Certain regulations regarding taxation and foreign exchange have to be followed by the NRI buyer when borrowing a home loan for purchasing a property in India. These have been elaborated here so that is aware of them.
A profitable realty market awaits the investment of non-resident Indians in the country. They too are enabled the privilege of buying a house like the residents here. But different rules exist for both these categories of buyers in borrowing a home loan.
Income Tax Act and FEMA
Who is an NRI? An individual who resides outside India for 183 or more days. Whether you are an NRI or not will be determined by the Foreign Exchange Management Act (FEMA) to find out if there is scope for you to take a loan as an ordinary citizen while the relevant tax obligation would be laid down by the Income Tax Act if you qualify as an NRI.
Loan Application Criteria
- Work experience of at least 2 years in the country where the individual residing during the time of loan application.
- The tenure of the home loan is limited to a period ranging between 20 and 30 years.
- The age limit for home loan servicing is 60 years.
- The income and age of the home loan applicant determine the LTV (Loan-to-Value) ratio.
Loan Repayment Method
- An NRI can resort to the following means for repaying the home loan.
- Money transfer through regular banking channels from an account in an overseas bank account
- Checks issued from the bank account of a local relative
- Issuance of post-dated cheques or ECS (Electronic Clearance Service)
Power of Attorney
The NRI has to fulfil the lender’s requirement of PoA (Power of Attorney) since the latter needs to locally contact someone while the borrower is abroad.
Laws of Taxation
- Unlike the Indian loan borrower, the NRI is required to plan the taxation of both the country where he or she is residing as well as India.
- The property purchase investment and income in Indian and foreign currencies, respectively resulting in fluctuations have to be handled by the NRI home loan borrower.
- Need to be on track with foreign investment policies, tax and finance associated with the property purchase.
- Availability of sufficient means for buying a home as dictated by the home loan terms they have been endowed with.
Ownership Cost
An NRI home buyer is required to pay the cost of ownership, which comprises:
- Payment to the developer/ seller in Indian currency
- Forex gains or losses at the time of home purchase
- Payment of statutory dues in both India and the residing foreign country
- Bank loan interest
The ownership cost of under-construction projects will increase yearly with the rise of Indian rupees value above US dollars. Purchasing a readymade house is the way out to lock down the ownership expense in Indian currency.
Home Loan from the Bank Abroad
A home loan can also be obtained from any bank in the NRI’s country of residence if it has a branch operating in India.
It is a far better option for borrowing a home loan since the expense of debt is relatively lesser in most foreign countries as compared to India.
Besides, the currency fluctuation can be avoided that would otherwise increase the loan cost.
Banks in foreign countries operating through corresponding branches in India offer attractive rates for NRI home loan borrowers regardless of Forex.
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