5 things NRIs should keep in mind before investing in property in India

Anita Reddy, an NRI residing in the US, has decided to purchase a residential flat in Hyderabad to stay during annual visits. She has checked RBI rules, verified the property title, and applied for a home loan. She has authorized her father in India with power of attorney.

NRIs can legally purchase residential and commercial properties in India under Foreign Exchange Management Act (FEMA) rules, but are not allowed to buy agricultural land, plantation property, or farmhouses unless acquired through inheritance or specifically approved by the Reserve Bank of India (RBI).

How to fund a property purchase

When acquiring property, if the purchase is funded from abroad, the funds should be remitted into an NRE (Non-Resident External) account. “The payment for the property must be made through this NRE account. It is important to retain the bank statement as proof of the source of funds. This documentation will be crucial if the NRI wishes to repatriate the proceeds from the sale of the property back to their country of residence,” says Ankit Jain, Partner, Ved Jain and Associates, chartered accountancy firm.

“They are also eligible for home loans from Indian banks and housing finance companies, with loan repayments made using these accounts as per RBI guidelines” says Anupam Rastogi, co-founder and chief business officer, Square Yards, a real estate marketplace.

If the purchase is funded through income or funds already held in India, the NRI can use any domestic bank account for the payment.

Tax matters

Additionally, while making payment to the seller, the NRI must ensure that Tax Deducted at Source (TDS) is properly deducted on the sale consideration, even if the NRI does not regularly file tax returns in India. Failure to deduct and deposit TDS can lead to a tax liability for the buyer.

“It is also advisable that, after acquiring the property, the NRI files annual income tax returns in India, even if the income generated from the property is below the taxable threshold. Maintaining a consistent tax record can simplify compliance and tax calculations when the property is eventually sold,” says Jain.

Under the old tax regime one claims deductions on home loan principal under Section 80C and home loan interest under Section 24(b) of the Income Tax Act, if they have taxable income in India.

The new remittance tax

The 3.5% US excise tax on remittances by non-US citizens increases the cost of investing in India, as it is charged to the sender and not creditable in India.

“NRIs should account for this cost, remitting more to receive the desired amount in INR. India does not tax inward remittances, so funds received through banking channels can be fully used. Where possible, joint remittance with a US citizen family member may reduce the burden,” says Gagandeep Sood, Associate Director, Fox Mandal Global, a professional services firm.

India does not impose any limit on the amount NRIs can remit inward for property investment. Such remittances are freely permitted, provided the funds are from legitimate sources and routed through authorised banking channels. There is no tax on inward remittances by NRIs in India.

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“NRIs should maintain NRE accounts, as funds brought in through authorised banking channels comply with FEMA regulations. Although Indian Income Tax authorities do not require documentation for the 3.5% US remittance tax, it is advisable to retain records of the sender, transaction details, and purpose to establish the legitimacy and source of funds, especially in high-value transactions,” says Sood.

Documents required to buy property in India

These are the following documents that NRIs need to have in place when they plan to buy a property in India.

Passport and OCI/PIO card:A valid passport is mandatory. If you hold an Overseas Citizen of India (OCI) or Person of Indian Origin (PIO) card, you can use it instead of an Indian passport.

PAN card:Required for tax purposes, especially if you plan to rent out the property or sell it later.

Proof of address: Both Indian and overseas address proof (utility bills, bank statements, or rental agreements) may be required.

Power of attorney (if applicable): “If you’re not physically present in India for the transaction, you may need to authorize someone via a registered and notarized Power of Attorney (PoA),” says Ravi Shankar Singh, managing director, Residential Transaction Services, Colliers India, a real estate services firm.

Do your due diligence

Proptech has really simplified the buying process for NRIs in India. Developers are also setting up camps in countries with a large Indian population. Most NRIs today are IT professionals or engineers who have gone abroad for short to medium term projects and with an intention to return to India. While deciding on this high involvement purchase NRIs should keep certain things in mind.

They should choose a reputed developer with a credible track record. “The selected city should offer employment upon their return. The location and city should offer great physical and social infrastructure, And finally it should have international airport connectivity,” says Shankar.

“Before finalizing a property deal, NRIs should verify the property’s title, check for any legal encumbrances, ensure all government approvals and permits are in place, and consult a real estate lawyer. This due diligence helps avoid legal disputes, fraud, and ensures a smooth transaction,” adds Rastogi.

Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics