How NRIs Can Invest in Indian Real Estate?

Indian Real Estate continues to attract Non-Resident Indians (NRIs) seeking a mix of stable rental income, portfolio diversification, and long-term capital appreciation. Over the past few years, regulatory clarity under FEMA/RBI and tax administration improvements have made the process more structured, while newer digital rails (e-KYC, online tax payments, e-registration in many states) have reduced friction.

Can NRIs Invest in Indian Real Estate?

Yes, FEMA/RBI rules permit NRIs to purchase residential and commercial property in India. Payment must come through banking channels, either inward remittance in foreign exchange or from NRE/NRO/FCNR accounts. There is no general cap on the number of residential/commercial properties an NRI may buy.

What Type of Property are Allowed vs Restricted?

Allowed:

• Residential units: ready, under-construction, or resale.
• Commercial assets: offices, shops, small warehouses, etc.
  These may be purchased singly or jointly (including with resident relatives), funded as per FEMA rules.

Restricted:

• Agricultural land, plantation property, farmhouses: purchase is not permitted for NRIs/OCIs (except by inheritance/gift under specific conditions).

RBI/FEMA Rules: Funding the Purchase & Repatriation

Funding Sources:

Consideration must be paid via

(a) inward remittance through normal banking channels, or

(b) debits to NRE, NRO, or FCNR accounts.

Housing loans from Indian banks/HFCs are permitted; repayment can be made through these NRE/NRO/FCNR accounts or by inward remittance.

NRE vs NRO Basics

• NRE: maintained in rupees from foreign income; fully repatriable (principal + interest). Interest on NRE/FCNR is exempt from Indian tax.
• NRO: For income accruing in India (rent, dividends, etc); repatriation allowed up to USD 1 Million per financial year for bona fide purposes, subject to documentation and taxes.

Repatriating Sale Proceeds & Rent:

• Current income (e.g., rent) cam be repatriated from NRO after applicable
• Sale proceeds of property acquired using foreign exchange remitted through banking channels or from NRE/FCNR are generally repatriable (subject to conditions, including that such repatriation for residential property is limited to two properties). Where property was purchased from rupee funds, repatriation typically falls under the USD 1 Million per Financial Year from NRO.

Legal & Documentation Essentials (Before You Buy)

Establish identity and tax presence with PAN, open NRE?NRO as needed, and line up home-loan sanction if borrowing. For under-construction assets, verify RERA registration and review the builder's track record, title search/encumbrance report, approved plans, and occupation/completion certificates (for ready units). If acting from overseas, appoint a registered Power of Attorney (PoA), attested per your host country and adjudicated in India where required. (RERA is a state law framework; documentation specifics vary by state, but these are standard diligence steps).

Step-by-Step: How an NRI Buys Property in India

Step 1: Shortlist & Diligence

Validate title, possession, and approvals. For new builds, rely on the RERA portal of the state to review project details and complaints.

Step 2: Lock in Funding

Decide your mix of NRE/NRO balances, inward remittances, and/or an NRI home loan. Banks typically require passport/visa, overseas address proof, income proof, and may insist on a resident co-application/PoA for execution. EMI is serviced via NRE/NRO/FCNR or inward remittances.

Step 3: Sign the Agreement to Sell (ATS)

Pay the booking/earnest amount through permitted channels. Ensure the ATS clearly sets out milestones, possession date, and penalties.

Step 4: TDS at source (only if the seller is an NRI)

• If seller is resident, Section 194-IA applies: buyer deducts 1% TDS (threshold ₹50 lakh).
• If seller is NRI, Section 195 applies: buyer must deduct TDS at “rates in force” on payments to the non-resident and deposit with the government. (Often, buyers seek a lower-TDS certificate (Form 13) from the Assessing Officer to deduct on gains rather than gross sale value.)

Step 5: Pay Stamp Duty & Register the Sale Deed

Execute and register the conveyance with the sub-registrar; keep all challans and TDS proofs.

Step 6: Post-registration set-up

Updated municipal records for property tax, connect utilities to your name, and if you plan to let out, prepare a compliant lease and TDS workflow for the tenant.

Income Tax on Rental Income (NRI Landlord)

Charge & Deductions

Rent from Indian property is taxable in India. After deducting municipal taxes actually paid, a standard deduction of 30% (Section 24(a)) is allowed, plus interest on a housing loan per Section 24 (b). These provisions are reflected across Income Tax Department resources and ITR schedules.

TDS by the Tenant

When the landlord is an NRI, Section 195 applies. The tenant (resident or otherwise) must deduct TDS at the applicable rate on gross rent and deposit it monthly, typically at about 30% plus surcharge/cess, unless a lower/nil-TDS certificate under Section 197 is obtained. Tenants also need to file Form 15CA/CB in many cases before remitting abroad (Exact rate depends on your status and DTAA; many payers default to 30% to stay compliant).

Return Filing

NRIs earning rent should file an Indian tax return (generally ITR-2/3 as applicable), claim deductions, and credit for TDS. Refunds arise frequently where slab rates/DTAA reduce the final tax below TDS withheld.

Capital Gains Tax When an NRI Sells Property

Holding Period & Nature of Gains

Property held > 24 months is long term; otherwise short-term.

Rates After Mid-2024 Change

From July 23, 2024, India overhauled the capital-gains regime. For sales of land/building, the long-term capital gains(LTCG) rate became 12.5% without indexation.

An additional option to choose 20% with indexation was introduced for resident individuals/HUFs for certain legacy assets; NRIs are not eligible for this option as clarified by expert analysis post-amendment. Always add surcharge and health & education cess, and check the latest rule text before computing tax.

TDS on sale proceeds

If a resident/NRI buyer purchases from an NRI seller, TDS under Section 195 applies at “rates in force”. Practically, buyers often withhold at the applicable capital-gains rate on gross consideration unless the seller furnishes a lower/nil TDS certificate (Form 13) based on estimated gains.

DTAA Relief (Avoiding Double Tax)

NRIs can claim Double Taxation Avoidance Agreement (DTAA) benefits to prevent the same income being taxed twice. To apply DTAA rates/relief, furnish a Tax Residency Certificate (TRC) from the country of residence and Form 10F (with prescribed particulars) to the payer/Income-tax Department. India’s rules for TRC are laid down under Section 90(4) read with Rule 21AB. 

Repatriating Money After Sale or From Rent

Sale proceeds

If the property was purchased using foreign exchange via banking channels/NRE/FCNR(B), sale proceeds are repatriable subject to conditions (including the two-residential-property cap). If purchased from rupee funds, repatriation is generally under the USD 1 million per FY facility from the NRO account. Banks require Form 15CA/15CB, proof of tax payment, sale deed, and KYC before outward remittance. 

Rental income

Current income like rent may be repatriated after taxes from NRO, through your Authorised Dealer bank under FEMA.

Common Challenges NRIs Face (and how to mitigate)

Title and compliance gaps

Incomplete chains of title, unregistered past deeds, or missing approvals can derail a resale or a loan. Mitigate via independent title search and RERA/municipal checks.

TDS Errors

Tenants and buyers often apply the wrong section (194-IA vs. 195) or withhold at incorrect rates. Use a CA, and secure lower/nil-TDS certificates where appropriate.

Repatriation paperwork

Missing Form 15CA/CB or tax proofs can delay outward remittances. Check documentation with your AD bank ahead of a sale.

Execution from overseas

Improper PoA attestation/apostille/adjudication can invalidate documents. Plan execution timelines early.

Market timing & segment risk

Demand has recently skewed toward premium housing, even as overall volumes have cooled in some quarters; align asset selection and hold period with realistic absorption/yield expectations.

Fractional Real Estate Investment for NRIs

Traditional real estate investment often requires significant capital, making it difficult for NRIs to diversify across multiple properties in India. This is where fractional ownership in real estate has emerged as an attractive alternative.

Fractional ownership allows an investor to purchase a proportionate share of a high-value property, usually commercial spaces like Grade-A offices, warehouses, or retail centres, without bearing the full cost of acquisition. Instead of buying the entire property, NRIs can hold a fraction through Special Purpose Vehicles (SPVs) or platforms that pool multiple investors. Each investor earns returns from rental income and capital appreciation in proportion to their share.

Why it is Relevant for NRIs

1. Affordable Entry Point: Instead of investing ₹5-50 crore in prime commercial assets, NRIs can participate with an initial contribution as little as ₹10 lakhs through platforms like ESTATES.
2. Passive Income: Properties are managed by professional asset managers who handle leasing, tenants, and compliance, ensuring hassle-free income for NRIs living abroad.
3. Diversification: NRIs can spread their investment across multiple assets, reducing risk exposure compared to owning a single residential property.
4. Regulatory Recognition: The Indian government and SEBI are working towards clearer frameworks, which strengthens trust and reduces risks of unregulated platforms.

How NRIs Can Participate

• Investment is usually made through NRE/NRO bank accounts in compliance with FEMA.
• Returns are credited periodically, and taxation applies similarly to other rental income.

Taxation for NRIs in Fractional Real Estate

• Rental income is subject to TDS deduction at 30% (plus surcharge and cess) before being remitted to the NRI.
• Long-term capital gains (after 24 months) are taxed at 20% with indexation.
• NRIs may also benefit from DTAA (Double Tax Avoidance Agreement) to avoid paying tax twice on the same income.