The Foreign Exchange Management Act (FEMA) governs cross-border financial transactions involving Indian residents and non-residents. For NRI property purchases, FEMA is the primary legal framework — and understanding it is essential before committing to a purchase.
This guide explains the key FEMA rules in plain language. It is not a substitute for advice from a CA or lawyer familiar with NRI transactions, but it will orient you before those conversations.
Who Is an NRI for FEMA Purposes?
Under FEMA, an NRI (Non-Resident Indian) is an Indian citizen who is resident outside India — typically because of employment, business, or other purposes indicating an intention to stay outside India for an uncertain duration.
A Person of Indian Origin (PIO) — a foreign national of Indian origin — has similar but slightly different rights under FEMA. This guide focuses primarily on NRIs (Indian citizens residing abroad).
What Property Can NRIs Buy?
NRIs can buy residential and commercial property in India without RBI approval. This includes:
- Residential apartments
- Plots for residential construction
- Commercial office space
- Mixed-use developments
What NRIs cannot buy:
- Agricultural land
- Plantation property
- Farmhouses
For urban residential apartments — the type most NRI buyers are considering — there are no restrictions on purchase, ownership, or number of properties.
How Payment Must Be Made
NRI property purchases must be funded through:
- Inward remittance — funds transferred from abroad through normal banking channels in foreign currency, converted to INR
- NRE account funds — funds held in a Non-Resident External account (which holds repatriable foreign currency converted to INR)
- NRO account funds — funds held in a Non-Resident Ordinary account (which holds India-earned income; subject to repatriation limits)
- Home loan disbursement — from a bank in India to the NRI buyer's loan account
Important: Payment must not be made in foreign currency (cash or wire) directly to the developer. All payments go through Indian banking in INR. The currency conversion happens at your bank before the INR payment reaches the developer.
NRE vs NRO Accounts: The Essential Distinction
NRE account (Non-Resident External):
- Holds foreign earnings converted to INR
- Fully repatriable — funds can be sent back to your foreign account freely
- Interest is tax-free in India
- Ideal for funding property purchases with intention to eventually sell and repatriate proceeds
NRO account (Non-Resident Ordinary):
- Holds India-earned income (rent, dividends, salary from Indian source)
- Repatriation is permitted up to USD 1 million per financial year, after payment of applicable taxes and TDS
- Interest is taxable in India
- Used for property-related expenses, maintenance, and managing India-based income
For a property purchase funded by foreign income (savings earned abroad), NRE funds are typically used. For expenses related to maintaining or renting an India-based property, NRO accounts are used.
Tax Implications of NRI Property Purchase
TDS on purchase price: When an NRI buys property from a resident Indian, the buyer must deduct TDS (Tax Deducted at Source) at 1% of the purchase value. When buying from a developer (company), normal GST applies instead.
Capital gains on future sale: If an NRI sells the property, capital gains apply:
- Short-term capital gains (held less than 24 months): taxed at marginal rates
- Long-term capital gains (held 24 months or more): taxed at 20% with indexation benefit
A buyer (resident Indian) purchasing from an NRI seller must deduct TDS at 20–30% on the sale proceeds. The NRI can claim a refund if the actual tax liability is lower by filing an income tax return.
Property tax: Ongoing property tax is payable by NRI owners, typically through the local municipal authority's online payment system, manageable remotely.
Home Loans for NRI Buyers
NRIs are eligible for home loans from Indian banks. Key points:
- Loan-to-value typically 75–80% of property value
- Repayment must come from NRE or NRO accounts, or from inward remittances
- Income from abroad is considered for eligibility — documentation requirements include foreign employment contract, payslips in foreign currency, and bank statements
- Processing time is typically 2–4 weeks longer than resident loans due to documentation
Most major Indian banks (SBI, HDFC, ICICI, Axis, Kotak) have dedicated NRI home loan products.
Repatriation of Sale Proceeds
When an NRI sells a property and wants to repatriate the sale proceeds:
- Up to the original foreign currency investment amount can be repatriated from an NRE account without restriction
- Capital gains (the profit above the original investment) goes into NRO and is subject to the USD 1 million per year repatriation limit, after TDS
- Repatriation requires Form 15CA/15CB (a CA certification of tax compliance)
Planning for the eventual sale and repatriation of proceeds should be considered at the time of purchase — not at the time of sale.
Working with Professionals
For NRI property transactions, engage:
- A CA (Chartered Accountant) familiar with FEMA and NRI taxation — for structuring the transaction, filing returns, and managing TDS and repatriation
- A lawyer for title verification and sale agreement review
- A real estate advisor with NRI transaction experience — ideally the channel partner or developer's team has handled NRI purchases before
Our team has experience working with NRI buyers from the US, UAE, and UK. Get in touch to discuss your specific situation — we'll connect you with the right professionals and walk you through the transaction process.