One of the most sought-after investments for Non-Resident Indians (NRIs)
is buying property back home. At a time when the Indian rupee is
weakening against the US dollar, taking a home loan in India could be a
good option for the NRIs rather than using up all the money earned in
the foreign currency. Are NRIs allowed to take a home loan in India?
Yes, they have. “NRI Home Loans” are offered both by banks and
Non-Banking Financial Companies (NBFCs). Here we take a look at what is
required to avail this loan and how it differs from a normal loan taken
by a resident Indian.
Eligibility and documents required
An NRI should meet the criteria on minimum age and minimum years of work
experience abroad. The criteria vary across institutions. In State Bank
of India (SBI) the minimum age limit is 18 years and the number of
years a NRI should have worked should be 2 years. But if you intend to
take a loan from ICICI bank, then it is enough if you had worked for one
year abroad, but your minimum age should be 25 years. If you are a
self-employed, then you should have stayed abroad for at least 3 years.
Banks like ICICI Bank and Axis Bank even have a minimum salary per month
as one of the eligibility criteria. If you work in any of the Gulf
Cooperation Council (GCC) countries then you need to have a minimum
monthly income of 5,000 AED (United Arab Emirates Dirham) and for
working in US and other countries $3,000 per month is the minimum salary
to be earned if you want to take a NRI home loan in Axis Bank.
Paper work
For the documentation process, a copy of your passport, visa and
employment related documents such as your three to six month salary
slips, appointment letter, employment contract if any and address proof,
are mandatory. These documents can be submitted to the overseas bank
branch located the closest to you, in the country where you reside. The
documents are then sent to the Indian branch for processing. Note that
the overseas branch just acts as an intermediary for colleting and
sending the documents to India. The verification process happens only in
the Indian branch.
Loan tenor and interest rate
Earlier there were differences in the interest rate charged for a NRI
home loan and for the ones offered to resident Indians. But now the
rates are the same. “The interest rate and other charges like processing
fee for NRI home loans are the same as offered to resident Indian.
Also, loans to NRI are of larger average size of ₹40 lakh when compared
to an average size of ₹23.5 lakh for a resident Indian home loans. The
processing fee is 0.5 per cent of the loan amount but capped at
₹10,000”, says the spokesperson for HDFC. A ceiling on the processing
fee gives NRIs more leeway on taking a bigger loan.
When it comes to loan tenor, institutions and banks like HDFC and SBI
offer longer periods of 20 to 30 years - the same as offered to a
resident Indian. But in some cases the loan tenor is restricted to 10 or
15 years. For example, Bank of Baroda limits the loan tenor for NRIs to
15 years. LIC Housing Finance Ltd offers a 15 year home loan to NRIs
with professional qualification, but for others the loan tenor is just
10 year.
Repayments
The repayment of a NRI loan is due only in Indian rupees and not the
foreign currency. Satish Kotian, Chief Operating Officer, Aspire Home
Finance Corporation Ltd (A Motilal Oswal Group Company) clarifies that -
“Under the RBI regulations, the repayment of the housing loan by NRIs
can only be made by remittances from abroad through normal banking
channels or through a Non Resident Rupee (NRE) or a Non Resident
Ordinary Rupee account (NRO)”.
Prepayment of loan is permitted for NRIs and there is usually no charge
for prepayments. But there are some exemptions. For instance ICICI Bank
levies a 2 per cent pre-closure charge on the outstanding amount and the
amount pre-paid in the last 12 months, if the home loan is prepaid in
full.
Tax implications
On a home loan, a resident Indian can avail a tax benefit on repayment
of up to ₹1.5 lakh on the principal component and ₹2 lakh on the
interest component. Can the NRI who repays the home loan also avail of
tax benefits? Most of the NRIs who are currently serving their home
loans are not aware of the tax implications on their loan repayment.
They just earn their incomes abroad and repay their loan.
Tapati Ghose, Partner, Deloitte Haskins & Sells LLP says, “if the
salary earned abroad is the only source of income, a NRI does not have
an opportunity to claim tax exemption on home loan repayment, since he
is not taxable in India. But, in case if a NRI earns an additional
taxable income from India apart from the salary earned abroad, then he
is eligible to claim tax exemption for the home loan repayment”.
