The Indian real estate market continues to be a magnet for Non-Resident Indians (NRIs), offering both emotional connection and robust investment potential. With a stable economy and promising infrastructure projects, India remains a top choice for NRIs looking to diversify their portfolios.
However, the landscape is dynamic. New regulations and tax reforms, particularly those from the Union Budget 2025, have introduced key changes that every NRI investor should be aware of. Here’s a comprehensive look at the updated rules for NRI real estate investment in India.
What’s New for NRIs in 2025?
The latest updates bring a mix of benefits and stricter compliance requirements. Here are the most significant changes impacting NRI real estate:
- Tax Benefits on Notional Rent: In a significant relief, the government has made it possible for NRIs to claim up to two self-occupied properties as exempt from notional rent. This means you can now own a second home in India without worrying about paying tax on its “potential” rental income, provided it’s used for self-occupation. This is a game-changer for those with multiple properties.
- Reduced Long-Term Capital Gains (LTCG) Tax: The LTCG tax rate on the sale of property held for over two years has been reduced from 20% to 12.5%. This is a major financial incentive for NRIs, offering a substantial tax saving of 37.5% on property sales. This change is effective for transfers made on or after July 23, 2024.
- Simplified Repatriation of Funds: The process for repatriating funds from property sales has been streamlined. The annual repatriation limit under the Liberalised Remittance Scheme (LRS) has been increased, with some reports suggesting it has been raised to $2 million annually without requiring special RBI approvals, making it much easier to move funds back to your country of residence after paying all applicable taxes.
- Higher TCS Threshold: The Tax Collected at Source (TCS) threshold on foreign remittances under the LRS has been increased to ₹10 lakh per year (up from ₹7 lakh), offering more flexibility for financial transfers.
The Fundamentals: What Hasn’t Changed?
While the new rules are encouraging, it’s crucial to remember that the core framework for NRI investment remains the same.
- Permitted Property Types: NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) can freely purchase residential and commercial properties in India. However, the prohibition on buying agricultural land, plantation property, or farmhouses remains in effect, unless it’s through inheritance or with special RBI approval.
- Mandatory Banking Channels: All property transactions, from purchase to sale, must be conducted through Indian banking channels. Payments must originate from an NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) account.
- NRE Account: Ideal for parking foreign earnings in India. The interest earned is tax-free, and the principal and interest are fully repatriable.
- NRO Account: Used to manage income earned in India, such as rental income. The interest is taxable, and repatriation is subject to an annual limit of $1 million.
- Tax Obligations: Despite the new tax benefits, NRIs still have specific tax liabilities in India.
- Rental Income: Rental income from your Indian property is taxable at the applicable slab rates, with a standard deduction of 30% for repairs and maintenance.
- TDS (Tax Deducted at Source): When an NRI sells a property, the buyer is required to deduct TDS. While the LTCG tax rate has been reduced, the TDS rate on sale remains at 20% for long-term gains and 30% for short-term gains, which can be claimed back during tax filing.
- The Importance of a PAN Card: A Permanent Account Number (PAN) is mandatory for all property transactions in India. Without it, you cannot legally complete the purchase or sale of a property.
- Due Diligence is Non-Negotiable: Thorough legal and financial due diligence is more important than ever. This includes verifying the property’s title, RERA registration, and all municipal approvals to ensure a secure and hassle-free investment. Learn how the NRI Desk of Property Navigators supports investors with complete due diligence and end-to-end assistance.
Why Now is an Ideal Time for NRIs to Invest
The changes in 2025 demonstrate the government’s commitment to making the investment environment more attractive for the Indian diaspora. The combination of reduced capital gains tax, tax benefits on a second home, and simplified fund repatriation makes a compelling case for investment.
As you consider your next real estate move in India, remember that professional guidance is key. An expert can help you navigate the updated regulations, choose the right property, and structure your investment to maximize returns and ensure full compliance. With the right partner by your side, investing becomes easier and smarter. Connect with Property Navigators today to explore opportunities tailored for NRIs.
Disclaimer: This blog is for informational purposes only. It is recommended to consult with a qualified financial advisor and legal professional to understand the specific implications of these rules on your personal investment decisions.
