Investors Guide to India

The Purchasing Process

There are strong restrictions surrounding the sale of real estate to foreign nationals in India, yet reforms in recent years enable many overseas speculators wishing to enter the market possible ways to do so.

Straightforward laws include the sale of property in India to anyone visiting the country on a tourist visa, as being illegal. It is also illegal to jointly purchase a property if one of the buyers is a non resident.

Those who are eligible to purchase property in India include the following:

• Indian citizens
• Anyone who has ever held an Indian passport
• Anyone whose parents or grandparents were born in India
• A foreign company with a branch office in India, when the property is used for business purposes
• Foreign nationals holding Overseas Citizenship of India (OCI)

A foreign national wishing to purchase property in India can obtain an OCI, which provides similar benefits and restrictions as permanent residency. Real estate cannot be purchased by non-resident foreigners living outside India. The residency requirements for OCI involve living within India for 183 consecutive days of the financial year.

Many foreign investors opt for opening company branch offices in India to enable property investment. The set up of companies are often fast, simple and cost effective processes. If opting to arrange OCI residency, property can also be purchased on a 5 year lease. This is the maximum time allowance for foreign nationals to lease properties in India, with the title being transferred once the OCI residency is obtained.

For those who are eligible to purchase real estate in India, there are no limitations on the amount of property that can be purchased. The buying processes for new developments follow a similar and straight forward procedure to other worldwide property markets. The initial deposit is often around 10% or 20% of the purchase price, with staged payments outlined in the purchasing contract. The final payment of the property is required upon completion and all buyers are advised to use a lawyer who specialises in the Indian real estate market.

Fees & Taxes

The fees associated with buying property in India vary upon the location of the real estate, as different regions charge different costs. Taxes are charged at a progressive rate, often with a small exemption on the initial earnings. While Indian residents are charged taxes on their worldwide income, non-residents are taxed only on their Indian sourced income.

The income generated from rental properties is taxed at the higher charge of either the government determined value, or the actual rental value. A surcharge of 10% is applicable to all incomes exceeding the equivalent of around US$20,000 annually. Capital gains on properties are considered standard income taxes. The total transaction costs of buying property in India amount to between 6.5% and 13.5% of the purchase price.

• Stamp Duty is from 4% to 10%
• Registration fees are from 1% to 2%
• Legal fees are around 1.5%
• No inheritance tax
• No gift tax
• Rental Income tax is between 8.1% and 21.1%
• Wealth tax is 1%

Financing the Property

The mortgage market has grown significantly in India since the mid 90s, paving the way for increased demand for real estate purchases. Foreign buyers that do not fit the eligibility requirements for purchasing property in India will not be able to arrange financing.

Many of the independent financing companies will assist with overseas buyers wishing to arrange loans and mortgages through the company formation route. It is advisable to obtain pre-qualification for mortgages, to ensure eligibility and full details of availability. As the regulations will vary between providers, the information provided here should only be used as a guide.

• Currency of the loan in Indian Rupee
• Minimum loans equivalent to around £1,500
• Maximum Loan-to-Value 85%
• Maximum age at maturity 70 years
• Maximum term of loan 15 years
• Interest rates are around 12.5%

More about overseas property finance

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