A number of overseas representative offices set up by banks enable NRIs to seek home loans for investments in real estate in India. Even select foreign banks in the private sector provide home and mortgage loans to NRIs. Repayment should be made by way of inward remittance through normal banking channels or by debit to the NRE, FCNR (B) or NRO account, or out of rental income derived from renting out such property. In fact, repayment is treated as equivalent to foreign exchange received for purchase of residential property.
The rules governing NRI investments are provided in the Foreign Exchange Management Act (FEMA). The prohibited areas for investments continue to be agricultural land, plantation property or a farmhouse. An NRI can acquire any immovable property in India other than agricultural land, plantation property or a farmhouse. He can transfer any property in India to a person resident in India or an NRI resident outside India other than prohibited properties. For a person of Indian origin (PIO) the same regulations would apply.
There are no restrictions on the number of residential /commercial properties purchased in India but repatriation is restricted to two residential units after a lockin period of three years. Rental income is repatriable. Thus, a number of NRIs have shown interest in leased properties across the country.
Similarly, NRIs may transfer by way of gift, residential /commercial property in India to a person resident in India or to an NRI/PIO. The sale proceeds of residential /commercial property received by way of gift should be credited to a NRO account only. As regards repatriation, an amount not exceeding $1 million per calendar year is allowed subject to production of documentary evidence in support of inheritance and tax clearance certificate/no objection certificate from the income tax authority to authorised dealer for remittances.
The CBDT has recently notified that any gift-in-kind, being an immovable property or any other property, the value of which exceeds Rs 50,000 will become taxable in the hands of the donee, being an individual or a HUF, as income from other sources.
Like residents, NRIs are allowed a deduction upto Rs 1.5 lakhs per annum in respect of interest payable besides deduction on the principal repayment within the overall ceiling of Rs 1 lakh. If there is loss under the head 'income from house property' which cannot be set-off against any income of the same year, it can be carried forward for the next eight assessment years to be set-off against any income from the house.
A house leased for a minimum period of 300 days in a calendar year is exempt from wealth tax. Investments in commercial property will enable the investor for exemption from wealth tax. Purchase through an agreement to sell with a power of attorney duly executed by the seller has been made possible. It need not be registered and no stamp duty is payable. The benefit of cost inflation index at 631 for the year 2009-10 for saving tax on long-term capital gains is available to NRIs as well.
The Economic Times