By Anjali Thakkar on Jul 30, 2020 4:24:15 PM
Here are some common FAQs answered for NRIs looking to invest in the Indian real estate market.
Are There Any Tax Benefits For Non-resident Indians Buying Properties In India?
Under section 24 and 80c, as with resident Indians NRIs can also avail tax benefits on home loans NRIs can get tax exemption on the interest paid for a maximum of Rs. 2,00,000 and Rs.1,50,000 on the principle paid.
A Non-residential Indian (NRI) is entitled to all tax benefits related to purchase of property that a resident Indian is. Under Section 24 of the Income Tax Act, interest on a Home Loan is deductible from the income from house property like rent.
You can get tax deductions up to Rs. 1,50,000 per year. This interest component can be deducted from the rental income. A further deduction of up to Rs. 1 lakh on the principal amount of the Home Loan can be claimed under Section 80C of the Income Tax Act.
Other NRI buying property in India tax implications are to pay a withholding TDS at the rate of 1% if you buy a residential property worth more than Rs 50 lakh. If the property is vacant and declared as 'self-occupied', you will be exempted from the wealth tax, or you have to rent it out for at least 300 days a year to avoid paying wealth tax.
This rule is for the first property only. If it is a joint loan taken with another NRI or resident Indian/s, then each member can avail of the NRI home loan tax benefits separately.
How Is The Mode Of Payment For NRI Home Loans?
Most of the banks offer Home Loans to NRIs at affordable home loan rates. The repayment of home loans can also be made easily. The payment can be made through normal banking channels from abroad or through NRE/NRO accounts. The EMI paid through the NRE or NRO accounts have to be mandatorily paid in Indian rupees. Individuals can opt for various modes for NRI home loan repayment.
Money can be transferred from an overseas bank account through regular banking channels. Individuals can issue post-dated cheques or an Electronic Clearance Service (ECS) mandate from an NRE, NRO or Foreign Currency Non-Repatriable (FCNR) bank account. A General Power of Authority (GPA), must be present in person at the time of disbursement of the home loan.
In the absence of the main applicant, GPA's signature is required by the bank. The payment can also be made from the rental income accrued from the individuals residential property. The NRI home loan lender can issue cheques of the home loan EMIs from a local relative's bank account. Cash payment is not accepted for the EMIs of home loans.
Related Post- What are the Rules for NRIs to Buy a Property in India?
What Is The Repayment Period For The Home Loan For NRIs?
The bank offers a good repayment tenure for the NRIs up to 30 years. NRI home loan repayment can be made as easy EMIs (Equated Monthly Installments) The repayment of the principal amount commences from the very next month following the month in which you availed full disbursement of your home loan.
The pre-EMI interest is the portion of the loan disbursed. From the date of each disbursement, Pre-EMI interest is payable every month up to the date of commencement of EMI.
Some banks like HDFC offer a unique 'Tranching' facility in the case of under-construction properties. The advantage of this facility is that you can choose the instalments you wish to pay till the time the property is ready for possession.
Teaching facility helps you to repay the home loan faster as any amount over and above the interest which is paid by you goes towards principal repayment. In the case where your disbursements are likely to be spread over a longer period of time, this facility can be definitely useful to reduce your repayment period for the home loans.
What Is The Eligibility Criteria For Obtaining NRI Home Loans?
To buy a residential property in India, an NRI has to meet certain eligibility criteria. The minimum age for an NRI to qualify for the loan is 18 years, and the maximum age is 60 years. The candidates who are non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) are both eligible for the home loans. Candidates who are Overseas Citizens of India (OCIs) are also eligible except for the citizens of Afghanistan, Bangladesh, Bhutan, China, Iran, Nepal, Pakistan and Sri Lanka.
The type of employment of the candidates could be salaried or self-employed. If the candidate is an employee, he/she must have the minimum work experience of two years in the current working company.
The bank lenders allow a loan tenure up to 30 years. The loan amount eligibility depends on the individual borrowers profile. The loan amount could differ from individual to individual. Likewise, the loan interest rate also varies for different loan lenders. The minimum interest rate could start from 8.60% per annum. To plan the exact investments for the NRI home loan eligibility, individuals can also utilize the home loan EMI calculator option provided by the banks to make the right decision.
For What Kinds Of Property Can An NRI Avail Home Loans?
Despite the fact that RBI has given general authorization to the NRIs for buying n numbers properties in India, RBIs consent does not allow the individuals to secure any kinds of properties in India. The NRIs are permitted to buy and avail for loans just for the private or business properties.
NRIs are strictly prohibited from purchasing any agrarian land or farm. Since it is in vogue to possess a farmhouse, under the current agreements, NRIs cannot purchase a farmhouse in India. Some of the banks maintain a special division for NRI services; they offer specially tailor-made and best NRI Home Loans at affordable interest rates.
You can take an NRI housing loan for a wide range of housing needs. NRIs can purchase a house which is either ready to move in, under construction or bought from another owner. NRIs can also avail loans for bearing the costs of renovation and repairs of an existing home.
NRIs are eligible to apply for home loans like-
- To construct a property on a plot of land by self.
- To purchase a plot allotted by a society/development authority.
- To renovate an existing property in India.
Can An NRI Or A Pio Or A Foreign National Of Non-Indian Origin Hold Any Immovable Property In India?
An NRI Or A Pio Or A Foreign National Of Non-Indian Origin cannot hold any immovable property in India. Foreign nationals who are residents in India can purchase immovable property in India without any special approval from the RBI. But the residents of the nationality of the countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan are not allowed to purchase any kind of immovable property in India directly.
The buyers of the non-Indian origin need to hire a lawyer compulsorily. As before making any purchasing decision, the buyers need to have prior approvals from other authorities such as the State Government and RBI. The request is then considered with the consultation of the Government of India. Under FEMA, to be considered as the resident of India, a foreign national has to satisfy two conditions:
- He/she must be residing in India for more than 182 days during the preceding financial year.
- In the current financial year, his/her continued presence in India must be for the purpose of taking up employment, carrying on business or vocation in India or for any other purpose that should indicate intention to stay in India for a long period.
Both the conditions should be fulfilled for a foreign national to be considered as a resident of India under FEMA.
Can A Foreign National Of Non-Indian Origin Acquire Residential Property On A Lease In India?
Yes, a Foreign National of non-Indian origin can acquire residential property on lease in India. The individuals of the non-Indian origin include the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan. To acquire the residential properties on lease in India, he/she does not require any prior permission from the RBI if the lease does not exceed more than five years.
With specific prior approval from the RBI, a resident outside India may hold any immovable property in India acquired through inheritance from a person resident outside India. Provided the owner had acquired such property in accordance with the regulations of the foreign exchange law in force at the time of acquisition or the purchase of the residential property should be under FEMA guidelines.
Who Is A Person Of Indian Origin (PIO) And Non-resident Indian (NRI)?
According to the Indian Constitution or the Citizenship Act, 1955, an individual who is a person of Indian origin (PIO) must have held an India passport at any time of his/her lifetime. Or any person who or either of his parents or grandparents were a citizen of India. An individual who is PIO can be a citizen of any other country excluding the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.
As per India's Foreign Exchange Management Act (FEMA) 1999, an individual who is an NRI or Non-Resident Indian is a citizen of India or a person of foreign national of Indian origin but currently living outside India for the purpose of employment, business or any other vocation.
An individual who is non-resident Indian (NRI) should indicate his intentions of staying outside India for an indefinite period of time. An Indian will also be termed as an NRI if his/her stay in India is less than 182 days.
Related Post- How can NRIs Buy Property in India?
What Documents Are Required To Get Home Loan, If You Are A NRI?
There is a list of documents required for a home loan for NRI in India to be submitted to the bank, to acquire a home loan. The documents required for a home loan for NRI in India are as follows-
- Valid passport and visa documents for the mandatory know your customer (KYC) exercise.
- Permanent address proof in India.
- Duly filled loan application form
- Employer ID card
- Three passport size photographs
- Proof of valid work permit, appointment letter, work experience certificate, work permit, contract of employment
- Current overseas residential proof. You can provide copies of the house lease agreement, bank statement, utility bill, card statement, etc.
- Salary slips of the past three months
- Statement for the last six months of salary account and NRE ( Non-Resident External) and NRO (Non-Resident Ordinary) bank accounts
- Last year Income Tax Returns except for NRIs in Middle East nations and Merchant Navy Employees
- Details of previous loan(s), if any
- A valid qualification certificate to pass eligibility criteria.
- A General Power of Authority (GPA), duly notarized.
To check what are the documents required for a home loan for NRI apart from the above, you can get a list of all the documents required to meet the eligibility criteria from the bank. You will also find the list of documents for NRI home loan on the website of the bank you are considering in applying for the home loan.
What Is The % Of Loan An NRI Can Get To Buy Property In India?
Various banks like HDFC, Axis, ICICI, Kotak and SBI provide various home loan schemes for Non-resident Indians (NRIs) and Persons of Indian Origin (PIO) The eligibility of the loan amount varies based on the individual's earning source.
An individual could be either salaried or self-employed. The mandatory income limit again varies from bank to bank and also differs for the country of residence. Other eligibility criteria of the loan amount can start from a few lakhs and go up to crores, depending on how much the bank is convinced of the individual's eligibility.
However, banks offer maximum funding, and hence customers need to invest only a minimum amount from their pocket. A maximum loan amount under NRI home loan could vary from bank to bank. An NRI can avail of a loan of up to Rs. 2 crore or an amount of up to 85% of the cost of the property.
A person can get a maximum of 90% funding if the loan amount is Rs. Thirty lakhs, 80% up to Rs.75 lakhs and 75% for loan amounts above Rs.75 lakhs. The rate of interest on the home loan varies from 7.90 to 9.00% p.a. Almost all banks and financial institutions charge a processing fee, which is payable once and will amount to around 0.5% to 2% of the loan amount applied.