Getting the nomenclature right

To understand the implications of buying a property in India, you need to assess your residential status. There are different definitions of residential status under different categories and under different laws. Here is a brief description of each:

Non-Resident Indian (NRI):

This is a broad term used to refer to Indian citizens living abroad. Technically, you need to be away for a certain period of time in a year to qualify as an NRI. The term NRI has been defined under the Foreign Exchange Management Act, 1999 (FEMA) and the Income tax Act, 1961.

NRI definition according to FEMA:

“Person resident outside India” means a person who is not resident in India. Person resident in India means one who resides in India for 182 days or more during the preceding financial year. The following are exceptions to this rule:

• Persons going outside India for taking a job, carrying on a business or vocation, or for any other purpose for an uncertain period of time are considered as Non-Resident Indians, irrespective of their period of stay abroad.
• Persons coming to India for taking a job, carrying on a business or vocation, or for any other purpose for an uncertain period of time are considered as Resident in India, irrespective of the period of stay in India.

NRI definition according to Income Tax Act:

An NRI is a person who is not resident in India. An individual is deemed to be a resident in India if:

• He/she is in India for a period of 182 days or more during the previous year; or
• He/she is in India for a period of 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year.

Overseas Citizen of India (OCI):

If you are not a citizen of India presently but were in the past or at least one of your parents / grandparents / great grandparents was an Indian citizen, or you are married to an Indian citizen / OCI, you can register as an OCI. You are eligible for certain privileges in India such as a lifelong multiple-entry visa.

Property ownership rules applicable to NRIs / OCIs

NRIs and OCIs are allowed to acquire and own immovable property (other than agricultural land, plantation property or farm house) in India. However, if you are a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal or Bhutan (and such other countries as may be notified from time to time), you need prior permission from the Reserve Bank of India to acquire property in India. The basic conditions and restrictions on property ownership by NRIs / OCIs are laid down by the Foreign Exchange Management Act 1999 (FEMA).

Home Loans for NRIs:

A wide choice of home loans is available to NRIs to purchase their home. Each financial institution has its own set of rules and norms. Here is a general guide:

Home loan eligibility criteria:

You may be a salaried person or self-employed to avail a home loan. You can apply for a home loan either individually or with co-applicants who may or may not be co-owners of the property. However, all co-owners need to be co-applicants. You may opt for a housing loan for purchase of new homes, resale homes or to construct your home on a plot owned by you. You can also avail a loan for purchase of a plot, for home improvement and extension, or for refinancing your existing home loan availed from another financial institution in India.

Documents required for home loan:

Following are the key documents needed to apply for a home loan:

• Proof of identity, residence and income
• Photocopy of a valid passport and visa
• Copy of property allotment letter/buyer agreement or agreement to sell, if property is already shortlisted
• Passport size photographs of all applicants
• Cheque towards processing fees
• Power of Attorney if applicable

Home loan process:

To apply for a home loan, you need to submit the duly filled home loan application form along with the necessary documents to the lender either directly or through a POA holder.

Power of attorney:

It is desirable to appoint any of your relatives as the Power of Attorney (POA) holder in India. The POA holder would be entitled to act on behalf of you as per the authority provided under the POA agreement and your physical presence need not be required at all times for processing/facilitating your home loan.

Maximum loan amount:

Typically between 75% and 90% of the property cost is given as a loan. The balance would be your own contribution.

Tenure:

You can avail a maximum term of up to 20 years depending on your profile like your age at maturity of loan, age of property at loan maturity and other terms.

Interest rate:

You may opt for an adjustable rate home loan or a fixed rate loan (where the interest rate is fixed for 2 or 3 years, post which the loan will automatically convert to an adjustable rate, adding up to a total term of 20 years). Interest rates as applicable would be levied on the disbursed loan.

Repayment of housing loan:

If you plan to buy an under-construction property, you need to pay only the interest till its completion after which you can start your EMIs. However, if you wish to start repaying your principal too, you may opt to tranche the loan and start paying the full EMIs. While purchasing a fully constructed property, your EMIs would commence immediately. All EMI payments need to necessarily happen through your NRE/NRO bank account in India. There is no penalty for pre-payment of partial or full value of the outstanding loan amount paid from own sources. However your home loan may attract prepayment charges in case you are refinancing it to another financial institution in India.

Tax deduction for home loan:

You are eligible to a tax deduction on interest paid and loan repayment on your home loan if you are an NRI as per the income tax definition and file your income tax returns in India. You are eligible for deduction of up to Rs.1.5 lakh on housing loan principal repayment under section 80C and up to Rs. 2 lakh on interest payments if the home is lying vacant. If it is rented out, the entire interest payable can be claimed as exemption.

Did You Know?

Change in status from NRI to resident Indian:

In case you return to India permanently, which changes your status from Non Resident Indian to Resident Indian, the lender may reassess your loan eligibility and repayment capacity and work out a revised repayment schedule. However there is no major impact as a resident has unfettered freedom to acquire property in India. A minor change in the tax benefit would be the possibility of treatment of one home as self-occupied.

Conclusion

With easy availability of home loans in India, NRIs can build their wealth in their home land through their favourite and ever-attractive investment option of property.