FEMA Compliance — What NRIs Can and Cannot Buy
Under FEMA (Foreign Exchange Management Act) read with RBI's Master Direction on Acquisition and Transfer of Immovable Property, NRIs (Non-Resident Indians holding Indian passport) and PIOs (Persons of Indian Origin) have broad rights to acquire residential and commercial property in India. No prior RBI approval is needed for standard residential purchases.
Prohibited property types for NRIs without special RBI dispensation: agricultural land, plantation property, and farmhouses. All other residential and commercial categories — apartments, villas, penthouses, office space, retail units — are fully permissible.
OCIs (Overseas Citizens of India) have rights equivalent to NRIs for property purchase purposes. Foreign nationals (without NRI/PIO/OCI status) require specific RBI approval and are restricted to residential property while residing in India.
Setting Up the Right Bank Accounts for Property Purchase
FEMA mandates that property purchase payments come from specific Indian accounts. The three permissible account types are: NRE (Non-Resident External) — rupee account funded from foreign earnings, fully repatriable; NRO (Non-Resident Ordinary) — rupee account, partially repatriable up to USD 1 million per financial year; and FCNR (Foreign Currency Non-Resident) — foreign currency account, fully repatriable.
The choice of account matters for tax planning. Funds parked in NRE accounts earn interest that is tax-exempt in India. NRO account interest attracts 30% TDS. For property purchase, PIKORUA recommends NRE account as the primary payment route wherever possible.
Home loans in India for NRI property purchases are available from major banks (SBI, HDFC, ICICI, Axis). Documentation requirements include overseas income proof (pay stubs, tax returns), employment letter, and NRE/NRO bank statements. LTV available is 75–80% of registered value — same as resident Indians.
PIKORUA's NRI Advisory Process
PIKORUA handles NRI transactions across six structured stages: (1) timezone-flexible briefing call to map requirements, budget, and family structure; (2) HD virtual walkthroughs of shortlisted properties; (3) legal and RERA due diligence by empanelled Gujarat law firms; (4) FEMA and banking flow setup with CA consultation; (5) Power of Attorney registration at Indian consulate/embassy for clients who cannot travel to India; (6) remote registration execution and snagging.
The POA step is the most critical for NRIs: a registered, properly drafted POA allows a trusted India-based family member or PIKORUA's registered agent to execute the purchase registration, society membership, and possession formalities without the buyer needing to be present in India. PIKORUA drafts all POA documents to Indian Sub-Registrar standards.
Tax Treatment for NRI Property Buyers
TDS on property purchase: When an NRI sells property, the buyer must deduct 20% TDS on LTCG and 30% TDS on STCG at source. NRIs can apply to the Assessing Officer for a lower TDS deduction certificate under Section 197 before the transaction.
Rental income: NRI rental income in India is taxed at slab rate. TDS is deducted at 30% at source by the tenant. The NRI must file an Indian tax return to claim the 30% standard deduction on rental income and offset the excess TDS.
Double Tax Avoidance Agreements (DTAA): India has DTAA treaties with 90+ countries including the US, UK, UAE, Canada, and Australia. NRI investors can claim relief to avoid double taxation on the same income in both countries. PIKORUA partners with international tax advisory firms for clients who need cross-jurisdictional tax planning.
