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Benefits of buying a property in Mumbai for NRI’s

21 June 2016

Investing in the real estate of India may be quite a lucrative option at this stage for anyone. This is because the last boom was noticed few years back and after a temporary lull of few years, you can expect the property prices to shoot up once again. This is all part of a circle, and the time for real estate will come. However, instead of waiting for the surge in real estate prices and then jumping into invest would be somewhat fool-hardy. It is better to start investing from now, especially if you are a NRI (Non-Resident Indian), who is minting money in a country having currency superior to that of India.

To start off with, any NRI buying a property in India needs to be aware about the terms / provisions specified in the two enactments – Foreign Exchange Management Act and the Income-Tax Act. You will be amazed to know that any Indian citizen residing outside India, is permitted to acquire any immovable property in India, other than a farm house or agricultural property. Basically, a NRI is entitled to almost all privileges that an Indian living in India has with regards to purchase and ownership of immovable property. Isn’t that a great benefit?

Let us now understand the various benefits that a NRI gets for investing in real estate in India’s financial capital, i.e., Mumbai.

  1. The real estate prices in foreign countries may have taken a dip, and the same fate has been observed in most Indian cities. However, Mumbai is a city where the real estate prices have remained constant and not undergone any major correction for quite a long time. The reason is fairly simple. This city still experiences a major influx of people from remaining parts of India, who wish to fulfil their dreams by making it big and earning big here. This has always resulted in consistent demand for properties in Mumbai, either for ownership or for rental purpose.

    Also, when the real estate prices start rising, Mumbai is likely to be most impacted city as prices here can rise at an extremely fast pace. You wink and you may miss a big jump in prices! Clearly, the returns on investment in the real estate of Mumbai is immense, whether the NRIs rent out their invested property or stay invested for selling it off at a later stage.
  2. A NRI can easily invest in any commercial property or a residential one, and start earning regular income from the same by putting it on rent. And they need not worry about any hidden tax clauses, as all the rental income applicable tax provisions are clearly specified in a simple manner.
    • From the rental income taxes derived from a NRI, deduction is available with regards to payment of house tax, along with a special 30% deduction towards repairs, maintenance as well as collection charges of that property. And it could prove to be a great deduction benefit on the tax paid by NRIs, regardless of whether they spend on maintenance / repairs or not.
    • Another significant deduction (from rental income) permissible for NRIs is the entire interest payment on the purchase of the property that is put on rent. Thus, the NRIs can take advantage of this deduction by taking a loan for buying that property.
  3. A NRI can purchase any residential or commercial property with the only aim of earning significant profits by selling the same after few years. However, to get better benefits, the NRI needs to sell the property after 3 years, which would make the gains the non-resident individual earns from selling the property come under long-term capital gain, which receives several tax advantages (like cost inflation index for reduction of tax, or re-investing in new property to save tax).

    On the other hand, if the property is sold inside 3 years, then, the short-term capital gain arising out of it is liable to taxes, and has to be shown along with the ‘other income’ of the NRI.
  4. As per the Foreign Exchange Management Act, a NRI can easily repatriate the rental income received from invested property in India. It is even possible to repatriate the sales proceeds arising for any invested real estate (immovable property) in India (via remittance or NRE account).
  5. Aged NRIs (especially senior citizens) can take massive advantage of the reverse mortgage as they can enjoy the invested property on one hand, and also take cash from the bank resulting in reverse mortgage of that property (not added as financial gain of the NRI).
  6. With such a wide range of benefits for buying a property in India, and more particularly in Mumbai, NRIs are indeed spoilt for choices!