An NRI has the luxury to buy residential or commercial property in India but cannot buy agricultural plots, farmhouses, or plantations. If you are an NRI who is living outside India but is interested in buying a property in India, your timing couldn't be better. The real estate sector of India is flooded with rewards due to which properties have become more lucrative with favourable currency rates. In this blog, you will get a glimpse of documents needed to buy a property, eligibility, documents needed for a home loan, essential papers to monitor and register, and much more. So stay on and read on!
NRIs have the liberty to buy a property with the help of home loans. But the rules of these home loans are not the same for the NRIs. Because of this, the NRIs must understand the basic steps and crucial differences before engaging in such activity.
Who is considered an NRI as per FEMA?
An NRI is a person who has not resided in India for 183 days or more and is living in another country. The Foreign Exchange Management Act determines whether or not a person is eligible to invest as a citizen or as an NRI. The Income Tax Act determines the tax obligation related to these kinds of investments.
Documents to keep handy before buying a real estate in India
Passport and OCI card: An NRI applicant looking for a home loan should first present his/her Indian passport. Even if the NRI applicant possesses a foreign passport, they can buy property in India by providing a PIO card, also known as Persons of India Origin, or can also provide their OCI (Overseas Citizen Of India) Card.
Pan Card: The Pan Card is needed at the time of property transactions.
Power of Attorney: In case, as an NRI applicant, you are not available in India to continue your purchase transaction, you will have to appoint a special power of attorney. That power of attorney should be registered and notarized. No general power of attorney has the authority to execute the property transaction.
How can an NRI applicant for a home loan execute a power of attorney?
If an NRI applicant for a home loan is unavailable in India, then a power of attorney authorises another person residing in India to fulfil the transaction on their behalf. The NRI home loan applicant should duly sign the POA in the presence of a consulate officer or a notary. They should also attest to it.
Who is eligible for the NRI home loan application?
To stand eligible for the NRI home applicant, one must fulfil the following criteria-
Minimum 2 years or more work experience in the country where the applicant is currently residing at the time of applying for a home loan.
The maximum tenure allotted is around 20 to 30 years
An NRI applicant’s maximum age can be 60 years if applying for a home loan
The ratio of loan to value will be determined by the age and income of the NRI applicant.
Documents required by NRI for home loan application
A copy of your Indian passport
A copy of Visa
PIO Card if you possess a foreign passport
If your parents are still citizens of India, then an OCI card in that case
Copy of work permit/contract/ appointment letter of the country where you are currently working
Copy of latest salary slip or the payslips of the past 6 months
Latest income tax returns
You need to present a bank statement of the last 1 year of your NRE and NRO accounts.
In case you are not available in India to complete the purchase transaction you also need a Power of Attorney.
The procedure of repayment/ norms for NRIs
An NRI has an option to transfer the money from an overseas bank account through regular banking channels. One can also issue post-dated cheques or an ECS. An NRI also has an option to issue cheques from the local relative’s bank account to repay the home loan.
What are the Taxation laws about home loan
An NRI has to plan for taxation in India
NRI applicants for home loans should manage foreign currency fluctuation as their house purchase will be in Indian currency i..e. Indian National Rupee, and their income will be in a foreign currency.
The NRI home loan applicant needs to stay updated with tax, finance, and foreign investment policies that are related to their property purchase.
If the NRI home loan applicant wants the home loan terms extended to them, then they need to show adequate means to purchase a property.
Cost of ownership price for NRIs in India
The price paid to the seller or the real estate developer in Indian currency, plus forex losses or gains during the purchase of property with statutory dues to be paid in India and foreign, plus the bank loan interest, gives us the cost of ownership price for NRIs. Just in case the currency of India strengthens over the US Dollars, then the cost of ownership will increase each passing year for the projects that are under development. Some NRIs tend to buy ready houses so that the cost of ownership gets locked down in Indian rupees.
Should NRIs avail of a home loan from India or their country of residence?
There will be no surprise to see that NRI is opting for a home loan from a bank that is located in his residence, which also has a branch in India. Before choosing this option, the bank and the details should be extensively explored. The cost of debt is likely to be cheaper in most countries outside India. With their relationships in India, foreign banks provide loans at very reasonable rates without the addition of forex. Whereas in some scenarios, NRIs tend to fear home loans in India because of the currency fluctuation risks involved. But one should safely comprehend the options in order to avoid escalation in the cost of the loan.
Tax benefits of NRI home loans
As per RBI, NRI home loans are available with the lowest interest rate starting from 6.85% per annum. Under Section 80 C of the Income Tax Act 1961, an NRI is eligible for tax benefits on a home loan if and only if they file income tax returns in India. There are two ways by which the tax deduction happens- the interest component and the principal component.
Under the interest component, the deduction is up to Rs 2 Lakh on the interest repayment amount, whereas on the Principal component, the deduction is up to Rs 1.50 lakh on the principal amount repayments.