5 Things NRIs Should Know Before Investing In Indian Real Estate
If you are a non-resident Indian (NRI) planning to invest in real estate in India, here are the things you need to keep in mind:
A long-term view for tax benefits
Define an investment period that would help you gain tax benefits. Minimum three years of investment is recommended. This is helpful especially when buying a property for investment purposes. According to the Income Tax (IT) rules, if you sell a property within three years of purchase, it will be treated as short-term capital gains and taxed. The proceeds from the sale will also be added to the income of the NRI. If the property is sold after three years, the IT department offers an option of reducing long-term capital gains tax, by investing the proceeds into another property purchase.
Get ready to file IT returns in India
If you buy a property in India, you would have to pay property tax in India along with stamp duty and registration fees for the property. So, assess all the costs before you plan an investment. Apart from that, if you earn money via rent in India, it would subject to income tax. Hence, hire the services of an accountant to file IT returns in India, and for paperwork. Though not mandatory, it is advisable to get a PAN card before making an investment, to ease financial procedures later.
Check all the offers by developers' association
Developer bodies such as the Confederation of Real Estate Developers Association of India (CREDAI) organise exhibitions regularly for NRIs and gives a number of offers. Some of them offer spot loans from top banks and other discounts. So, study all such offers before you make an investment to ensure that you get a good deal.
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Know the EMIs and the forex effect
The Reserve Bank of India (RBI) allows NRIs to get loans up to 80 per cent of the value of a property. However, these loans will be disbursed in Rupees and subsequently, they will have to be paid back in the same currency. If you plan to pay the equated monthly instalments (EMIs) with your personal earnings abroad, be careful of the effect of foreign exchange (forex) as fluctuations can increase the burden. If possible, make sure that a major part of loans will be paid from rental income from a property.
Taking back money is not easy
If you are buying an apartment in India exclusively for investment, it is not easy to take back the proceeds to your home country. The government allows repatriation of the sale proceeds home as long as it does not exceed US$ 1 million. However, capital gains tax and income tax will have to be paid in India.
If your home country does not recognise that the money you gained has been taxed, there is a possibility that you will have to pay tax twice. The long-term capital gains tax can be as high as 20 per cent. These taxes might reduce the amount of profit that you gain from it.
(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)
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