What FEMA allows (and doesn’t)

The Foreign Exchange Management Act, 1999 — FEMA — is the rulebook that governs how Indians abroad and foreign citizens move money in and out of India. For most NRIs, FEMA rarely comes up in conversation, but the moment you decide to buy a home in India, it becomes the single most important piece of legislation in your life. Every step — sending the down payment, taking a home loan, collecting rent, and eventually selling and sending the money back — happens inside FEMA’s framework.

The good news is the headline rule is simple. An NRI (Non-Resident Indian) or OCI (Overseas Citizen of India) has broadly the same right to buy property in India as a resident. You do not need RBI permission. You do not need a special licence. You can buy as many residential or commercial properties as you like, in any city, at any price, for personal use or investment.

The exceptions are narrow but absolute. An NRI cannot buy agricultural land, plantation property, or farmhouses. These can be inherited, or received as a gift from a resident relative, but not purchased. If the land records classify a plot as agricultural — even if the sales team describes it as a “farm villa” — it cannot be transferred into an NRI’s name by sale. This trap catches more NRIs than any other, particularly on the fringes of Bengaluru, Pune, and Hyderabad where corridor land is changing zoning quickly but not always cleanly.

For everything else — flats, villas, plotted developments in residential zones, commercial office space, retail units — the path is straightforward. Use an NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) account to pay. Get your KYC done once with the builder or registration office. Execute the sale deed in person or through a power of attorney given to a trusted relative. Register the property with the sub-registrar. You are now an Indian property owner.

Repatriation: taking your money back out

The repatriation rules are where NRI property buyers most often make expensive mistakes. The underlying principle is straightforward: India lets you take out what you brought in (and the gain on it), but in a regulated way. The mechanics of that principle are less simple and depend on which account you used to buy the property.

If you purchased through an NRE or FCNR account — meaning the money came from your foreign earnings in foreign currency — the rules are generous. You can repatriate the sale proceeds of up to two residential properties in your lifetime without RBI permission, provided:

• The original purchase was funded through NRE/FCNR remittances or foreign currency.
• The amount you repatriate does not exceed what you originally paid in foreign exchange.
• The property was held for at least the minimum lock-in period (currently not mandated, but the tax treatment differs sharply under 24 months).

If you purchased through an NRO account — typically using rupee earnings, rental income, or proceeds of an inherited property — the cap is US$1 million per financial year across all outward remittances. This million-dollar cap is shared with every other NRO-to-foreign movement you make (education, gifts, living expenses), so plan it carefully.

The three-account rule of thumb

A clean NRI buying pattern uses three accounts deliberately:

1. NRE or FCNR for the down payment and EMIs funded from foreign income. Fully repatriable.
2. NRO for rental income, resident gifts, and any rupee receipts. Repatriable up to US$1M per year with CA certification.
3. A resident relative’s account, accessed by POA, is sometimes suggested to save paperwork — but mixing personal and NRI funds this way creates FEMA compliance issues at exit. Avoid unless you have a specific CA-approved reason.

Tax implications: TDS, capital gains, DTAA

Tax is the second place NRI buyers are routinely under-prepared. Three rules matter.

The surprise for many NRIs is the TDS on rental income. When a resident tenant pays rent to an NRI landlord, the tenant is legally required to deduct 30% TDS at source and deposit it with the income tax department before remitting the balance. Tenants who don’t realise this obligation — and most don’t — create compliance problems for the landlord at filing time.

Double Taxation Avoidance Agreements (DTAA) between India and most major NRI destinations — US, UK, Canada, UAE, Singapore, Australia — mean you are not taxed twice on the same income. You can claim credit for Indian tax paid against your home-country liability, or vice versa, depending on how the treaty is structured. But this only works if you file correctly in both jurisdictions. A CA in India plus a tax preparer in your country of residence, coordinated once a year, typically costs far less than a single year of missed DTAA credit.

Home-loan pathways for NRIs

The lazy assumption is that borrowing in India is harder as an NRI. For standard loans up to ₹5 crore, the opposite is true: NRIs are a preferred customer segment for most Indian banks. HDFC, ICICI, SBI, Axis and Kotak all run dedicated NRI desks. Tenure goes up to 20 years or up to age 70, whichever is earlier. Loan-to-value ratios match resident loans at 75–80%.

The smart structural choice is whether to pay in cash from NRE/FCNR or borrow. For many NRIs in the US, UK, and Singapore, local borrowing costs against a home there can be lower than Indian home loan rates — which argues for a home-equity loan in the resident country and a cash purchase in India. But this loses you Section 24 deduction on interest (up to ₹2 lakh per year) and Section 80C on principal. Model both scenarios before deciding.

Loan EMIs must be paid from NRE/NRO accounts or from the resident co-applicant’s account. Direct EMI payments from foreign accounts are no longer the simplest route. Most banks will set up a standing instruction from NRE, which preserves repatriability cleanly.

Common mistakes NRIs make