Most non-resident Indians (NRIs) dream to own a home in their native land. Among several reasons to buy a property back in India, some feel a certain sense of belonging while others see it as a big opportunity to invest and get good returns. In either cases, several NRIs opt for home loans to fund their purchase.
To start with, any person who comes under the definition of the Foreign Exchange Management Act, 1999 (FEMA) can avail a home loan in India. FEMA defines an NRI as someone who resides outside India “for employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period.” Moreover, he will also be an NRI if his stay in India is less than 182 days during the preceding financial year.
The procedure to take a home loan by NRIs as directed by government differs a little from usual procedure applicable to a resident Indian. Here are a few simple steps that NRIs must take to avail a home loan in India.
- Salaried NRIs should have been abroad for a minimum period of one year whereas for self-employed applicant this criterion is increased to three years.
- The income and educational qualifications of the applicant are considered by banks while deciding the maximum loan amount to be given to an NRI. Normally, bank offers loans to NRIs for a tenure up to 15 years with total loan amount varying from bank to bank.
How to select bank?
Foreign Branches of Indian Bank: NRIs must check if the Indian bank has a branch in their country. It will help them apply for a loan and avail the same without coming to India. These foreign branches coordinate with their Indian branches for approval, disbursement right up to the repayment and collection of property documents.
Interest Rate: Several banks have different interest rates. The applicants must compare the rates along with moratorium period (A legally authorized postponement) and tenure to repay and select the bank according to optimum benefits they can receive. The interest rates applicable are mostly the same for both Indians and NRIs.
- Copies of passport, work experience certificate, bank account statement and PAN card.
- NRIs must have a non-resident external (NRE) or non-resident ordinary (NRO) account. NRE account enables a seamless and efficient conversion and transfer of Indian and foreign currency both within and outside of India. While NRO savings account manages the account holder’s income earned in India including rent, dividends or pensions, etc.
- For the financial proofs, they must submit copy of salary statements of last six months (if salaried applicant). If salary is not credited to any account, the certificate should be attested from the embassy.
- Self employed individuals should have a copy of Incorporation of business, proof of income: Profit and Loss (P&L) account, partnership deed (if applicable), Memorandum of Agreement (MOA) and Articles of Association (AOA) of the company (in case of a private limited company), last 6 months bank statements in the company’s and individual’s name, business profile and office address proofs.
- Further, the applicant has to provide copy of his/her local address in current country and permanent address proof in India. A power of attorney (PoA) should be given to someone in India.
Disbursement of Loan
The loan amount will be disbursed once the applicant’s entire document verification process has completed and he has paid the initial booking amount towards the purchase. If the purchased property is under construction, the disbursement of loan amounts will be proportionate to the stage of construction.
The installment amount or EMI with interest and other charges can only be paid through NRE or NRO accounts with remittance from abroad. No other funds can be used for repayment of loans. Moreover, one can repay only in Indian currency. The down payment should also be done through normal banking channels or NRE or NRO account in India.
NRIs buying property in India can avail all tax benefits similar to a resident here. He is entitled for Rs 1.5 lakh principal repayment deduction under Section 80C of the Income Tax Act, 1961 and Rs 2 lakh interest deduction under Section 24 provided he is having an additional earning in India as well. However, if the salary earned abroad is the only source of income, an NRI doesn’t have the opportunity to claim tax exemption on home loan repayment, since he is not taxable in India.
Hopefully, these simple steps will help ease the home loan application process for NRIs. Once the initial herculean task of selecting a property is done, it is easy to opt for home loans, provided one has all the necessary documents handy with him.