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NRIs: Buying a Home in India Made Easy Friday, November 17, 2006 In recent years, India has been witnessing unprecedented growth in the real estate sector fueled by the increased business activity. Real estate development in India is estimated at USD 12 billion and growing at 30% every year. Though all segments of real estate business such as corporate, retail and residential have been driving this growth, investment in residential property itself constitutes 80% of this sector. Non-resident Indians (NRIs) are one of the key contributors to the growth of the real estate industry and considering the immense potential in India, they are likely to step-up the investment in future. In this article, senior tax professionals with Ernst & Young – Gaurav Taneja and Rajesh S provide an overview of the key exchange control and tax implications that should be considered by NRIs while investing in house property in India. Exchange control regulations – The Indian Government has considerably eased the restrictions relating to investments by NRIs in house property. There is virtually no restriction or approval required for an NRI to invest in properties in India from funds received in India through normal banking channels or held in Non-resident External (NRE) account/ Foreign Currency Non-resident (FCNR) account (B)/ Non-resident Ordinary (NRO) rupee account. However, investment in agricultural land/ plantation property/ farm house is currently prohibited. The recurring rental income earned on letting out of property is also freely repatriable. Sale/ Repatriation – An NRI can freely sell or gift his/ her property to another Indian resident or NRI or person of Indian origin. However, there are certain restrictions imposed on repatriation of sale proceeds. In case of investments made from inward remittances or out of NRE account or FCNR account (B), the repatriation of sale proceeds is permitted only upto the amount of initial investment. In case the repatriation is made out of balances held in NRO rupee account (balances include sale proceeds of house property), then an amount of USD one million per calendar year can be repatriated. One of the significant restrictions that is placed on repatriation is that the NRI can repatriate the sale proceeds only upto two residential properties. This could dampen the interest of NRIs in residential property, as investors would like to have free flow of capital while making such investments. Income tax – The income tax implications on house property income in India would be dependent on whether the property is kept vacant or let out. In case an NRI has only one property in India and if it is kept vacant, then it would be possible to say that there should not be any rental value for such property as the NRI was not able to occupy the same owing to his employment, business or professional carried out at any other place. However, if he owns two properties and both of them are kept vacant, then he is required to pay income tax on one of the properties as if the property had been let out. The tax laws do not provide clear guidance on how the rental value is to be determined for such property. It simply states that the annual rent should be the sum which the property might reasonably be expected to let from year to year. Though there are judicial precedents that are available which suggest adoption of municipal value/ fair rent, there could be some practical difficulties in ascertaining such value in the ever increasing rental market. In case of let out properties, the actual rental income (after reducing the municipal taxes) would be subject to tax. The tax law allows a general deduction of 30% on the rental income and also allows for deduction towards interest subject to certain conditions. Tax payments –

Under Indian tax law, the payer is required to withhold tax on rental income paid to a non-resident @ 30.6%…

Nov 19, 2025
Business

Now You Can Invest $50,000 Abroad: RBI Thurday, November 09, 2006 In its midterm monetary policy review, the Reserve Bank of India has brought in three measures that directly affect individual investors. Here’s a synopsis of the same. Liberalised remittance scheme of $25,000 for resident individuals. Limit now raised to $50,000 per calendar year The RBI has announced that resident individuals would be allowed to remit up to $50,000 per financial year (increased from $25,000) for any current or capital account transactions or a combination of both. Which means resident individuals are free to buy property or shares or any other asset outside India without prior approval of the RBI. Individuals can also open, maintain and hold foreign currency accounts with a bank outside India without prior approval of the RBI. Simultaneously, another change has been brought in. Earlier, residents could remit $5,000 per annum abroad as gifts and donations. Now, the $50,000 would be inclusive of this. In other words, $10,000 representing the allowable limit for gifts and donations respectively will no longer exist and there will be one single limit of $50,000 per annum, per person for gifts, donations and investments. At the time of writing this, it is not clear if the $5,000 limit for gifts and donations individually has been maintained within the $50,000 limit or not. In any case, the facility of being able to invest abroad is not new. RBI had already allowed residents to invest abroad vide A.P (DIR Series) Circular No.64 dated 4th February 2004. However, since then, no such product is available in the market. Actually, banks and fund houses initially did solicit deposits under the scheme. Several advertisements appeared offering foreign currency deposits/funds to be placed at overseas centres. However, a press release issued by the RBI went on to state that these advertisements did not contain appropriate disclosures to guide potential depositors. Marketing in India of schemes offered by foreign entities, not having operational presence in India also raised supervisory concerns. It was therefore decided in public interest that no entity other than a licensed banking company could solicit foreign currency deposits from residents. Further, all banks, both Indian and foreign including those not having an operational presence in India had to seek prior approval from RBI for any foreign investment schemes. There was a long list of disclosures that such offerings had to provide. This has scared off any such offers. Unless any streamlined procedures and specific guidelines for such schemes are laid down by the regulator, the $50,000 scheme would be all bark and no bite. That being said, it must be noted that though a bank or a fund house is expected to take RBI permission, a resident individual’s right is in no way restricted from availing of the scheme. In other words, you as an investor can very well approach an authorised dealer and request remittance of the funds in an off-shore deposit or a mutual fund or a stock of your choice. And the AD will have to comply. But, the story does not end here. Foreign markets too have their own regulatory and permission mechanism in place. Therefore, before deciding upon an investment, (though India’s RBI allows you), you will have to determine whether you are eligible to invest in that market as per the rules and regulations of that country. If you are, $50,000 per year is there for the asking. In the meanwhile, if any authorised dealer/bank does indeed offers a product of this kind, or can throw some more light on this matter, please feel free to write in. Ten-year lock-in scrapped

No one is born an NRI ( non-resident Indian ). Instead residents who go abroad for employment or business become…

Nov 18, 2025
Business

November 2006 News

Investment Policy or Time to Rejoice for NRIs? Thursday, November 30, 2006 :As a step to attract investments from overseas…

Nov 18, 2025