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What will happens if NRI buys property in India?

Presently, Indian real estate is a very popular investment option for most NRIs. However, since they live abroad, it becomes more important for them to do proper due diligence before risking their money. While NRIs may want to invest in Indian real estate to benefit from correcting prices and a depreciating rupee, there is much research and careful planning involved.

Presently, Indian real estate is a very popular investment option for most NRIs. However, since they live abroad, it becomes more important for them to do proper due diligence before risking their money. While NRIs may want to invest in Indian real estate to benefit from correcting prices and a depreciating rupee, there is much research and careful planning involved.

Provisions under the Foreign Exchange Management Act (FEMA), as well as the Income Tax Act, are applicable to the inheritance of immovable property and its continued ownership by NRIs or PIOs.

A non-resident Indian (NRI) or a person of Indian origin (PIO), can inherit any immovable property in India, whether it is residential or commercial. They can even inherit agricultural land or a farmhouse, which they are otherwise not entitled to acquire by way of purchase.
An NRI can inherit the property from anyone including his relatives. The NRI or PIO can inherit a property in India even from another NRI or PIO, subject to certain conditions. The RBI’s permission is necessary if the inheritance results in favour of a citizen of a foreign state, who is a resident outside India.

1.The time of inheritance of the property:
The NRI or PIO can continue to retain the ownership of the property or dispose of it. Even if the NRI decides to dispose of the property, there are certain tax implications for the period during which he retains the ownership of the property. As wealth tax has been abolished in India, the NRI does not have any wealth tax implications, for being the owner of the immovable property.

2.Continued ownership of inherited property:
As Estate Duty was abolished long back, there is no tax incidence at the time of inheritance. So, neither the representative of the deceased nor the inheritor has to pay any tax at the incidence of inheritance.

3.The time of sale or gift of the property:
Foreign nationals of non-Indian origin, resident outside India, are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. Foreign nationals of non-Indian origin, who have acquired immovable property in India by way of inheritance, with the specific approval of the RBI, cannot sell or transfer such property, without prior permission of the RBI.

As far as payments of EMI for the home loan taken in Indian Currency in India is concerned, the same can be done either by direct remittance from abroad or from the money lying to the credit in NRE/NRO/FCNR account of the NRI. In addition to the above sources, the home loan can even be serviced out of the rents received from such property or money transferred to borrowers account from the account of relatives of such borrower.
In case the NRI is buying the property for the purpose of his own residence, the NRI can even take a loan against deposits lying in their FCNR or NRE account up to an amount of Rs. 100 lacs for the purpose of servicing the home loan.

Understanding the law:
NRIs investing in India must understand the laws that govern real estate transactions. There are, for instance, restrictions on how quickly the profit from a real estate transaction can be repatriated. NRIs also need to learn whether their gains will be subject to double taxation.

Market research for NRIs:
The real estate sector in the developed markets is better governed and more evolved, unlike India. Here, buyers are often subjected to a lot of hassles. Unless an NRI has a trusted person running errands in India, buying real estate in India could be challenging.
Then there’s the management of the property as there are not many companies in India still that offer such services. This makes it all the more essential that an NRI has an agent to collect the rent as well as look after its maintenance.

Market research for NRIs:
The real estate sector in the developed markets is better governed and more evolved, unlike India. Here, buyers are often subjected to a lot of hassles. Unless an NRI has a trusted person running errands in India, buying real estate in India could be challenging.
Then there’s the management of the property as there are not many companies in India still that offer such services. This makes it all the more essential that an NRI has an agent to collect the rent as well as look after its maintenance.

ROI expectations:
The theory of mean reversion suggests that returns from real estate, are likely to be lower than they have been in the recent past,” explains Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
Therefore, NRIs investing in residential real estate at this point of time should have reasonable return expectations over a long-term period,” he says. Finally, NRIs also need to be aware that the depreciation of the rupee against their home currency will also have a bearing on their returns.

Remittances out of India:
An NRI is allowed to repatriate some of the funds, in case the property so acquired is sold. However, the number of properties (whether purchased or inherited), for which He/she can remit or send money to India, is restricted to two.

Moreover, the amount that can be repatriated, cannot exceed the amount (denominated in foreign currency) received as remittances from outside India, either for purchase or servicing of the NRI home loan. Under normal circumstances, an NRI is allowed to remit an amount of USD 1 million in a year, out of India, from his NRE, NRO, or FCNR accounts, which includes the amount remitted for sale of a house.

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