NRIs living in the UAE contribute significantly to the Indian real estate market, driven by a positive outlook on India's economic growth and infrastructure development. They invest in properties for future living, motivated by the desire for a secure investment, a potential return to India, favourable currency exchange rates, and the opportunity to own a home in their homeland. Investments in real estate have increased further after the pandemic.
However, managing real estate investments in India from abroad, especially from the UAE, requires careful planning and adherence to regulations. As an NRI, property investments in India require an understanding the Indian real estate market, legal regulations, and property management. Understanding every detail is crucial for maximising returns and ensuring compliance with Indian laws.
Top reasons why NRIs in the UAE invest in Indian real estate
1. Positive economic outlook: India’s growing economy, improved infrastructure, and increasing urban demand offer capital appreciation opportunities.
2. Security & emotional ties: Many NRIs want a “home base” in India—whether for future living or emotional roots—making property investments appealing.
3. A secure investment: Real estate is traditionally considered a safe and reliable investment, especially in a growing market like India.
Important factors for managing NRI real estate in India
1. Understanding the real estate market and hiring a reliable property manager
- Market Research: Whether buying residential or commercial property, analyse current trends and identify high-growth cities, rental yields, and potential for capital appreciation.
- Property Management: A reliable concierge or property manager can handle daily operations, ensure legal compliance, and optimise your returns. Their services typically include:
- Property maintenance: Regular upkeep, repairs, and condition checks.
- Tenant management: Finding and screening tenants, addressing issues, and collecting rent.
- Monitoring local regulations and ensuring paperwork is up to date.
2. Financial Planning for NRI Real Estate Investments
Aligning Goals: Decide if your objective is rental income, long-term appreciation, or future self-use.
Budgeting & Loans: Explore home loans or EMI plans that fit your financial capacity.
Tax Optimization: Proper planning can help you claim tax benefits and minimise obligations, thereby boosting net returns.
3. Paperwork and Documentation
Knowing the paperwork and documentation requirements for real estate investments in India is essential. Generally, the following documents are required:
Indian passport and visa (copy)
Aadhaar Card – for identity verification
PAN Card – mandatory for tax-related transactions and financial tracking
Work permits from the country of residence
Income proof – latest income tax return (ITR)/bank statement/pay slip for the last 6 months
Government-issued address proof – both for Indian and overseas addresses
Property documents such as title deed, sale agreement, etc.
Power of Attorney - granting a trusted individual in India POA can facilitate property management, including sale, lease, or maintenance.
It is also important to have an NRO (Non-Resident Ordinary) bank account for receiving rental income and sale proceeds and an NRE (Non-Resident External) bank account for repatriation purposes.
4. Financing real estate investments in India
NRI property investment financing in India, such as home loans, is a great option to avail yourself of tax benefits and optimise investment returns. Banks typically finance up to 75% to 80% of the property value. Ensuring timely EMI payments through the NRE/NRO account is crucial to avoid penalties and maintain a good credit score.
5. NRI tax regulations
Understanding the complexities of NRI property investment taxation in India is important. Here are the tax regulations applicable for NRI real estate investments in India:
- Rental income earned by NRIs from property in India is subject to TDS (Tax Deducted at Source). The tenant is responsible for deducting TDS at 30%, plus applicable cess and surcharge, before paying the NRI landlord for rent. NRIs must report this rental income and file an income tax return in India, even if TDS has been deducted.
- On property sales, NRIs are subject to capital gain tax in India. Any short-term capital gains (for properties held for a tenure of less than two years) are taxed at the applicable income tax slab rates, while there is a 12.50% tax on long-term capital gains, with no indexation benefit. However, NRIs can claim long-term capital gain tax exemptions under Section 54 and Section 54EC of the IT Act by reinvesting the proceeds in another property or specified bonds. Section 54F also provides a provision to save on capital gains from the sale of non-residential assets, provided they are reinvesting in a residential property in India.
- India has Double Taxation Avoidance Agreements (DTAA) with several countries, including the UAE, which allows NRIs to claim tax credits in their resident country for taxes paid in India.
Seeking expert help from tax consultants can optimise NRI’s tax liabilities in India and the UAE.
6. Repatriation of Rental Income
Ensuring proper documentation can help stay compliant with FEMA (Foreign Exchange Management Act) guidelines. The following are the repatriation guidelines to follow:
- It is important to have an NRO (Non-Resident Ordinary) bank account for receiving rental income and sale proceeds and an NRE (Non-Resident External) bank account for repatriation purposes.
- To deposit income in the NRE account or to repatriate it from the NRO account, NRIs require Form 15CA and Form 15CB, certified by a Chartered Accountant. This ensures that taxes are paid based on income earned in India.
- As per RBI regulations and FEMA guidelines, NRIs can repatriate up to USD 1 million per financial year from their NRO account. There are no limits on repatriating funds from an NRE account.
7. Real estate regulations and risk management
NRIs need to be aware of NRI property investment risks in India, such as market fluctuations and volatility of real estate prices. The best way to manage real estate investment can be diversifying the portfolio and investing in properties with good long-term appreciation potential.
Staying updated on the regulatory changes can also help NRIs to remain compliant. NRI property investment regulations in India, such as FEMA (Foreign Exchange Management Act) and RERA (Real Estate Regulation and Development Act), offer transparency and lucrative opportunities for NRI investors. It is important to ensure the property is RERA certified or has clear titles and no legal disputes. Seek help from legal professionals for due diligence and documentation.
Conclusion
In conclusion, managing NRI real estate investments in India requires a comprehensive approach encompassing several critical aspects. Understanding the market dynamics and hiring a reliable property manager ensures smooth operations and maximises returns. Effective financial planning, consideration of financing options, efficient paperwork, adherence to tax regulations, and clear strategies for repatriating income are essential for compliance and rational investment decisions. Finally, staying updated on real estate regulations and managing risk will safeguard investments and secure long-term benefits.
