Non-Resident and Real Estate in India

Non-Resident and Real Estate in India

As per the provisions of FEMA NRIs can invest freely in real estate in India as follows:

· Up to 100% in an Indian company in Real Estate Development business and can repatriate the benefits, both the business profits and sale proceeds of original investment. Real estate development means construction of residential/commercial properties, offices, etc. Trading in properties or construction of farm houses does not come under the ambit of real estate.

· Acquire residential/ commercial properties in India by way of purchase/ gift/Inheritance from a resident Indian or a NRI. Agricultural land, plantation and farm houses cannot be acquired by NRI except by way of inheritance. No restrictions are imposed on letting out the property and repatriating the rental income after taxes due has been paid. However, certain restrictions are imposed for repatriating the sale proceeds from properties. They are as follows:

o In case of sales proceeds from a property that has been acquired by the NRI by way of inheritance he cannot repatriate more than USD 1 million during one calendar year without any lock in period.

o If the sales proceeds have been received in Rupees then the amount up to USD1 million during a calendar year can be repatriated only if such property/sale proceeds have been in India for a period of 10 years cumulatively.

o In case a property is acquired out of foreign currency the sales proceeds can be repatriated to the extent originally invested and the profits to the extent of USD 1 million during one calendar year without any lock in period. In case of residential properties repatriation is restricted to two such properties.

The limit of USD 1 million per calendar year is a consolidated limit.

Analysis of Real Estate Opportunities:

Ø Leasing a residential and a commercial property in Mumbai could fetch a return of 6-9% and 8-11% respectively. Capital appreciation, if any would provide an additional return on investment.

Ø Investment in real estate is not as liquid as in case of investment in stock market or banks.

Ø Investment in real estate in India requires an additional entry load towards stamp, brokerage, etc.

Ø Loans can be raised easily in India and abroad against the property.

Ø In India interest on capital borrowed for housing loan is allowed as deduction.

Ø In case the sales proceeds are reinvested in the prescribed form then exemption can be claimed.

Ø A power of attorney should be given to a trusted friend or relative n order to avoid any obstacle in way of legal proceedings in the absence of the owner himself.

Key Considerations while investing in Real Estate

The key considerations to be borne in mind while investing in real estate are:

§ The prevailing lease rentals and scope for capital appreciation in the area where the property is located.

§ Scope for infrastructure development around the property under consideration.

§ Location and proximity to schools, hospitals, markets, public transportation etc.

§ Actual property taxes to be paid.


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