Holiday Home Times

Investing in India’s real estate – advantage NRIs!

Property investment

Investing in a property in India can be a good opportunity for NRIs.

With Indian realty showing huge potential with property prices skyrocketing in the past few years, Non-Resident Indians (NRIs) can benefit immensely by investing in the sector. This has been observed by one of the best experts in the real estate sector.

Subhash Lakhotia, Tax & Investment Consultant and Director of M/s R.N. Lakhotia & Associates & The Strategy Group, in his article titled ‘How can NRIs benefit from investing in Indian real estate?’ published in Moneycontrol Dotcom writes, “…when I say that the investment by Non-Resident Indians if made today in the real estate sector, then surely it will bring higher appreciation in the years to come and that the investment made today will not bring any regret. Before venturing into investment in real estate in India, Non-Resident Indians in particular should take care of the provisions contained in the Foreign Exchange Management Act as well as the Income Tax Act.”

“A fair knowledge of these two enactments will help Non-Resident Indians take a wise decision of investment in real estate keeping in view the provisions of law affecting such real estate investment.”

It may be mentioned here that NRIs can enjoy almost all the privileges which are enjoyed by a resident Indian when it comes to purchasing immovable property in India with the country’s Foreign Exchange Management Act stating clearly that an Indian citizen who resides outside India is permitted to acquire any immovable property in India other then agricultural/plantation property or a farm house.

As per the said Foreign Exchange Management Act, an Indian citizen who is a resident outside India popularly known as Non-Resident Indian has the permission for the following activities with reference to acquisition and transfer of immovable property in India :-

1. Acquire immovable property other than agricultural land/plantation property or a farm house by way of purchase, subject to the conditions regarding RBI rules mentioned in clause (a) of the Regulation;

2. Acquire any immovable property other than agricultural land/ plantation property/ farm house by way of gift from an Indian citizen resident outside India or from a PIO;

3. Acquire property by inheritance;

4. Transfer by way of sale any immovable property other than agricultural/ plantation property of a farm house by way of sale to a person resident in India;

5. Transfer agricultural land/ farm house or plantation property way of gift or sale to an Indian citizen resident in India;

6. Transfer residential or commercial property in India by way of a gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

However Mr. Lakhotia cautioned that “before making any investment in real estate the Non-Resident Indian should very carefully prepare the basic objective or the purpose of making investment in real estate sector in India.  The strategy will be different in case the investment in real estate is made for acquiring a residential property for self use. Likewise, the strategy for investment will be different in a situation where the Non-Resident Indian would like to buy real estate with the objective only of making money at the time of selling the property.”

He goes on to write: “Reversely the strategy will be still quite different if a Non-Resident Indian is interested to invest in real estate just with the sole objective of receiving a regular flow of money by way of rental income.  Hence, the first strategy with reference to investment by a Non-Resident Indian in real estate would be to shortlist the specific purpose or objective of making investment in real estate.”

On the issue of purchasing a property by a NRI for self use, he writes: “The Non-Resident Indian can make investment in a residential property for his own use.  This property can be in the form of ownership  flat or it could be in the form of buying a piece of land and constructing a house thereon.  In both the situations it is of advantage for a Non-Resident Indian to make investment in a residential self occupied property by taking a loan.”

“The Non-Resident Indian would be very happy to note that if he takes loan for a self occupied house property, then he would enjoy a deduction from his Indian income in respect of interest paid on loan taken for such self occupied residential property. This loan can be taken either from the bank or financial institution so also the loan can be taken from any member of the family or friend or relative. The maximum deduction in respect of interest on loan that is allowed for self occupied house property is Rs. 1,50,000.”

“Similarly, as per the provisions contained in section 80C of the Income Tax Act, 1961 within the overall deduction of Rs. 1 lakh the Non-Resident Indian just like a Resident Indian would also enjoy deduction in respect of repayment of the housing loan for self occupied property. However, the deduction for repayment of the loan would be permissible only in respect of loan taken from bank, financial institution etc., etc. Hence, whenever the Non-Resident Indian is contemplating to purchase a residential house property for self use, then surely the best investment strategy would be to take loan and make investment in your lovely self occupied house property,” he adds.

For NRIs who are looking to invest in India’s real estate for a regular rental income, Mr. Lakhotia in his articles writes: “The Non-Resident Indian can make investment in a residential property or in a commercial property with the objective of receiving a regular flow of rental income. The provisions of taxing rental income are simple, easy and investor friendly. Broadly speaking, from the rental income derived by a Non-Resident Indian deduction is available in respect of actual payment of house tax as also a special 30 percent deduction is available towards repairs, maintenance and collection charges of the property. This special deduction is permissible irrespective of the fact whether you spend on the repairs or you do not spend on repairs.  Thus, this is a big deduction available from rental income which is instrumental in cutting down the tax payment by a Non-Resident Indian on rental income.”

“Another important feature of taxation relates to complete deduction without any upper limit of the interest paid by the Non-Resident Indian for purchase of property which is given on rent.  Thus, the entire interest payment for purchase of property which is given on rent is allowed as a deduction from the rental income.  This is a great big advantage.  Hence, it is worthwhile for the Non-Resident Indian to make investment in real estate specially the real estate acquired for receiving a fixed flow of rental income by taking a loan for such purchase,” he adds.

So with the turmoil in the global economy, and with India’s real estate sector still remaining robust, the sector will offer good opportunities to NRIs who are flush with cash to invest in the sector, and to take advantage of the sharp upward movement that may follow as soon as the uncertainties in the economy are over.