A guide to FEMA regulations for NRI property buyers


NRIs considering property purchases in India should certainly know that there are more than a few things to keep in mind. FEMA (Foreign Exchange Management Act) regulations should always be on the radar for NRI homebuyers in order to ensure smoother property transactions.

NRIs have always been major investors in the property market. Most NRIs usually look to buy property in their places of birth or hometowns for emotional reasons, future retirement and also for building an asset in many cases. If you’re thinking of buying property in India, here are some things worth keeping in mind.

FEMA regulations worth noting for NRI homebuyers

NRI buyers who are purchasing homes should always keep a few definite regulations under FEMA in mind. The Foreign Exchange and Management Act or FEMA encircles real estate transactions and the Reserve Bank of India (RBI) has eased up the regulations for investments made in the country by NRIs.

FEMA has issued definitions for PIOs (persons of Indian origin) or NRIs and they can acquire through purchase any immovable property unit in the country. This should be with the exception of any plantation land or agricultural land or farm house. This is a general regulation issued by the Indian Government for NRI property buyers.

However, persons who are citizens of Bhutan, Nepal, Pakistan, Sri Lanka, Afghanistan, Bangladesh or Iran are not permitted to transfer/acquire immovable property in India. They can only lease properties for a maximum of 5 years without taking permission from the RBI as per experts.

Key guidelines for NRI homebuyers

  • NRIs should be careful about the type of properties that they invest in based on FEMA guidelines.
  • Only commercial and residential properties can be bought in the country.
  • The NRI can only be gifted any plantation property, agricultural land or farm house. These types of properties can also be inherited by the NRI as per the rules.
  • PIOs and NRIs can only pay by remitting funds to India via regular banking avenues or funds kept in NRE or FCNR (B) or NRO accounts which are maintained in the country.
  • Payments cannot be made through foreign currency notes or traveller’s cheques.
  • Payments cannot be made outside the country.

Taking home loans- How can NRIs repay the same?

There are specific guidelines pertaining to repayment of home loans that NRIs may take to purchase property in India. NRIs or PIOs can also get home loans for buying property in Indian currency up to a maximum of 80% of the value of the property in case they adhere to individual guidelines for eligibility as issued by financial institutions.

Repayment of loans can only be done through the following:

  • Regular banking channels, i.e. inward remittances.
  • Rental income arising out of the property.
  • Debit from the FCNR (B)/ NRO/ NRE account.
  • Through payment of the loan amount by close relatives of the NRI customer as laid out in Section 6 of the Companies Act of 1956. This payment should be done by the close relatives from their Indian accounts and they should be crediting the loan account held in the name of the NRI borrower.

Taxation aspects

There are quite a few guidelines pertaining to taxes as well in case you are earning steady profits from investments in real estate. You may be earning rental income or any other long or short term gains from property in India. In case of rental income, the income earned from a property which is located in India comes under purview of income that has been accrued in the country and will be taxable even if the owner is an NRI or PIO.

In case of short-term capital gains, they will be applicable on profits that have been earned through selling property within two years of buying the same. The capital gains for these properties are worked out as the difference between the acquisition cost and also the proceeds of the sale. This is taxable based on the slab that applies for the NRI in question. Long term capital gains are applicable in case the NRI holds onto the property for more than 2 years. These gains are taxable at the rate of 20%. However, exemptions may be claimed by the NRI under Sections 54 F, 54 and 54 EC.

In case of under construction properties, NRIs may be required to provide power of attorneys to their associates/relatives/trusted personnel for the final transactions. It is always best to have a professional lawyer make the documents and review them for safeguarding the interests of the buyer.


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