ATM :: Loan Basics: A guide to NRI home loans


GURUMURTHY K | Published on November 15, 2015 | Hindu Business Line

ATM

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”.

Features of NRI loans

Loan tenor restricted to 10-15 years in some cases

No difference in interest rate offered to residents and non-residents

Repayments made through NRE/NRO accounts

Loan repayment is eligible for tax exemption only if an additional taxable income earned from India

Source : http://goo.gl/Z5CQbN

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