7 Things NRIs Should Keep in Mind While Taking A Home Loan in India

The Indian Real estate sector is booming due to the rise in demand for housing property as well as due to PM “Housing for All” mission. Due to the global pandemic of Covid-19, many people are now looking for good & safe residential projects to invest in. NRIs (Non-Resident Indians) are also interested in owning a property in their home country.

The Indian realty sector gives the non-resident Indians (NRIs) a valuable investment opportunity. NRIs are also permitted, like resident Indians, to buy real estate in India by means of home loans. Many NRIs are interested in taking a loan because most of these people want to hold more money for retirement and for other purposes.

But for NRIs and resident Indians, the laws on home loans are not quite the same. Therefore, key distinctions are important to recognize.

Firstly, we need to know who an NRI is in the eyes of our law:

According to our Income Tax Act, An Indian, who hasn’t lived in the country for more than 183 days and who lives in a foreign country, is defined as an NRI. This time was proposed to be extended to 245 days in the budget for 2020-21.

The Foreign Exchange Management Act (FEMA) of our country decides whether you are entitled to make an investment as an ordinary citizen or as an NRI, whereas the Income Tax Act lays out a tax provision relating to that investment.

NRI home loan applicants’ qualification requirements:

Every NRI Home loan seeker must fulfill following requirements as laid down by banks and other financial institutions. Though these can vary, here are some of the basics that are usually applicable:

• Applicant’s age-The minimum age of the applicant for the home loan should be 18 years and the maximum age should be 60 years.
• Employment Tenor-The applicant for a home loan should preferably have been working overseas for a minimum of 2 years, or should have a contract of employment effective for a minimum of 2 years.
• Maximum Loan Tenure- An NRI home loan’s tenure is shorter than a normal home loan taken by an Indian. The rationale is that the repayment ability of NRIs is assumed to be greater than that of a citizen of India. The maximum permitted borrowing period is between 20 to 30 years.
• Loan-to-value ratio- LTV is the mortgage amount to the appraised value of the property that will depend on the age and income of the applicant.
• Account Type- For redemption of the home loan, the borrower would have to open an NRO / NRE account.

Loan Reimbursement Norms for NRI:

Repayment is a process that NRI home loan clients may perform in many forms. The home loan EMIs must be charged via the NRO / NRE bank account in Indian rupees.

NRIs may suggest transferring money from international bank accounts by usual banking procedures or may issue post-dated cheques or ECS (Electronic Clearance Service) mandates from NRO, NRE or FCNR (Foreign Currency Non-Repatriate) accounts. They can also pay out of the rental income generated in India from the house. If it is more convenient, EMI cheques can even be issued from a nearby relative’s bank account.

Requirement of Power of Attorney:

While providing home loans to NRIs, most banks would like a power of attorney (PoA). It would be a declaration claiming that another person has the NRI’s authority to take decisions on behalf of the NRI in him / her. The reasoning for needing a power of attorney is that the NRI stays overseas, and the lender would have someone to deal with in India.

The PoA helps an individual to access the bank in India for something relating to the loan or the property in question. Most banks emphasise NRI home loan applicants in India giving their children, friends or parents the power of attorney.

Ownership cost for NRIs:

The ownership cost is the price to be payable in Indian rupees to the seller/ builder, plus forex losses or profits during the acquisition of the property, plus regulatory dues to be charged in India and abroad, plus the capital cost (bank loan interest).

Taxation Laws for NRIs:

• NRIs have to be aware of foreign currency fluctuations, as their house investment will be in Indian rupees and their income will be in a foreign currency.
• Tax, finance and foreign investment (FEMA) regulations related to the acquisition of property need to be updated by NRIs.
• For NRI consumers seeking home loans, there are no tax benefits until they file returns and become entitled to benefit from tax rebates available for such loans.

Loan from resident country of NRI:

An NRI will also be able to receive a home loan from a bank based in its country of residence, which also has an Indian branch. This option should be widely explored. Provided that debt costs are typically cheaper in most countries outside India, international banks are able to offer loans at competitive rates through corresponding partnerships and branches in India, without stressing about forex. NRIs who purchase a home with a loan in India would be subjected to risk of currency fluctuation. Therefore, they could examine ways to hedge the possibility of currency fluctuation, in order to prevent inflation of the loan amount.

Besides all these essential documents required for taking a loan are as follows:

• A valid passport
• Visa documents
• Other KYC documents
• Permanent address proof in India
• Appointment letter and work experience certificate
• Work permit, contract of employment from present employer in the current country of residence
• Pay-slips along with supporting bank statements of NRE/NRO accounts
• Proof of address from the current country of residence that is verified by the employer
• Income tax return statements current country of residence
• Valid qualification certificate for meeting the criteria of eligibility
• Notarised GPA (General Power of Authority)

For any other information we at SBP Group are always available for you. You can look for premium property to invest in Punjab with us.