NRIs and PIOs are big investors in Indian real estate…
Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) are major investors in property in India, particularly real estate located in tier-1 and tier-2 metros. Purchases are driven by considerations such as home for habitation during visits to India or investment. The latter is motivated by potential high returns due to continual surge in property prices in India.
Reserve Bank of India guidelines allow purchase of residential and commercial real estate in India without any restriction in respect of number of properties acquired. Purchase can be financed by funds remitted from abroad (NRE A/c), funds held in India (NRO A/c) and by availing housing finance. However, purchase of land, farm house and plantations are not allowed by NRIs and PIOs.
After property is sold, how are the funds transferred abroad?
Persons of Indian Origin, long-term NRIs and permanent residency holders living abroad may need to buy a home in the country where they are residing presently like USA or UK. To part-finance purchase of a home in the country of residence, NRIs / PIOs may decide to liquidate the property held in India and remit the proceeds overseas.
The entire sale proceeds should be held in NRO account. Out of this the total cost incurred in the property purchase can be remitted to the country of residence subject to a maximum of USD 1 Million per year. The total cost of purchase is the original purchase price plus the additional cost inflation (indexation) applicable for the number of years that the property is held.
The rest of the sale amount is the capital gain. Out of this, an amount of Rs 50 Lacs can be invested in REC/NHAI bonds for a period of 3 years, at the end of which said amount can be remitted abroad under the Liberalised Remittance Scheme (LRS) of RBI. On the capital gain amount exceeding Rs 50 Lacs, 20% shall be payable as long-term capital gains tax leaving the balance 80% being eligible for repatriation through LRS.
Category-1 foreign exchange dealers have been authorised by RBI to carry out remittance abroad under LRS.