Is Indian Real Estate Profitable For an NRI?

Investments from Non-Resident Indian (NRI) are a common aspect of our economy. The trend has also extended to the real estate sector, where NRIs invest to gain profits. However, the growth has slumped due to the COVID-19 pandemic faced by nations across the globe. Amidst the pandemic, the sector may have shown zero to low rate growth, but NRIs have always remained a sweet spot.

You may wonder if investing in real estate in India today is equally profitable for NRIs; the answer is YES. The demand for real estate has only increased, which is also supported by the recent implementation of RERA.

Real Estate in India where NRIs can invest

As per the current Indian laws, NRIs can invest in both residential and commercial properties depending upon their purpose of purchase. However, there are exceptions for NRIs to purchase property in India. Agricultural land, farmhouse, or any plantation property can only be owned by an NRI if it is inherited or gifted by a family member.

FEMA rules for NRIs

Foreign Exchange Management Act (FEMA) defines rules for all investments carried out by an NRI in India. Real estate investments and transactions also fall under the FEMA act that has one simple rule – An NRI or Person of Indian Origin (PIO) can acquire immovable property in India if he/she is a citizen of a country other than Nepal, Bhutan, China, Pakistan, Sri Lanka, Bangladesh, Iran, and Afghanistan.

NRIs of these countries must take prior permission from the RBI itself if they want to invest in India. As for NRIs of countries other than these, real estate exceptions in the type of property are mentioned above, and everything else remains the same.

How are NRIs taxed in India?

Real estate attracts one of the highest investments from NRIs due to the easy availability of loans and other funds required to make the purchase. Since most of the investment is made for profit-gaining purposes, the income earned here is also taxable under Indian IT laws for NRIs. 

Here’s how NRIs are taxed in India:

  • Short-Term Capital Gains

These gains apply to the profits earned via the sale of property in India after the NRI held it only for two years. Short-term capital gains from this type of transaction are calculated as the margin of the cost of acquisition and sale by the NRI. 

  • Long-Term capital gains

Long-term capital gains are usually applicable if NRI has held any property in India for more than two years. Under sections 54, 54F, and 54EC, these capital gains are exempt for up to a certain limit.  

  • Rental income

Rental income earned from a property in India is taxable as per regular Indian IT laws, irrespective of an individual’s residential status.

Financial transaction carried out by NRIs

NRIs and PIOs can make the following type of transactions to buy a property in India:

  • Funds held in FCNR (B)/ NRE/ NRO accounts maintained in the branches of Indian banks
  • Funds sent to India through regular banking channels

Transactions for investing in real estate cannot be carried outside of India or through the traveler’s cheque or in foreign currency.

Wrapping it up

The increasing demand for real estate in India, especially by NRIs, suggests that it still remains a lucrative option for investment. The recent implementation of RERA is only helping the sector recover quickly from the ill effects of the ongoing pandemic.

For NRIs, investing in a property in India is profitable and a safe option for steady earnings. Moreover, you can also turn it into your home should you decide to return to India.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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