What is FEMA and why does it affect you?
The Foreign Exchange Management Act, 1999, regulates all foreign exchange transactions related to property investment in India. For NRIs, it determines what you can buy, how you must pay, what accounts you need, and how you can eventually bring money back to the country where you live.
Under FEMA, you are classified as an NRI if you are an Indian citizen who has lived outside India for more than 182 days in a financial year (April to March) for employment, business, or any other purpose. OCI (Overseas Citizen of India) cardholders have the same property rights as NRIs under FEMA.
What can NRIs buy?
NRIs can freely purchase residential and commercial property in India without any permission from the Reserve Bank of India. This covers apartments, houses, villas, plots, office spaces, retail shops, and warehouses. There is no limit on the number of properties you can own.
What NRIs cannot buy — directly and without special RBI approval — is agricultural land, plantation property (tea, coffee estates), and farmhouses. This is a hard restriction. Some properties described as "converted agricultural land" may be eligible if a valid DC Conversion Order exists under Section 95 of the Karnataka Land Revenue Act — always verify this with your legal advisor before proceeding.
How must NRIs pay for property?
All payments must go through the Indian banking system. Specifically, funds must come from your NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) account, or through direct inward remittance from abroad via normal banking channels.
| Account Type | Best for | Repatriation (taking money back abroad) |
|---|---|---|
| NRE Account | Foreign salary or savings you want to invest in India | Fully repatriable — principal and interest can be sent abroad at any time |
| NRO Account | Indian-sourced income (rent, dividends, pension) | Restricted — up to USD 1 million per financial year after tax compliance |
| FCNR Deposit | Holding funds in foreign currency (USD, GBP, EUR) | Fully repatriable on maturity in the original foreign currency |
Cash payments are strictly prohibited under FEMA, regardless of the amount. Traveller's cheques and direct foreign currency payments are also not permitted. Any violation attracts penalties of up to three times the transaction value.
Tax on rental income
If you rent out your Bangalore property, the rental income is taxable in India. Your tenant is legally required to deduct TDS (Tax Deducted at Source) at 30% before paying you rent, regardless of the rent amount. From April 2025, this rate was revised to 25% provided you submit the required documentation including a Tax Residency Certificate and Form 10F.
You must file an Income Tax Return in India by July 31 each year declaring this rental income. You are entitled to a standard deduction of 30% for maintenance and repair costs, which reduces your taxable rental income. If excess TDS has been deducted versus your actual tax liability, you can claim a refund when filing your ITR.
Capital gains tax when you sell
| Holding Period | Tax Classification | Tax Rate | TDS Rate (deducted by buyer) |
|---|---|---|---|
| Less than 24 months | Short-term capital gains | At income tax slab (up to 30%) | 30% + surcharge and cess |
| 24 months or more | Long-term capital gains | 12.5% — no indexation (post July 2024) | 12.5% + surcharge and cess |
An important update from Budget 2024: the indexation benefit (which adjusted the purchase price for inflation, reducing your taxable gain) was removed for properties sold after July 23, 2024. However, if you purchased before that date, you can choose the more favourable of the two methods when you sell.
You can legally reduce or eliminate capital gains tax through reinvestment provisions: Section 54 allows you to reinvest gains in another residential property within two years to claim exemption, and Section 54EC allows you to invest up to Rs. 50 lakh in NHAI or REC bonds within six months of sale.
Double taxation — you will not pay tax twice
India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries including the UK, US, UAE, Canada, and Australia. Under DTAA, the tax you pay in India on your rental income or capital gains can be claimed as a credit against your tax liability in your country of residence. You pay tax once, not twice.
To claim DTAA benefits, submit a Tax Residency Certificate (TRC) from your country of residence and Form 10F to the Indian income tax authority. Consult a chartered accountant in both countries for the specific filing process applicable to you.
Repatriating sale proceeds abroad
When you eventually sell, the proceeds land in your NRO account first. To repatriate the funds abroad: pay the applicable capital gains tax, obtain a CA certificate confirming tax compliance, and submit Forms 15CA and 15CB to your Indian bank. You can then remit up to USD 1 million per financial year out of India. If your property was funded entirely from NRE or FCNR accounts, the repatriation limit is the original foreign exchange amount invested (up to two residential properties lifetime).