It has now become a common scenario for many Indians - they work for IT or some similar sector companies and their employer sends them abroad to work at client site for long term. Usually this is accompanied by payroll transfer for long term onsite assignment, and hence the employees take the NRI status to avoid double taxation. However, the future still remains uncertain - where to settle down, where to buy property, how to buy it if buying in India, can I get a home loan in India from an Indian Bank or NBFC if buying a property in India, what are the requirements for purchasing property on home loan in India by an NRI. In this article, we will attempt to address these common questions.
NRI Home Loans: Procedure, Details and Tax Benefits
What are the major differences for home loans for NRI as compared to that of a resident Indian?Usually, there are no differences for home loans for NRI and that of a resident Indian. However, the loan amount, eligibility, tenure and interest rates charged may be different and that differs from one home loan providing bank to the other.
- Usually, the interest rate charged for NRI Home loans are sometimes higher than that charged to resident Indians - around 0.25% to 0.5% higher
- Maximum Tenure is also usually shorter, but still NRI can get loans for upto 15 years
- Eligibility calculation basis is same as that of resident Indians
- Repayment for EMI's can be made with ECS or post Dated cheques (PDC) or standing instructions on Non-Resident Ordinary (NRO) account or the NRE accounts
What are the home loan tax benefits available for NRI Home loans?
This is a not that tricky, although it appears to be.
Here is the simple scenario for NRI home loans:
1) If you are an NRI, and have income ONLY in foreign country (i.e. no income in India), then you CANNOT get any tax benefit on the home loan you take in India. The reason - you can claim tax benefit in India as per Indian IT rules. Since you do not have any income in India, you need not pay any taxes in India and hence you cannot get that tax benefit.
2) You are an NRI and along with your foreign income, you also have some income in India (say a part of your salary coming from Indian employer or you getting rental income from a property in India). Then, you can claim tax benefit on the NRI home loan you took in India.
For more details, please see Home Loan Tax Benefits.
What are the additional requirements for an NRI to take NRI home loan in India?
There are a few additional requirements for NRI to take home loan in India:
- Any NRI with a valid Indian passport can purchase property in India on NRI home loan
- Home loan amount shouldn't be 85% of the property value
- Individual amount should be from a legal clear channel, if the funds are being sent from abroad - i.e. it should be routed through a clear bank transaction from abroad
- Power of Attorney to a localite in India: NRI taking home loans have this need - they need to provide power of attorney (POA) to a local relative before the home loan is processed and approved. The reason for this requirement is for bank safety as well as for legal formalities. For e.g., it makes it easier for the bank to track down and communicate with a local representative in case of any concerns or queries. Also, for under contrcution properties, there might be legal formalities required multiple times like signing on releasing a portion of funds to the builder, etc. If the power of attorney is there with a local person, it becomes easier to process these steps for NRI Home loan.
What are the tax implications of this property purchase by NRI in the foreign country where they are residing?
The tax implication for the NRI's depend upon the country where they are residing. From whatever we are aware of here are the country wise details:
Related: Home Loan Tax Benefits and All Home Loan Articles
- USA tax implications for NRI property in India:
USA allows for tax deductions if the the house is taken on home loan and there is rental income from the home after the NRI receives the possession and puts it on rent. Remember, US laws require NRI's to pay taxes on their global income, so an NRI in USA having rental income in Indian property needs to pay tax in USA on that income.
One can claim dedcutions for registration charges, agent commission, stamp duty, proeprty insurance, maintenance charges, etc. in USA
- UK tax implications for NRI property in India:
UK does not necessarily require an NRI to pay taxes on global income. It depends upon your domicile, residential status, etc. NRI can claim deduction on the interest on the loan taken for the purchase of the property.
If you have any questions/queries regarding home loans, Insurance or HRA claims, the FT Times team will be happy to address them. Please post your questions in the comments section by clicking on the link "Post a Comment" at the end of this page
- Australia tax implications for NRI property in India:
Like USA, Australia requires you to pay tax on global income. Interest payable on home loan is deductable and all expenses like registration charges, agent commission, stamp duty, proeprty insurance, maintenance charges, etc. can also be deducted.
- Gulf countries tax implications for NRI property in India:
Gulf countries like Dubai (UAE), etc. do not have any tax requirement for global income
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