NRI Corner
Home Loans for NRI
The Non-Resident Indians (NRIs) are recognized under the Foreign Exchange Regulatory Act (FERA), 1973. All banks and housing finance companies follow the RBI guidelines to define NRI - "An Indian citizen who holds a valid document like Indian passport and who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay in abroad is an NRI ."
Broadly categorized, Non-Resident Indians qualifying for NRI housing loans are
- Indian citizens who stay abroad for employment or for carrying on business or vocation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad;
- Government servants who are posted abroad 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), Economic and Social Commission for Asia and the Pacific (ESCAP),etc.
- Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.
- Government servants who are posted abroad 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), Economic and Social Commission for Asia and the Pacific (ESCAP),etc.
- Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad.
Eligibility for NRI
The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The parameters include:
Age: Minimum age 21 years. Age of the borrower along with repayment period should not be beyond 60 years.
Qualification: The NRI loan seeker has to be a graduate.
Income: The loan applicant has to have a minimum monthly income of $ 2,000 (although, this criterion may differ across (Housing Finance Companies). The eligibility is also determined by the stability and continuity of your employment or business.
Payment options: The NRI also has to route his EMI (Equated Monthly Installments) cheques through his NRE/NRO account. He cannot make payments from another source say, his savings account in India.
Number of dependants: The eligibility of the applicant is also determined by the number of dependents, assets and liabilities.
Age: Minimum age 21 years. Age of the borrower along with repayment period should not be beyond 60 years.
Qualification: The NRI loan seeker has to be a graduate.
Income: The loan applicant has to have a minimum monthly income of $ 2,000 (although, this criterion may differ across (Housing Finance Companies). The eligibility is also determined by the stability and continuity of your employment or business.
Payment options: The NRI also has to route his EMI (Equated Monthly Installments) cheques through his NRE/NRO account. He cannot make payments from another source say, his savings account in India.
Number of dependants: The eligibility of the applicant is also determined by the number of dependents, assets and liabilities.
RBI Directive for 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 should 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 directive for sanctioning home loans to Non-Resident Indians.
The guidelines provided are:
The home loan amount should not exceed 85% of the cost of the dwelling unit, as the remaining amount that is 15% needs to be provided an own contribution towards the cost of unit financed.
The cost of dwelling unit which is own contribution financed less the loan amount, can be met from direct remittances from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
However, repayment of the loan, comprising of the principal and interest including all the charges are to be remitted to the HFC from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
The repayment option for NRIs as they can pay through the funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act(FEMA), 1999, and the regulations made by the RBI from time to time. As most of the home loan provider companies consider the economical stability of the applicant, home loans for NRIs are quite feasible, because they are well in economic resource.
The NRIs and Resident Indians can also acquire immovable property in India other than agricultural property, plantation or a farmhouse. It has issued certain directive for sanctioning home loans to Non-Resident Indians.
The guidelines provided are:
The home loan amount should not exceed 85% of the cost of the dwelling unit, as the remaining amount that is 15% needs to be provided an own contribution towards the cost of unit financed.
The cost of dwelling unit which is own contribution financed less the loan amount, can be met from direct remittances from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
However, repayment of the loan, comprising of the principal and interest including all the charges are to be remitted to the HFC from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and /or Non-Resident (Ordinary) [NR (O)] account in India.
The repayment option for NRIs as they can pay through the funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act(FEMA), 1999, and the regulations made by the RBI from time to time. As most of the home loan provider companies consider the economical stability of the applicant, home loans for NRIs are quite feasible, because they are well in economic resource.
What are the lists of documents required for home loans?
Self-employed individuals
- Balance sheets and P&L a/c of the company for last 3 years
- Bank a/c statements for last 6 months for company and individual, both
- Income tax returns (3 years)
- Passport/visa copy
- Utility bill for address proof
- PIO/OCI card
- Power of Attorney (if applicable, in respective bank's format)
- Credit check report
- Property agreement or other related docs
- Copy of employment contract
- Latest Salary slip
- Latest work permit
- Bank statement for 4 months or NRE/NRO a/c 6 months statement
- Passport/visa copy
- Utility bill for address proof
- PIO/OCI card
- Power of Attorney (if applicable, in respective bank's format)
- Customer credit check report
- Property agreement duly registered or other related docs
- Income Tax returns last 2 years
Are NRI/PIO/OCI eligible for Housing loans to buy property from any Indian Bank?
An authorised 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:
A) 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.
B) 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.
C) The loan shall be fully secured by equitable mortgage by deposit of title deal of the property proposed to be acquired, and if necessary, also be lien on the borrower's other assets in India.
D) The instalment 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.)
E) The rate of interest on the loan shall conform to the directives issued by the Reserve Bank of India or, as the case may be, the National Housing Bank.
A) 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.
B) 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.
C) The loan shall be fully secured by equitable mortgage by deposit of title deal of the property proposed to be acquired, and if necessary, also be lien on the borrower's other assets in India.
D) The instalment 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.)
E) The rate of interest on the loan shall conform to the directives issued by the Reserve Bank of India or, as the case may be, the National Housing Bank.
In what way the Non-resident Indian can finance the flat?
The purchase of the flats can be financed from the fresh remittance through the normal banking channels or from payment from original non-resident account or from Non-resident (External) Accounts. Non-resident Indians who are citizens of India (India Passport holders) are eligible for housing finance for the acquisition of an immovable property or construction of a new house, or a flat for their occupation or for that of their family in India.
Can NRIs obtain loans for acquisition of a house/flat for residential purpose from housing finance?
The Reserve Bank has granted general permission to certain financial institutions providing housing finance. Criteria regarding the purpose of the loan, margin money and the quantum of loan will be at par with those applicable to resident Indians. Repayment of the loan should be made within a period not exceeding 15 years, out of inward remittance through banking channels or out of funds held in the investors' NRE/FCNR/NRO accounts.
Can Indian companies grant loans to their NRI staff?
The Reserve Bank permits Indian firms to grant housing loans to their employees deputed abroad and holding Indian passport subject to certain conditions.
What types of transactions are permitted?
All types of transactions of deposits and withdrawals to and from NRO account are normally permitted. However, the RBI has prescribed certain transactions requires to be reported to RBI in prescribed forms.
What types of account can be opened?
NRE, NRO or FCNR Accounts.
What should method of payment purchasing residential in India by foreign nationals general permission?
Payment for the purchase of property can be made either by way of funds remitted to India from abroad through regular banking channels or through the balance in the NRE, NRO or FCNR Account which can be opened in the categories of current, savings, and recurring and term deposit accounts maintained with banks in India.
How does FCNR differ from NRE account?
The FCNR accounts, primarily differ from NRE account on the point of fact that the balance in FCNR account is denominated in designated foreign currency in which the account is opened and thus unlike NRE accounts, there is no loss either on account of difference between buying and selling rates or on account of fluctuation in exchange rates. The deposits in FCNR accounts can be withdrawn prior to maturity date.
Is the interest earned exempted from tax?
Interest earned on FCNR account is exempted from income tax and the balance in the account is exempted from wealth tax. Interest on NRE account is not exempted from Income tax and balances to the credit of NRE account are not exempted from wealth tax.
Can the rental income from such property be remitted outside India?
No. Such income cannot be remitted abroad and will have to be credited to the ordinary non-resident rupee account of the owner of the property.
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 is not let out and it 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 this house or part thereof is taxable in the hands of the owner.
Does NRI/ PIO/ OCI have to file return in India for their property rental income and Capital Gains Tax?
The Government of India has granted general permission for NRI/ PIO/ OCI to buy property in India and they do not have to pay any taxes even 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 return of income if they have rented this property. On sale of the property, the profit on sale shall be subject 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 as tax as per the normal slab rates shall be payable and if the property has been held for more than 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.
How does the (DTAA) work in the context of tax on income and Capital Gains tax paid in India by NRI?
India has DTAA's with several countries which give a favourable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject 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 in India under most tax treaties in view of the fact that the property is situated in India.
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.
Who should file tax returns?
If you are an NRI/ OCI/ PIO, you would have to file your income tax returns if you fulfil either of these conditions:
Your taxable income in India during the year was above the basic exemption limit of 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.
Your taxable income in India during the year was above the basic exemption limit of 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 returns.
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 file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below 1.6 lakh but the bank deducted tax at 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) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return.
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 returns.
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 file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below 1.6 lakh but the bank deducted tax at 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) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return.
What's the best way to file tax returns?
Traditionally, you could file your 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 returns 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.
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.
Who is a NRI ?
As defined by the Foreign Exchange Management Act of 1999 (FEMA), Non Resident Indian (NRI) is a citizen of India, who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Non-resident foreign citizens of Indian Origin are treated at par with Non Resident Indian (NRIs).
Are foreign nationals of Indian origin allowed to purchase immovable property in India?
Yes, foreign nationals of Indian origin, whether Resident in India or abroad, have been granted general permission to purchase immovable property in India.
Method of payment for purchasing Residential Indian origin under the general permission?
The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/ FCNR accounts maintained with banks in India.
What way the Non-Resident Indian can finance the flat?
NRI/PIO can avail of housing loan in Rupees from an Authorized Dealer or a Housing Finance Institution subject to certain terms and conditions laid down in Regulation 8 of Notification No. FEMA 4/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time. Authorized Dealers/ Housing Finance Institutions can also lend to the NRIs/ PIOs for the purpose of repairs/renovation/ improvement of residential accommodation owned by them in India. Such a loan can be repaid (a) by way of inward remittance through normal banking channel or (b) by debit to the NRE / FCNR (B) / NRO account of the NRI / PIO or (c) out of rental income from such property; or (d) by the borrower's close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower's loan account.
Can Non-Resident Indians staying abroad purchase property through an agent power of attorney?
The Non-Resident Indians who are staying abroad may enter into an agreement through their relatives and/ or by executing the Power of Attorney in their favour as it is not possible for them to be present for completing the formalities of purchase (negotiating with the builder or Developer, drafting and signing of agreements, taking possession, etc.). These formalities can be completed through some known person who can be given the Power of Attorney for this purpose. Power of Attorney should be executed on the stamp paper before the proper authorities in foreign countries. Power of Attorney cannot be drafted on the stamp paper bought in India.
Are there any formalities to be completed by foreign nationals of Indian origin for purchasing in India?
They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.
Can NRI / PIO / commercial property purchased out of foreign exchange / rupee funds?
Yes, NRI/PIO can rent out the property without the approval of the Reserve Bank. The rent received can be credited to NRO / NRE account or remitted abroad. Powers have been delegated to the Authorized Dealers to allow repatriation of current income like rent, dividend, pension, interest, etc. of NRIs/PIO who do not maintain an NRO account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for.
Do Non-ResidentIndian citizens resident abroad require permission of immovable property in India?
No specific permission is required by Non-Resident Indian nationals to acquire immovable Property in India other than agricultural/ plantation/ farmhouse.
Do Non-Resident Indians require permission to transfer any immovable property in India to a person resident in India?
No specific permission is required by Non-Resident Indians to transfer any immovable property in India to a person resident in India.
Do Non-Resident Indians require permission to transfer any immovable property to a person of Indian origin resident outside India/ Non-Resident Indian?
No specific permission is required for said transfer of any immovable property, other than agricultural, or plantation property or farm house.
Any immovable property by Non-Resident Indians/ Person of Indian origin, Resident outside India?
NRI/PIO may repatriate the sale proceeds of immovable property a) 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: 1.In foreign exchange received through normal banking channel 2. 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/PIO 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/PIO may repatriate an amount up to $1 million, per financial year, as discussed below. b) If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to $1 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.
Flats/ plots/deals in respect of immovable property purchased by NRIs/ PIOs in India?
With a view to allow credit to NRE/ FCNR account of refund of purchase consideration by seller on account of cancellation of bookings/ deals for purchase of Residential, commercial property, Reserve Bank clarified that it will be in order for authorized dealers to allow Non-Resident Indians/ Persons of Indian Origin to credit refund of application/ earnest money/ purchase consideration made by the housing building agencies/ seller on account of non-allotment of flat/ plot/ cancellation of bookings/ deals for purchase of Residential commercial property, together with interest, if any (net of income tax payable thereon),to NRE/ FCNR account, provided, the original payment was made out of NRE/ FCNR account of the account-holder or remittance from outside India through normal banking channels and the authorized dealer is satisfied about the genuineness of the transaction.
Where can one contact with RBI for clarifications/ approvals etc. in respect of immovable property in India?
The Chief General Manager, Reserve Bank of India, Central Office, Exchange control Department, Foreign Investment Division (III), Mumbai - 400 001