HOME LOANS

Non-Resident Indians (NRIs) are recognized under the Foreign Exchange Regulation Act, 1973. Every bank and housing finance company follows RBI’s guidelines to define an NRI – “An NRI is an Indian citizen or a Foreign National of Indian Origin residing outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI; if his/her stay in India is less than 182 days during the preceding financial year.”

Broadly categorized, Non-Resident Indians qualifying for NRI housing loans are:
  • Indian citizens who are living abroad for employment, carrying on business, vocation outside India or for any other purpose in circumstances, indicating an indefinite period to stay out of the country.
  • Government servants who are posted overseas on duty with the Indian missions and similar other agencies set up abroad by the Government of India, where the officials draw their salaries out of Government resources.
  • Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, International Monetary Fund (IMF), World Health Organization (WHO) and the Economic and Social Commission for Asia and the Pacific (ESCAP).
  • Officials of the State Government and Public Sector undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.
    The documents required for Resident Indians and NRIs for receiving home loans are different in some respects. Home loans for NRIs are available on construction of new houses/ flats, purchase of an old house, flat addition, alteration to an existing house and repairs/renovation etc. NRIs can avail loans by mortgaging an existing residential property. However, for availing home loans, NRIs have to fulfill certain conditions according to the provisions of the Income Tax Act. They should have lived in India for a period of 182 days or more within an assessment year or they should have stayed in the country for at least a total of one year or more.
    The FDI policy that permits FDI up to 100% from a foreign/NRI investor under the automatic route has boosted the NRI confidence. Banks have attractive NRI housing schemes to accommodate their real estate needs. From the stables of HFCs, NRI housing finance plans with suitable repayment options are available.

    Last but not the least, NRIs should take due care while selecting their home loan providers or HFCs. Considering the geographical distances involved, it is significant that loan seekers associate with a proactive and responsive HFC.
ELIGIBILITY FOR NRI

The eligibility criteria for NRIs differ from Resident Indians based on a few parameters. The parameters include:

Age Qualifications Income Payment Options Number Of Dependants
The loan applicant has to be 21 years of age. The NRI loan seeker has to be a graduate. The loan applicant has to have a minimum monthly income of $ 2,000 (although, this criterion may differ across HFCs). The eligibility is also determined by the stability and continuity of employment or business The NRI also has to route his EMI (Equated Monthly Instalment) cheques through his NRE/ NRO account. He cannot make payments from another source such as, his savings account in India. The eligibility of the applicant is also determined by the number of dependents, assets and liabilities.

 

Home loans for an NRI applicant ranges from a minimum of INR. 5 lakhs to a maximum of INR. 1 crore, based on the repayment capacity and the cost of the property, which although is variable by the priorities of the home loan provider. An applicant will be eligible for a maximum of 85% of the cost of the property or the cost of construction as applicable and 75% of the cost of land in case of purchase of land, based on the repayment capacity of the borrower.

Home loans for an NRI applicant range from a minimum of INR 5 lakh to a maximum of INR 1 crore, based on the repayment capacity and the cost of the property which although is variable by the priorities of the home loan provider. An applicant will be eligible for a maximum of 85% of the cost of the property or the cost of construction (as applicable) and 75% of the cost of land in case of purchase of land, based on the repayment capacity of the borrower.

However, the eligibility can be enhanced by applying for a home loan with a co-applicant who has a separate source of income. In addition to that, the rates of interest for home loans to NRIs are higher than those offered to Resident Indians. The difference is somewhere between 0.25%-0.50%. Some HFCs also have an internally earmarked ‘negative criterion’ for NRI home loans which means that NRIs who hail from locations that are marked ‘negative’ in the books of HFCs find it difficult to get a home loan.

RBI DIRECTIVE LOANS

The Reserve Bank of India (RBI) has clarified that Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO), purchasing immovable property in India must pay for the acquisition by funds received in India through normal banking channels by way of inward remittance from outside the country.The NRIs and Resident Indians can also acquire immovable property in India other than agricultural property, plantation or a farmhouse. It has issued certain directives for sanctioning home loans to Non-Resident Indians.

The guidelines provided are:
  • The amount of the home loan should not exceed 85% of the cost of the dwelling unit and the remaining 15% needs to be provided by one’s own contribution towards the cost of the unit financed.
  • The cost of the dwelling unit which is financed by one’s own contributions minus the loan amount, can be met from direct remittances from abroad through normal banking channels- the Non-Resident (External) [NR(E)] Account and/ or the Non-Resident (Ordinary) [NR (O)] account in India.
  • However, repayment of the loan, comprising of the principal and interest amount including all other charges are to be remitted to the HFC from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or the Non-Resident (Ordinary) [NR (O)] account in India.

The repayment options for NRIs are that they can pay through funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by the RBI from time to time.

DOCUMENTS REQUIRED FOR LOAN

Apart from documents mentioned below, a vital document required while processing any NRI home loan is the ‘Power of Attorney’ (POA). Since the borrower is not based in India, the POA is important because HFCs need a ‘representative’ ‘in lieu of’ the NRI to deal with, if necessary. Although not obligatory, the POA is usually drawn on the NRI’s parents, wife/husband or children.

The documents needed for obtaining NRI home loans are:
  • Passport and Visa
  • A copy of the appointment letter and contract from the company employing the applicant
  • A labor card/ identity card (translated in English and countersigned by the consulate), if the person is employed in the Middle East.
  • Salary certificate (in English) specifying the name, date of joining, designation and salary details.
  • Bank Statements for the last six months
List of Classified documents for Salaried and Self Employed NRI Applicants:

Salaried NRI Applicants Self-Employed NRI Applicants
Copy of a valid passport showing visa stamps Passport copy with valid visa stamps
Copy of valid visa/ work permit/ equivalent document supporting the NRI status of the proposed account holder Brief profile of the applicant and business/ Trade license or an equivalent document
Overseas bank A/C for the last 3 months showing salary credits 6 months overseas bank account statements and NRE/ NRO account
Latest contract copy evidencing salary/ salary certificate/wage slips Computation of income, P&L account and B/Sheet for last 3 years certified by the C.A. / CPA or any other relevant authority as the case may be (or equivalent company accounts)
PROPERTY DOCUMENTS
  • Original title deeds tracing the title of the property for at least a period of last 13 years
  • Encumbrance Certificate for the last 13 years
  • Agreement of sale/ construction, if any
  • Receipts for payments made for purchase of the dwelling unit
  • Approved plan/ license
  • ULC clearance/ conversion order, etc.
  • Receipts for the invested margin money through normal banking channels from the Non-Resident (External) account in India and/ or the Non-Resident (Ordinary) account in India.
  • Receipt of the last tax paid.
  • Allotment letter from the co-operative society or the association of apartment owners.
  • Agreement for sale, sale deed or the detailed cost estimate from the Architect/ Engineer for property to be purchased, constructed, extended or improved.
  • Copy of approved drawings of proposed construction, purchase or extension.
ADDITIONAL DOCUMENTS TO BE SUBMITTED BY PERSON OF INDIAN ORIGIN
Photocopy of PIO Card

If the PIO card is not available, photocopies of any of the following documents:

  • A current passport with birthplace as ‘INDIA’
  • The Indian passport, if held by the individual earlier
  • Parent’s/Grandparent’s Indian passport/ Birth Certificate/ Marriage Certificate substantiating the individuals claim as a person of Indian origin 
PERMISSIONS AND APPROVALS

Before construction on a project can begin, the builder must seek several permissions and approvals from relevant bodies. Without these clearances, the construction could attract litigation.

To make the process of buying a property easier for our ever growing NRI customer base, we have compiled a comprehensive set of facts, rules and requirements at one place which will make investing in our properties hassle free.

NRI / PIO / OCI Definition and general guidelines
Who is a NRI?

A Non-resident Indian is an Indian citizen or a Foreign National of Indian Origin residing outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI; if his/her stay in India is less than 182 days during the preceding financial year. Non-resident foreign citizens of Indian Origin are treated at par with Non Resident Indian (NRIs).

Who is a PIO?

A Person of Indian Origin (PIO) (not being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan) is a person who

  • At any time, held an Indian passport, or
  • Whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
Who is OCI?
  1. Any person of full age and capacity:
    • Who is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution, or
    • Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution, or
    • Who is a citizen of another country, but belongs to a territory that became part of India after the 15th of August, 1947.
    • Who is a child of such a citizen, or

An individual, who is a minor of a person mentioned in clause (1) provided that no person, who is or had been a citizen of Pakistan, Bangladesh shall be eligible for registration as an Overseas Citizen of India.

Documents required for buying property

  • PAN card (Permanent account number)
  • OCI / PIO card (In case of OCI / PIO)
  • Passport (In case of NRI)
  • Passport size photographs
  • Address proof
Who can purchase immovable property in India?

Under the general permission granted by RBI, the following categories can freely purchase immovable property in India:

  1. Non-Resident Indian (NRI)- who is a citizen of India residing outside India
  2. Persons of Indian Origin (PIO)- who are individuals (not being citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan),who
    • At any time, held Indian passport or
    • Whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

The general permission, however, only covers the purchase of residential and commercial properties and not for the purchase of agricultural land, plantation property or a farm house in India. OCIs can also purchase immovable property in India except for agricultural land, plantation property or a farmhouse.

Can an NRI / PIO acquire agricultural land/plantation property/farm house in India?

Since general permission is not available to NRIs/ PIOs to acquire agricultural land, plantation property or a farm house in India, such proposals require specific approval from the Reserve Bank of India. These proposals are considered in consultation with the Government of India.

Tax on income from immovable property selling/renting

What is the Tax treatment for income generated from property selling or renting for NRI/PIO/OCI?

The mere acquisition of property does not attract income tax. However, any income accruing from the ownership of it in the form of rent (if it is let out), annual value of the house (if it’s not let out and is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of the property or part thereof is taxable in the hands of the owner.

Do NRIs / PIOs / OCIs have to file returns in India for their property rental income and Capital Gains Tax?

The Government of India has granted general permission to NRIs/ PIOs/ OCIs to buy property in India and they do not have to pay any taxes while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India and they will have to obtain a PAN and file a return on the income if they have rented this property. On sale of the property, the profit on sale shall be subjected to capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains which are to be included in their total income and will be taxed in the normal bracket. However, if the property has been held for more than 3 years, then the resulting gain would be labeled as a long term capital gain and will be subjected to 20% tax and some additional levy (cess).

How does the Double Taxation Avoidance Agreement (DTAA) work in the context of tax on income and Capital Gains tax paid in India by NRI?

India has DTAAs with several countries which gives a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provides that the capital gains will be taxed in the country where the immovable property is located. Hence, the non-resident will be subjected to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed under most tax treaties in view of the fact that the property is in India.

Capital Gains Tax on NRI / PIO / OCI

Does Capital Gains Tax (CGT) apply to NRI / PIO / OCI?

Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.

How is rate of CGT computed?

Type of asset: Assets like house property, land and building, jewelry, development rights, etc.
Rate of tax deduction at source (TDS)
Long term 20.6%
Short term 30.9%
Exemption available (only for long term capital gains)
The long term capital gains arising on sale of a residential house can be invested in buying/constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or the amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, or the proportionate gain is exempted. As per the financial budget 2007-08, a cap of INR. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.

How does Double Taxation Avoidance Agreement work in the context of CGT paid in India on the foreign tax treatment?

In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit with respect to the taxes paid in India/ home country, because the income in India would also be included in the country of tax residence. The amount of tax credit is also on the basis of computing the tax credit that can be claimed as specified in the respective country’s DTAA and is also dependent on the laws of the home country where the taxpayer is a tax resident.

Repatriation of funds

What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI / PIO as prescribed by the Reserve Bank of India?
    1. If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE / FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:
      • In foreign exchange received through normal banking channel or
      • By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.

Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s out of foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s / PIO’s may repatriate an account up to USD One million, per financial year, as discussed below.

2.If the property was acquired out of Rupee sources, NRI / PIO may remit an amount of up to USD One million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance. The NRI / PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE / FCNR(B) account.

Is the rental income from property repatriable and what are the RBI rules?

The rental income, being a current account transaction, is repatriable, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.

NRI / PIO / OCI Home loans

Are NRI / PIO / OCI eligible for Housing loans to buy property from any Indian Bank?

An authorized dealer or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a non-resident Indian or a person of Indian Origin residing outside India for acquisition of a residential accommodation in India, subject to the following conditions, namely:

  1. The quantum of loans, margin money and the period of repayment shall be at par with those applicable to housing finance provided to a person residing in India.
  2. The loan amount shall not be credited to Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR)/Non-Resident non-Repatriable (NRNR) account of the borrower.
  3. The loan shall be fully secured by an equitable mortgage by deposit of title deal on the property proposed to be acquired, and if necessary, also be lien on the borrower’s other assets in India.
  4. The installment of loan, interest and other charges, if any, shall be paid by the borrower by remittances from outside India through normal banking channels or out of funds in his Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR)/Non-Resident Non-Repatriable (NRNR)/Non-Resident Ordinary (NRO)/non-Resident Special Rupee (NRSR) account in India, or out of rental income derived from renting out the property acquired by utilization of the loan or by any relative of the borrower in India by crediting the borrower’s loan account through the bank account of such relative (The word ‘relative’ means ‘relative’ as defined in section 6 of the Companies Act, 1956.)
  5. The rate of interest on the loan shall conform to the directives issued by the Reserve Bank of India or, by as the case may be, the National Housing Bank.

Income Tax

Who should file tax returns?

If you are an NRI / OCI / PIO, you would have to file your income tax returns if you fulfill either of these conditions:

  • Your taxable income in India during the year was above the basic exemption limit of INR.1.6 lakh OR
  • You have earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit.

Note:The enhanced exemption limit for senior citizens and women is applicable only to Residents and not to Non-Residents.

Are there any exceptions?

Yes, there are two exceptions:

  • If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax return.
  • If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return.

Tip: You may also need to file a tax return if you have to claim a refund. This can happen if the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below INR 1.6 lakh but the bank deducted tax at the source on your interest amount, you can claim a refund by filing your tax return.
Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off or carry forward the capital loss against the gain and lower your actual tax liability. In such cases, you will need to file a tax return.

What’s the best way to file tax returns?

Traditionally, you could file your tax return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file the return on your behalf.
But nowadays, the easiest option for NRIs to file their Indian tax returns is by using the online platform. There are several options to file online.

Indicative list of documents required for home loans

Salaried individuals Self-employed individuals
Copy of employment contract Balance sheets and P&L a/c of the company for last 3 years
Latest Salary slip Bank a/c statements for last 6 months for company and individual, both
Latest work permit Income tax returns (3 years)
Bank statement for 4 months or NRE / NRO a/c 6 months statement Passport/visa copy
Passport/visa copy Utility bill for address proof
Utility bill for address proof PIO / OCI card
PIO / OCI card Power of Attorney (if applicable, in respective bank’s format)
Power of Attorney (if applicable, in respective bank’s format) Credit check report
Customer credit check report Property agreement or other related docs
Property agreement duly registered or other related docs
Income Tax returns last 2 years

 

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