Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) can invest in Indian real estate under the Foreign Exchange Management Act (FEMA) 1999, subject to specific restrictions on property types, funding, and repatriation. Here is the complete guide to NRI property investment in India including FEMA compliance and tax obligations.
What Property Can NRIs Buy in India?
- Allowed: Residential properties (any number) — apartments, houses, villas
- Allowed: Commercial properties — offices, shops, commercial complexes
- Not Allowed: Agricultural land, plantation property, farmhouses — NRIs cannot purchase these (inheritance is allowed)
Funding the Property Purchase
NRIs can fund Indian property purchases through:
- Inward remittances through normal banking channels
- Funds held in NRE (Non-Resident External), NRO (Non-Resident Ordinary) or FCNR (Foreign Currency Non-Resident) accounts in India
- Home loans from Indian banks (EMIs can be serviced from NRE/NRO accounts)
NRIs cannot use foreign currency directly or traveller's cheques to fund property purchases.
Repatriation of Sale Proceeds
- Sale proceeds of a maximum of 2 residential properties can be repatriated out of India
- Total repatriation limited to the amount paid in foreign exchange or through NRE/FCNR accounts (original investment amount)
- Repatriation from NRO funds is subject to USD 1 million per year limit
- Rental income is freely repatriable from NRO account up to USD 1 million per year after taxes
TDS on Property Purchase from NRI — Section 195
When a resident Indian buys property from an NRI, TDS must be deducted under Section 195:
- TDS on short-term capital gain: At applicable slab rates (30%+cess for NRI)
- TDS on long-term capital gain: 12.5% + surcharge + cess (20.8% for most NRIs)
- Buyer must obtain TAN and deposit TDS before paying the NRI seller
- NRI seller can apply for a Lower Deduction Certificate (Form 13) from the IT Department to reduce TDS
Income Tax on NRI Rental Income
Rental income from Indian property is taxable in India for NRIs — subject to 30% TDS by the tenant under Section 195. NRIs must file an ITR in India if their India-source income exceeds the basic exemption limit.
Conclusion
NRI property investment in India is well-regulated under FEMA — with clear rules on what can be bought, how it can be funded and how proceeds can be repatriated. SPOTON provides comprehensive NRI investment advisory including FEMA compliance, TDS management and NRI ITR filing. Contact us for expert NRI financial services.
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