the country of residence of the NRI and hence this becomes another motivating factor for NRIs to invest in the Indian real estate market.
- Czech Republic
- Hashemite Kingdom of Jordan
- Kyrgyz Republic
- New Zealand
- Portuguese Republic
- Saudi Arabia
- South Africa
- Sri Lanka
- Swiss Confederation
- Syrian Arab Republic
- Trinidad and Tobago
- UAR (Egypt)
- United Mexican States
* This list could have changed from the time we published this article and hence, please check the RBI/SEBI website for up-to-date info. G&C Global Consortium Pvt Ltd does not guarantee the accuracy or validity of information presented on this website.
Additional Resources for NRIs
Read our most popular blog articles shown below to learn more about investment and financial planning topics that are of immense benefit to NRIs :
- Repatriation of Sale Proceeds of Real Estate Assets in India by NRIs – http://gcglobalindia.wordpress.com/2013/04/12/repatriation-of-sales-proceeds-of-real-estate-assets-in-india-by-nris/
- Taxation of Real Estate Investments in India – http://gcglobalindia.wordpress.com/2013/03/30/taxation-of-real-estate-investments-in-india/
- Four Credit Report Myths Busted – http://gcglobalindia.wordpress.com/2012/04/20/4-credit-report-myths-busted
- Credit Reports : How to Improve Your Personal Credit Rating – http://gcglobalindia.wordpress.com/2012/01/27/credit-reports-how-to-improve-your-personal-credit-rating/
- NRI Investments in Indian Real Estate – http://gcglobalindia.wordpress.com/2011/09/05/nri-investments-in-indian-real-estate/