Basic Rules For NRIs For Navigating The Real Estate Market In India

Real estate market is a lucrative option for NRIs to invest back in their country. The depreciation of the rupee has also boosted the NRI investment mood for the real estate sector in India. Various builders also have NRI specific projects to increase their overall sales.

However, there are some basic rules all NRIs must keep in mind before investing in any real estate project in India. Let’s have a quick look:

Understand the Nature of Property: Before buying any property in India, it is imperative to understand the kind of properties any Non-Resident Indian or Person of Indian Origin can buy. According to the rules laid down by the Foreign Exchange Management Act (FEMA), NRIs can only purchase residential or commercial property in India. Agricultural land, farmland or any kind of plantation property cannot be purchased by an NRI.

If a person owned a farmland or an agricultural land before becoming an NRI, in that case he or she can continue to be the owner of the land. Even if a residential or commercial building is built on a designated agricultural land, the purchase is deemed illegal. There is however no cap on the number of residential or commercial properties NRIs can purchase.

Ensure Clean Purchase: The onus of a clean purchase is the sole imperative of the buyer and it is here that all NRIs need to be absolutely sure of the seller and a clean title. If a seller for example is not able to produce an original title deed and shares a copy, chances are that there is something fishy about the property in question. If you are unsure, it is advisable to hire the services of a lawyer to ensure clean transactions. In case you are purchasing a property from a builder, make sure to ask for all documents to ensure the property is clean.

Understand Stamp Duty and Taxation Details: Before finalizing any real estate deal in India, it is essential to take into account stamp duty and taxation related issues. For any built up property a minimum stamp duty as designated by the respective state government needs to be paid. While a registration fee of 1% is applicable for all property related transactions, the buyer also needs to pay service tax on the transaction.

If you are buying a property from any builder or real estate developer you would have to pay a service tax of 12.36% on quarter or 25% of the total price. For apartments greater than 2000 square feet, the service tax is calculated by taking into account 30% of the total price of the property.

Ensure Adequate Exit Options: Before buying any property in India, NRIs must be aware of the possible exit options in case they want to sell the property in the long run. There are certain caps on possible exit routes for NRIs while selling property in India. While NRIs can sell residential and commercial properties to resident Indians, Indian citizens as well as Persons of Indian Origin, he or she can repatriate a maximum of $1 million per year in case the initial payment was made from a NRO account. There is however no limit if the NRI purchased the property through NRE or FCNR accounts. Depending on the quantum of ownership, property tax must be paid for each sale.