When it comes to NRI investment in India, there are several aspects that are hugely confusing for prospective investors and developers alike. Most people remain unaware of several aspects and regulations which lead to them taking the wrong decisions. Did you know that NRIs (non-resident Indians) can take home loans in India for buying residential properties? Many NRIs have remained oblivious to this fact.
NRIs are allowed to buy immovable property in India other than plantation property, farm houses or agricultural land. NRIs should be citizens of India or persons of Indian origin (PIO). Under the exchange control law, the payment of the buying price for the residential property in question should be made only through these channels-
- Funds received through regular banking channels in India through inward remittance from any location outside the country
- Funds held in any non-resident banking account – non-resident ordinary (NRO), non-resident external (NRE) and FCNR (foreign currency non-resident)
NRIs can definitely apply for home loans in India for buying residential property here. NRI home loans are available from both banks and NBFCs in the country. These loans can be easily repaid through deposit adjustment or even through inward remittances from outside the country via regular banking channels or from balances held in NRO accounts. One should remember that when an individual residing in India leaves the country for taking up any other employment, vocation or business outside the country or for any other purpose which demonstrates his/her willingness to stay outside the country for an indefinite period of time, the existing savings account will be designated as his/her NRO account.
As per the income tax law, interest on loans that are taken for buying, constructing or repairing residential property in India will be allowed for tax benefits while calculating the income earned from property for a particular financial year. In case of self occupied property, the deduction limit is Rs.2 lakhs while in case of properties that are let-out, there are no limits on the interest amount to be deducted.
The repayment of the principal component of the home loan will be eligible to earn tax benefits up to a maximum of Rs.1.5 lakhs under Section 80C. In case an NRI wishes to purchase a property for his/her parents or family members in India, it should be kept in mind that gift tax is not charged in India.
However, income tax is payable for any amount of money or movable/immovable property that is received by an individual without any consideration (quid pro quid) except gifts that are received from a relative. The relative in question can be any of the following-
- Brother/sister of spouse
- Brother/sister of either of the parents
- Any lineal ascendant or descendant
- Any lineal ascendant/descendant of the spouse
- Spouse of the person referred to in the earlier six clauses
As a result, gifting a house/property located in India to one’s parents or other relevant family members will not be subjected to taxation. Any income from such property or other gains arising from the sale of such property in India will however be taxable in the hands of the legal owner of the property.