NRI Income Tax Compliance

What Should NRIs Choose Between Renting and Owning a Property

Hatim Dudhiyawala
Written by Hatim Dudhiyawala
Updated on: May 5, 20268 mins Editorial Standards
Renting and Owning a Property

As an NRI, if you are unsure about your long-term plans and are not ready to make a financial commitment, renting a property can be a smart choice. You only need to pay for the security deposit, reducing upfront costs. It offers great mobility as you move to a different location easily without being tied to a specific location. Additionally, as a tenant, you will not be responsible for repairs, taxes, or property maintenance. However, it doesn't help you build equity in the property, and you may lack control.

On the other hand, if you are confident about your long-term plans and have the financial means for the same, you can buy a property. It can help create significant wealth over time, and you get complete control over the property. In case you plan to move abroad, you can rent out the property and generate passive income. Furthermore, you need a significant upfront investment to purchase a property, which can be costly. Moving to a different location can be difficult due to a job change or personal circumstances. Keep reading further to know more about renting vs owning property in India as an NRI.

Key Takeaways
  • Renting is cheaper than buying a property, as you need to pay only the security deposit initially. Conversely, buying requires a large down payment, stamp duty, and registration fees.
  • Renting is better for quick relocation, often required sudden changes, like a job change. Owning limits flexibility as selling a property is a long-term process.
  • Rent is usually fixed for a year, but can increase annually. EMIs for owners can be high, but they remain predictable and offer no rent hikes.
  • NRI tenants don't face any maintenance or property tax costs. Homeowners are responsible for taking care of all repairs, property maintenance, and taxes.
  • Renters can claim HRA (if applicable), whereas owners can claim deductions on home loan principal (Section 80C) and interest (Section 24b).
  • Owners can renovate, make changes, and decorate the property without restrictions, while renters lack control over it. 

Who Should Rent vs Who Should Buy?

Consider the table below to determine whether you should buy a property or rent one as an NRI:

Situation Buy Situation Rent
NRI Planning Permanent Return within 3-5 years
  • Purchasing now helps you secure the home at current prices. During your time abroad, you can benefit from the appreciation.
  • When you return to India, you can have a ready base to stay and avoid paying rent when you move back.
 Career-Stage NRI on H-1B (uncertain stay)
  • A long-term Indian property commitment can be risky in several situations. It includes visa uncertainty, possible relocation, and immigration processing.
  • Renting offers flexibility and capital liquidity.
UAE NRI with a large corpus seeking Indian investment
  • UAE NRIs benefit from zero personal income tax, strong rupee depreciation play, and emotional roots.
  • Buying a property in a high-appreciation city like Bengaluru or Hyderabad can help make an excellent return in the long run.
 NRI Visiting India for family occasionally
  • For infrequent and short-term stays in India, renting a property is beneficial.
  • Renting a serviced apartment or short-stay property for short-term visits is more advantageous and cost-effective.
NRIs buying for their aged parents to live
  • Having a secure, owned home for parents can avoid big stress.
  • It avoids rent insecurity and allows customization according to the elderly's needs.
  • It can be a tangible expression of commitment, and the property can even be inherited.
 RNOR Period/Returning NRI (1-3 Years)
  • Your global income is completely tax-free in India during the RNOR window.
  • Before committing, you can fully explore your preferred city, neighborhood, and lifestyle during this period.

Based on the situation, you can decide whether you should buy or rent a property in India. To help you make a smart decision, let's discuss the pros and cons of renting vs owning property.

Renting a Property in India as an NRI

NRIs who are not sure about their long-term plans and don't wish to make a financial commitment can rent a property. It offers more flexibility and avoids the stress of tenant disputes, maintenance calls, or legal issues. Here are some advantages and disadvantages of renting a property in India as an NRI:

Advantages

Disadvantages
It has lower upfront costs. It means you only need to pay an amount for a security deposit and a few months' rent in advance. You pay monthly rent towards the landlord's mortgage. Hence, it doesn't help you build any equity in the property.
It offers greater flexibility as you can move freely to a different location. It avoids the stress of being tied down to a specific location or a property. Since you are subject to the landlord's rules and decisions, you may face a lack of control over your living space.
As a tenant, you face fewer responsibilities. The landlord will be responsible for taking care of repairs, taxes, and property maintenance. When the lease is up for renewal, landlords may increase the rent, impacting your budget and long-term financial planning.

Renting a property is practical for short stays, typically less than 3-5 years. Let's now understand who must buy a property in India as an NRI.

Buying a Property in India as an NRI

NRIs who are sure about their long-term plans and have the relevant financial means for the same can buy a property. It can be a smart decision and a wise investment for NRIs with stable income. Here are some advantages and disadvantages of buying a property in India:

Advantages Disadvantages
It can be a significant source of creating wealth over time. It is because you keep building equity with each mortgage payment when you buy a property in India. A significant upfront investment is required to buy a property. It includes down payment, closing costs, and potential renovation and maintenance.
Buying a property offers complete control over your property. You can renovate the property, make changes, and decorations as per your choice. If your job or personal situation changes, it can be difficult to relocate. It is because buying a property is a long-term commitment.
It can help generate passive income as you can rent out the property if you plan to move or return abroad. It can be costly and time-consuming because, as the owner, you must handle property maintenance, repairs, and taxes.

Buying a property is better for long-term stays. Before the purchase, you must verify your income, savings, and debt to determine whether you can afford the down payment.

Tax Implications of Owning vs Renting a Property for NRIs

Owning or renting a property in India comes with several tax obligations that NRIs must adhere to. The table below lists the tax implications of owning vs renting a property in India for NRIs:

Tax Area If Renting a Property in India If Buying a Property in India
Rental Income Tax The rent paid by the NRI is not taxable income.
  • Rental income is fully taxable.
  • The tenant deducts TDS at a rate of 30% (plus surcharge & cess) before paying rent to NRI landlord.
  • Section 24b(unlimited interest) and a standard deduction of 30% is applicable.
Home Loan Tax Benefits NRI tenants cannot claim any home loan deductions
  • Section 24b, unlimited interest deduction for let-out property and Rs. 2 lakh cap for self-occupied properties.
  • Under Section 80C, up to Rs. 1.5 lakh principal (old regime only) can be claimed as a deduction.
Capital Gains on Sale Since there is no property to sell, hence no capital gains
  • If held for more than 24 months, it will be considered as LTCG and taxed at 12.5% without indexation or 20% with indexation.
  • If held for less than 24 months, it will be considered as STCG. and will be taxed at the applicable slab rate.
  • TDS of 12.5% or slab is deducted by the buyer.
Deemed Let-Out Taxation Not applicable If the NRI owns more than 2 properties, the third is deemed let-out at fair market rent and will be taxed accordingly. Even if the property is vacant.
DTAA Benefit Not directly relevant

It's important to stay aware of the tax implications to ensure compliance and avoid any legal issues.

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To Conclude

There is no correct answer universally for choosing between renting and owning a property in India as an NRI. However, the correct answer depends on your specific situation. Buying a property is ideal if you plan to hold it for several years, have elderly parents who would benefit from the property, or plan to return to India. Conversely, if you are on a temporary visa abroad and are not sure about where you will live in India, renting and investing the capital is a smarter decision.

The worst outcome comes when you purchase a property in the wrong city without proper planning, tax compliance, and due diligence. Hence, you must take the help of an expert before making any decision, especially when buying a property. When it comes to experts, there is no better choice than Savetaxs.

At Savetaxs, we have a professional team of experts knowledgeable about NRI taxation. Our team can help you ensure compliance with tax laws, depending on whether you wish to buy or rent a property in India. Contact us right away to stay compliant and avoid legal issues.

Glossary
  • Capital Gain: Capital Gains, Profits on the Financial Assets at the Time of Selling.
  • HRA: HRA, Allowance for the Cost of Living, Given to the Employees in a Rented Housing System.
  • Income Tax Deduction: Income Tax Deductions, which are applied to the total taxable income, help decrease tax liabilities.
  • Long-term Capital Gain: Long-term capital gain, profit on selling the fixed assets, provides tax benefits.
  • Short-Term Capital Gain: Short-term Capital Gains, Profits Earned by Selling Assets, Held for 12 Months or Less.
  • Tax Deducted at Source (TDS): The Full form of TDS is Tax Deducted at Source, which is a way to collect the income tax.
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Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

About Author
Hatim Dudhiyawala
Hatim Dudhiyawala Certified Public Accountant (CPA)

Hatim Dudhiyawala is a Certified Public Accountant (CPA) with SaveTaxs and specializes in Indian and NRI taxation. He advises individuals, NRIs, and businesses on income tax filing, capital gains taxation, DTAA benefits, fund repatriation, and tax compliance. With experience in cross-border tax matters, Hatim helps taxpayers understand complex regulations and make informed decisions. Through his articles, he shares practical insights to help readers stay compliant and manage their tax obligations with confidence. See Full Bio

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Frequently Asked Questions

Yes, an NRI can buy a property in India entirely remotely. An NRI can execute a power of attorney (PoA) in favor of a trusted resident Indian who will then handle all the documentation, registration, and signing on their behalf. The PoA must be notarised in the NRI's country of residence, apostilled for Hague-Convention (countries), or attested by the Indian Embassy. All financial transfers must be routed from the NRI's NRE/NRO account. The property will be registered in the NRI's name, not the PoA holder's. 

The choice depends on your stay duration, budget, and plans. Renting offers more flexibility, while buying is better if you plan to stay for a long time.

Yes, renting is usually better if you are unsure about the city, job, or long-term retirement plans

Buying a property in India makes sense if you plan to stay in one city for many years and want long-term asset growth and stability.

The biggest advantage of owning a property in India is building a long-term asset that may appreciate over time.