As an NRI, investing in real estate in India can be a great way to grow your wealth and diversify your portfolio. However, there are some important things to keep in mind before making any purchases.
1. Duration of Investment: If you’re buying property in India for investment purposes, it’s highly recommended to hold onto it for at least three years. This will ensure that you’re eligible for long-term capital gains tax, which is much more favorable than short-term capital gains tax.
2. Taxation: Short-term capital gains tax is levied if you sell the property within three years of purchase. The rate of tax depends on your income tax bracket. On the other hand, long-term capital gains tax is levied if you sell the property after three years of purchase. This tax is 20% with indexation benefits.
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3. Property Tax: As an NRI, you’ll be required to pay property tax in India on any property you purchase. Additionally, you’ll also have to pay stamp duty and registration fees. However, NRIs are eligible for certain deductions on these fees.
4. PAN Card: It’s advisable to get a PAN card before making any investments in India. This will make it easier to complete the legal formalities and procedures related to taxes.
5. CREDAI: The Confederation of Real Estate Developers Association of India is an organization that brings together NRIs and real estate developers. Before making any investments, CREDAI recommends checking their offers to avail the best investment opportunities.Â
6. Loan Repayment: If you take a loan in INR to purchase property, it’s important to repay the loan in INR as well. Ideally, you should also use the rental income from the property to pay the EMIs. Fluctuations in the forex market can result in losses if payments are made otherwise.
7. Power of Attorney: NRIs can make investments in India themselves, or they can authorize a relative with a power of attorney to do it on their behalf.
8. Tax Benefits: NRIs are eligible to claim tax benefits just like Indian residents. Under Section 80C of the Income Tax Act, they can claim up to Rs. 1 lakh.
9. TDS and Capital Gains Tax: NRIs must pay a TDS (tax deducted at source) of 1% on properties worth more than Rs. 50 lakhs. Capital gains tax is also levied on the purchase of such properties.
10. RFC Account: It’s highly recommended to open an RFC (Resident Foreign Currency) account before making any investments in India. We designed these accounts specifically for NRI transactions, where the currency may change depending on the transaction.
Conclusion
Investing in real estate in India as an NRI can be a great way to grow your wealth and diversify your portfolio. However, it’s important to keep these 10 things in mind before making any purchases to ensure that you’re making informed decisions and maximizing your returns.