Can NRIs buy land in India? All they need to know about laws & taxes

Owning a piece of the homeland can be an emotional milestone for Non-Resident Indians (NRIs) and also a strategic wealth-generation move.

The Foreign Exchange Management Act (FEMA) rules allow NRIs to invest in residential and commercial properties, but prohibit them from buying agricultural or plantation land. They may also buy high-end luxury flats in urban areas, vacant plots and land parcels to construct residential buildings.

Types of properties NRIs can invest in

• Residential houses/apartments: This includes standard high-rise apartments, studios, flats, and penthouses for self-use or rental income. NRIs can purchase any number of residential units.
• Commercial property: This includes individual office spaces, shops, and warehouses that can be used for business purposes. For industrial and logistic purposes, warehouses and factory land can also be purchased.
• Residential land for construction: NRIs can purchase vacant plots and land parcels to construct residential buildings like villas, farmhouses, etc.

NRIs can also inherit agricultural land or accept it as a gift from a resident Indian. However, under the Foreign Exchange Management Act (FEMA), enforced by the Reserve Bank of India (RBI), NRIs are not allowed to invest in agricultural land, plantation property, or farmhouses directly.

Documents required Prior to property purchase, NRIs are required to submit certain crucial documents, including:

• Passport and a valid work permit/visa of the country of residence as address proof.
• Recent income tax returns and six months' pay slips as identity and income proof.
• Special Power of Attorney (PoA) is granted to a relative or agent in India to execute the property deal. The PoA needs to be notarised.
• No Objection Certificate from the society if the NRI is buying an apartment.
• Title deed papers, sale deed, and property registration documents from the seller.

Taxation

For an NRI investor, tax obligations are similar to those for residential buyers except for a few layers of additional compliance norms. They have to pay all applicable taxes, duties, and registration charges during the property purchase as mentioned under the Income Tax Act and FEMA:

• Stamp duty: Varies between 5 to 7% depending on the state
• Registration fee: Between 1-4% of property value
• Service tax: 18% GST on an under-construction property if bought off-plan.
• Tax deducted at source: A TDS of 20% (if the seller doesn’t have a PAN and it’s a long-term capital gain asset) or 30% shall be applicable on the entire sale proceeds

NRIs also enjoy certain tax benefits. Under Section 24B of the Income Tax Act, a deduction of up to Rs 2 lakh on interest paid toward a self-occupied property can be claimed. Also, under Section 80C, they can claim up to ₹1.5 lakh toward the principal repayment, stamp duty, and registration fees.

Mode of payment for the acquisition of property by an NRI

Payment can be made by funds received in India through normal banking channels by way of inward remittance from any place in India. It can also be funded via money held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by the Reserve Bank of India from time to time.
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