The Indian real estate market offers a lucrative investment opportunity for non-resident Indians (NRIs). Like resident Indians, NRIs are also allowed to buy properties in India, with the help of home loans. However, the home loan rules are not exactly the same for NRIs and resident Indians. Hence, it is important to know the crucial differences.
1. Who is an NRI, as per the FEMA and the Income Tax Act?
An Indian, who has not resided in the country for 183 days or more and is residing in another country, is referred to as an NRI. In the Budget for 2020-21, this period has been proposed to be increased to 245 days. Experts point out that the FEMA (Foreign Exchange Management Act) will determine whether you are eligible to invest as an ordinary citizen or as an NRI, whereas, the Income Tax Act determines the tax obligation related to such investment.
2. What is the eligibility criteria for NRI home loan applicants?
An NRI home loan applicant should fulfil the following criteria:
-- Minimum 2 years of work experience in the country where s/he is residing, at the time of applying for the loan.
-- The maximum loan tenure allowed, is around 20 to 30 years.
-- The maximum age allowed for servicing the home loan is usually up to 60 years.
-- The loan-to-value (LTV) ratio will depend on the applicant’s age and income.
3. Home loan repayment procedure/norms for NRIs
An NRI can transfer money from an overseas bank account through regular banking channels, issue post-dated cheques or an Electronic Clearance Service (ECS), or issue cheques from a local relative’s bank account, to repay the home loan.
4. Power of Attorney (PoA) requirement for NRIs
Lenders require a Power of Attorney (PoA) while extending home loans to NRIs, because they live in a foreign country and the lender needs someone in India to deal with.
5. Taxation laws pertaining to the home loan
The primary difference between an Indian resident buyer and an NRI is:
-- NRIs have to plan for taxation in India and their country of dwelling.
-- NRIs have to manage foreign currency fluctuations, as their house investment will be in Indian rupees and
their income will be in a foreign currency.
-- NRIs need to stay updated on tax, finance and foreign investment (FEMA) policies related to property
purchase.
-- They need to have adequate means to purchase their home, based on the home loan terms extended to
them.