NRI Property Purchase in India: FEMA-Compliant Funding, Documents, Tax on Rent and Sale, Home Loans, and Common Mistakes

Assuming you are an NRI or OCI cardholder considering a flat in Bengaluru, a plot in Pune, or a commercial unit in Mumbai, the purchase is not just a real-estate decision. It is a FEMA event under the Foreign Exchange Management Act, 1999, an income-tax event under the Income-tax Act, 1961, and a bank event with your Authorised Dealer Category-I bank. Get any one of the three wrong and the friction shows up years later, usually when you try to repatriate the sale proceeds or file a return for rental income you forgot was taxable in India from day one.

This piece walks through the primary-source rules on eligibility, funding, documentation, tax on rent, tax on sale, home-loan mechanics, and the mistakes that most often force a compounding application to the RBI.

1. What you can and cannot buy

The eligibility question is the shortest. Under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the RBI Master Direction No. 12/2015-16 on Acquisition or Transfer of Immovable Property in India by NRI or OCI, an NRI or OCI cardholder can acquire any immovable property in India other than agricultural land, plantation property, or a farmhouse. There is no numerical cap on the number of residential or commercial properties.

Permitted (fresh acquisition)     Not permitted (fresh acquisition)
Residential flats and plots        Agricultural land
Commercial units                   Plantation property
Redevelopment allocations          Farmhouses

Agricultural land, plantation property, or a farmhouse may still come into an NRI or OCI holding by inheritance, including from a person resident in India or from a person resident outside India who had acquired the property in accordance with the foreign-exchange law in force at the time of acquisition. That inheritance route is governed by the same Master Direction and has its own onward-transfer conditions. If a broker is showing you a "farmhouse plot" on the outskirts of a Tier-1 city, the correct next step is to have a local lawyer verify the revenue record classification, not to negotiate the price.

2. How the money must flow

The funding rule is where most first-time NRI buyers slip. Under the same Master Direction and the underlying FEMA framework, for a direct purchase under FEMA 21(R), consideration must be paid through banking channels by inward remittance from outside India or by debit to the buyer's NRE, NRO, or FCNR(B) account with an AD Cat-I bank in India. Separately, RBI also permits INR housing loans from authorised dealers and approved housing finance institutions for acquisition of residential accommodation, subject to the RBI's borrowing-and-lending conditions (see section 4).

Permitted funding source            Effect on later repatriation
Inward remittance from abroad       Repatriable, subject to MD conditions
Debit to NRE account                Repatriable, subject to MD conditions
Debit to FCNR(B) account            Repatriable, subject to MD conditions
Debit to NRO account                Sale proceeds repatriable only through
                                     the USD 1 million per financial year
                                     facility from NRO, subject to FEMA
                                     Remittance of Assets rules

The funding source you choose today shapes what can flow back later. Where the acquisition was paid in foreign exchange or from NRE / FCNR(B), sale-proceed repatriation is available on the terms in the Master Direction. Where the acquisition was funded from NRO, later remittance of sale proceeds runs through the separate FEMA Remittance of Assets framework, subject to the USD 1 million per financial year facility. If part of the consideration was paid from NRE and part from NRO, the AD bank will typically look at each leg on its own footing. Keep the paper trail for every rupee: bank statements, foreign inward remittance certificates, and NRE or NRO debit advices. Compounding files at the RBI include NRI property cases where funding evidence could not be produced years after the purchase.

3. Documents the sub-registrar will not compromise on

Registration of the sale deed under the Registration Act, 1908 happens at the local sub-registrar's office where the property is situated. The documentary picture below reflects the common pattern that combines the Registration Act filing requirement with lender diligence and state-specific practice. The exact list at any given sub-registrar can vary; confirm with a local advocate before signing anything.

Standard                            NRI-specific additions
Sale agreement                      OCI card or valid PIO / NRI proof
Sale deed for registration          Foreign passport (bio + visa page)
Title chain of the seller           PAN of the NRI buyer
Encumbrance certificate             Overseas address proof
Latest property tax receipts        Bank statements for source of funds
Approved building plan              POA if buyer is not physically present
Occupancy certificate               (POA must be notarised or apostilled
Society NOC (where applicable)       abroad, and adjudicated for stamp
                                     duty in the state of registration)

The Power of Attorney is the item that most often derails the transaction. Treatment of a foreign-executed POA turns on the country of execution and the stamp and registration law of the Indian state where the property sits. In practice, the sequence typically involves notarisation in the country of execution, apostille where the Hague Apostille Convention applies (or consular attestation otherwise), and adjudication for the appropriate state stamp duty in India before presentation at the sub-registrar. A local advocate in the property state is the right person to confirm the exact sequence for your case. Get the POA sequence started months before the registration date, not weeks.

4. Home loans from Indian banks

Indian scheduled commercial banks and housing-finance companies extend rupee-denominated home loans to NRI and OCI borrowers. The RBI framework for such loans sits under the Master Direction on Acquisition and Transfer of Immovable Property under FEMA, 1999 read with the RBI's borrowing-and-lending regulations for AD banks and approved housing finance institutions. The three practical requirements are:

Loan repayment source               Only via inward remittance,
                                     NRE / NRO / FCNR(B) debit,
                                     or rental income from the property
Tenor                                Broadly similar to resident loans;
                                     product-specific caps apply
Loan-to-value                        Governed by RBI norms and the lender's
                                     credit policy; check with the bank

Foreign-currency loans to NRI individuals are separately regulated and are not the standard home-loan product. If a lender abroad is offering to fund the India purchase in foreign currency, treat that as a separate cross-border credit conversation and check both the source-country regulation and the FEMA-side treatment before signing anything.

The practical asymmetry that catches under-construction buyers is timing. You start paying EMI as the bank disburses to the builder in tranches, but you are also paying rent wherever you actually live. Two housing costs against one salary for the three or four years the tower gets built is the reason under-construction stress-tests family cash flow harder than any interest-rate move.

5. Tax during ownership: rental income and standard deduction

Rental income from immovable property situated in India is taxable in India regardless of the owner's residential status, by operation of Section 5 of the Income-tax Act (income accruing or arising in India). The head of income is "Income from House Property" under Sections 22 to 27. Gross annual value is reduced by municipal taxes actually paid by the owner, and then by the 30 percent statutory standard deduction under Section 24(a), plus interest on borrowed capital under Section 24(b) subject to the applicable caps.

If the tenant is paying rent to an NRI landlord, TDS is deducted by the tenant under Section 195 at rates in force on the sum chargeable, not under the 5 percent Section 194-IB provision that applies when the landlord is a resident. The NRI landlord can apply to the Assessing Officer under Section 197 in Form 13 for a lower or nil-deduction certificate, computed on the actual net taxable rental income rather than the gross rent. As a matter of practice, tenants without a Section 197 certificate in hand often default to deducting on the gross rent to protect themselves against exposure, leaving the landlord to recover the excess by filing an Indian return.

The Indian return filing obligation for an NRI landlord runs on the same Section 139 due-date framework as any other assessee: 31 July of the assessment year for non-audit individuals, with belated and revised return windows as prescribed by the amended Section 139(4) and 139(5). Filing is mandatory once total Indian-source income exceeds the basic exemption threshold; NRIs do not get the senior or super-senior enhanced basic exemption available to residents.

6. Tax on sale: capital gains, Section 54, and Section 54EC

On sale of the property, capital gains arise under Section 45 read with the computation mechanics of Section 48. The Section 2(42A) holding-period rule for immovable property treats a holding of more than 24 months as long-term. For transfers of long-term immovable property on or after 23 July 2024, the applicable Section 112 rate is 12.5 percent without indexation, per the amendment made by the Finance (No. 2) Act, 2024. The scope of any transitional relief that lets a seller compare the amended rate with the pre-amendment 20-percent-with-indexation computation is a matter to be confirmed for your specific facts with a chartered accountant; do not assume it applies to a non-resident seller without that confirmation.

Short-term gains on immovable property (holding of 24 months or less) are taxed at the seller's applicable slab rate, not at the LTCG rate.

Two exemptions worth knowing about, both of which are available to non-residents on the same statutory footing as residents:

Section 54     LTCG on sale of a residential house reinvested in another
                residential house in India, subject to the section's
                conditions (purchase within specified window, or
                construction within three years, and holding requirements).
Section 54EC   LTCG on sale of land or building or both reinvested
                within six months in a long-term specified asset
                notified by the Central Government, subject to the
                section's Rs 50 lakh cap per financial year.

The buyer, if a resident, will deduct TDS on the payment to you as an NRI seller under Section 195 (the buyer's obligation, not yours). The parallel article on Section 195 buyer-side mechanics walks through the TAN requirement, the Form 27Q return, and the Section 197 certificate route. Repatriation of sale proceeds is governed by the Master Direction on Acquisition and Transfer of Immovable Property and the FEMA Remittance of Assets framework, and turns on how the original purchase was funded (see section 2).

7. The mistakes that most often trigger a FEMA compounding application

Compounding under Section 15 of FEMA, 1999 is the mechanism the RBI uses to close a contravention without initiating adjudication under Section 13. It is not free: the compounding amount is fixed by the RBI after considering the indicative factors in the current Master Direction on Compounding of Contraventions under FEMA, 1999 (dated April 22, 2025; updated April 24, 2025). Contravention categories that recur in NRI property matters include:

1. Paying part of the consideration in cash                (funding breach)
2. Funding out of a non-permitted rupee source in India    (funding breach)
3. Buying agricultural land, plantation, or farmhouse      (eligibility)
4. Not deducting TDS when buying from another NRI seller   (Section 195)
5. POA executed abroad but not stamp-adjudicated in India  (documentary)
6. Repatriating sale proceeds without evidencing the
   original funding source                                 (repatriation)

Item 4 does not sit under FEMA (it is an Income-tax Act obligation on the resident-buyer side), but it is included because it is the single most-missed item in NRI-to-NRI resale transactions where a returning NRI buys from a still-abroad NRI seller. The buyer's own TAN, Form 27Q, and Section 195 rate mechanics have their own article.

The pattern across all six is the same: the friction of doing it right at the moment of purchase is a fraction of the friction of unwinding it later. The Master Direction sets out the RBI's compounding jurisdiction, the application mechanics, the application fee, and the treatment of incomplete applications. The right person to walk through a specific application is a FEMA-experienced chartered accountant or advocate, not a self-drafted disclosure.

A note on what this is. This article is one returnee's working notes, not personalised advice. Numbers age. Rules change. The only person who can sign off on your specific case is a qualified cross-border chartered accountant looking at your full facts. Use this as a checklist of questions to take to that conversation, not as the answer.

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Sources:

• Foreign Exchange Management Act, 1999: Section 6 (capital account transactions), Section 13 (penalties), Section 15 (compounding). Full text: https://www.indiacode.nic.in/bitstream/123456789/1988/1/a199942.pdf
• Foreign Exchange Management (Non-debt Instruments) Rules, 2019: the framework governing acquisition and transfer of immovable property in India by persons resident outside India, notified by the Ministry of Finance and administered by the RBI.
• RBI Master Direction on Acquisition and Transfer of Immovable Property under FEMA, 1999 (covering acquisition, transfer, repatriation, and prohibited categories): https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10196
• FEMA Notification 21(R)/2018-RB (Acquisition and Transfer of Immovable Property in India): https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11248
• RBI Master Direction on Compounding of Contraventions under FEMA, 1999 (dated April 22, 2025; updated April 24, 2025): https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12839
• RBI Master Direction on Deposits and Accounts of Non-Residents (FED Master Direction No. 14/2015-16): https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198
• Income-tax Act, 1961: Section 5 (scope of total income), Sections 22 to 27 (income from house property), Section 24 (deductions), Section 45 (capital gains), Section 48 (mode of computation), Section 54 (LTCG exemption on residential-house reinvestment), Section 54EC (LTCG exemption on long-term specified assets), Section 112 (LTCG rate on transfer of capital assets), Section 139 (return filing), Section 195 (TDS on payments to non-residents), Section 197 (lower or nil-deduction certificate), Section 203A (TAN requirement), Section 2(42A) (holding period). Bare-Act consolidated text (older vintage, used for the baseline sections; the July 2024 Section 112 amendment is by the Finance (No. 2) Act, 2024): https://www.indiacode.nic.in/bitstream/123456789/2435/1/a1961-43.pdf
• Income-tax Rules, 1962: Rule 114B (transactions requiring PAN quote), Rule 28AA (Section 197 certificate mechanics), Rule 31A (Form 27Q quarterly TDS return), Rule 37BB (Form 15CA and Form 15CB for payments to non-residents). Notified by CBDT under the Income-tax Act, 1961.
• Finance (No. 2) Act, 2024: enactment that amended Section 112 of the Income-tax Act to set the LTCG rate on transfer of long-term capital assets at 12.5 percent without indexation for transfers on or after 23 July 2024. Notified by the Ministry of Finance and published in the Gazette of India.
• Income-tax e-filing portal (Form 13 online filing, Form 15CA submission, Form 27Q upload): https://eportal.incometax.gov.in/
• Registration Act, 1908: sub-registrar registration requirements for immovable property sale deeds. Enacted by Parliament; hosted in consolidated form on the IndiaCode repository.