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Investment Rationale

Why should non-residents invest in Indian real estate?

Investing in Indian real estate offers a unique combination of financial and emotional returns for the diaspora. Key advantages include:

  • High ROI Potential: India’s rapid urban growth and developing infrastructure offer excellent potential for high returns on property investments.
  • Currency Advantage: Favorable foreign exchange rates often provide better value for money, allowing for more significant investments.
  • Emotional & Financial Security: It provides a tangible connection to one’s homeland while creating secure, long-term assets for the future.
  • Government Incentives & Trusted Guidance: Pro-investment regulations like RERA (Real Estate Regulatory Authority) have simplified the investment process. However, to truly capitalize on this transparent environment, partnering with a firm like PropTrust, which is focused on trust and delivering value, can help you identify the right investment opportunities with confidence.

What are the top investment locations for non-residents?

Non-residents are actively investing in India’s major economic hubs. Popular locations include:

  • Delhi NCR: Gurgaon, Noida, Greater Noida
  • Mumbai Metropolitan Region: Thane, Navi Mumbai
  • Bangalore: Whitefield, Sarjapur
  • Hyderabad: Gachibowli, Kondapur
  • Other Prominent Cities: Pune, Goa, Lucknow

Who is eligible to invest as a non-resident?

Understanding your residential status is the first step. The rules apply to the following categories:

  • Non-Resident Indian (NRI): An NRI is a citizen of India who stays abroad for employment, business, or other vocations, or under circumstances indicating an intention for an uncertain duration of stay. Foreign citizens of Indian origin are treated on par with NRIs for property investment.
  • Person of Indian Origin (PIO): A PIO is a person who is not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan, and who meets at least one of these criteria:
    • At any time, held an Indian passport.
    • Whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.
  • Overseas Citizen of India (OCI): An OCI is a person who is of full age and capacity and is a citizen of another country, but was a citizen of India at or after the constitution’s commencement; was eligible to become one; belongs to a territory that became part of India after August 15, 1947; or is a child or minor child of such a person.
    • Crucial Exception: No person who is or had been a citizen of Pakistan or Bangladesh is eligible to be an OCI.

Investment Process

What type of property can a non-resident purchase?

Under general permission from the RBI, NRIs, PIOs, and OCIs can freely purchase residential and commercial property in India.

The general permission does not cover the purchase of agricultural land, plantation property, or a farmhouse. Acquiring such properties requires specific, prior approval from the Reserve Bank of India (RBI), which considers these proposals in consultation with the Government of India.

What documents are required for a property purchase?

You will need the following key documents:

  • PAN Card (Permanent Account Number)
  • PIO or OCI Card (For PIO/OCI citizens)
  • Passport (for NRIs)
  • Passport-sized photographs
  • Address Proof (both overseas and Indian, if available)

Can non-residents get a home loan in India, and what are the conditions?

Yes, NRIs, PIOs, and OCIs are eligible for home loans from Indian banks and approved housing finance institutions, subject to the following conditions:

  1. Loan Terms: The loan quantum, margin money, and repayment period will be on par with those applicable to resident Indians.
  2. Account Credit: The loan amount cannot be credited to the borrower’s Non-Resident External (NRE), Foreign Currency Non-Resident (FCNR), or Non-Resident Non-Repatriable (NRNR) account.
  3. Security: The loan must be fully secured by an equitable mortgage of the property being acquired. A lien on the borrower’s other assets in India may also be required.
  4. Repayment Source: Installments, interest, and other charges must be paid through remittances from abroad, funds in NRE/FCNR/NRNR/NRO/NRSR accounts, rental income from the property, or by a ‘relative’ in India (as defined in the Companies Act, 1956) crediting the borrower’s loan account.
  5. Interest Rate: The interest rate must conform to the directives issued by the RBI or the National Housing Bank.

What documents are needed for a home loan application?

For Salaried Employees:

  • Copy of employment contract
  • Latest salary slip
  • Latest work permit
  • Bank statement for 4 months or NRE/NRO account statement for 6 months
  • Passport/visa copy
  • Utility bill for address proof
  • PIO/OCI card
  • Power of Attorney (if applicable, in the bank’s specified format)
  • Customer credit check report
  • Property agreement duly registered or other related property documents
  • Income tax returns for the last 2 years

For Self-Employed Individuals:

  • Balance sheets and P&L accounts of the company for the last 3 years
  • Bank account statements for the last 6 months (for both company and individual)
  • Income tax returns (3 years)
  • Passport/visa copy
  • Utility bill for address proof
  • PIO/OCI card
  • Power of Attorney (if applicable, in the bank’s specified format)
  • Credit check report
  • Property agreement or other related property documents

Investment Taxation

What are the general tax principles for non-resident property owners?

The mere acquisition of property does not attract income tax. Tax is applicable on income generated from the property, including rental income and capital gains from its sale.

When does a non-resident need to file an income tax return in India?

An NRI/PIO/OCI must file a tax return in India if they meet either of these conditions:

  1. Their taxable income in India exceeds the basic exemption limit (e.g., INR 1.6 lakh was cited).
  2. They have earned short-term or long-term capital gains from a sale, even if the amount is below the exemption limit.

Note: The enhanced tax exemption limit for senior citizens and women is applicable only to Residents and not to Non-Residents.

Are there exceptions to filing a tax return?

You do not have to file a return if your taxable income consisted only of investment income (e.g., interest) and/or capital gains, AND the full tax has already been deducted at source (TDS). This also applies if you earned long-term capital gains from the sale of equity shares or equity mutual funds.

Tip: It is often beneficial to file a return to claim a refund if TDS was higher than your actual tax liability, or to set-off/carry-forward a capital loss against a gain.

When are capital gains important, and how may capital gains tax be reduced?

Capital Gains Tax (CGT) is levied on the profit from selling assets like house property, land, or buildings, and is taxable for non-residents.

  • Tax Deduction at Source (TDS) Rates: The TDS rate for Long-Term Capital Gains is 20.6%, and for Short-Term Capital Gains, it is 30.9%.
  • Exemptions for Long-Term Capital Gains: You can legally reduce this tax in two primary ways:
    1. Re-investment: The gain can be exempted if it’s reinvested in buying/constructing another residential house within a prescribed time.
    2. Bond Investment: The gain can be exempted if invested in bonds of the NHAI or REC. A cap of INR 50 lakh applies to investments made in these capital tax-saving bonds (as per the 2007-08 budget).

How does the Double Taxation Avoidance Agreement (DTAA) work?

For immovable property, the DTAA with most countries states that capital gains are taxed where the property is located (i.e., in India). A non-resident can then normally obtain a tax credit in their country of residence for the taxes paid in India, preventing double taxation.

Investment Repatriation

Can rental income earned in India be repatriated?

Yes. Rental income is a current account transaction and is repatriable after the appropriate deduction of taxes, certified by a Chartered Accountant.

How can the proceeds from a property sale be repatriated?

The rules for repatriating sale proceeds depend on the source of the original investment funds:

  • If the property was acquired using foreign exchange (remitted from abroad or paid from an NRE/FCNR account):
    • The repatriation amount cannot exceed the original amount paid for the property in foreign currency.
    • This is restricted to the sale proceeds of a maximum of two such properties.
    • Any capital gains must be credited to an NRO account, from which up to USD 1 million can be repatriated per financial year.
  • If the property was acquired using Rupee sources:
    • The sale proceeds must be credited to an NRO account.
    • From the NRO account, a total of up to USD 1 million may be remitted per financial year for all bonafide purposes, subject to tax compliance.

FAQs