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NRI Guide

A Non-Residential Indian is a citizen of India who lives abroad for employment, business or vocation purposes for an uncertain amount of time.

NRIs do not require the permission of the Reserve Bank of India in order to purchase immovable property and can obtain loans for the purchase of such property from certain financial institutions. However, the repayment of the loan must be made within 15 years of taking the loan.

NRI investors have different conditions for purchase than residents. He/she must be at least 21 years of age with a minimum of $2000 monthly income. An NRI is not allowed to make Equal Monthly Installments (EMI) through any source other than his/her NRE/NRO account. The eligibility of loan will be determined on a number of factors such as income stability, number of dependents, repayment capacity, cost of property etc. and can range from 5 lakhs to 1 crore. As in the case of a resident, an NRI can enhance his home loan eligibility by applying with a co-applicant who has a separate source of income.

An applicant will be eligible for a maximum of 85% of the cost of the property or the cost of construction as applicable and 75% of the cost of land in case of purchase of land, based on the repayment capacity of the borrower. Furthermore, the interest rates on home loans for NRIs are higher than those offered to residents. The amount differs by 0.25%-0.50%. Some Housing Finance Company's also having an internally earmarked 'negative criterion' for NRI home loans. As such, the NRIs who hail from locations that are marked as being 'negative' in the books of HFCs, find it difficult to get a home loan.

Documents required:

  • Passport copy
  • Visa/work permit
  • Copy of work contract
  • The power of attorney
  • A copy of the appointment letter and contract from employer
  • Labour card/identity card
  • Bank statement for last 6 months
  • For self-employed persons, a business profile, the computation of income and balance sheets certified by a CA/CPA for the past 3 years is required

Some Relevant Information:

NRI's can invest in any immoveable property in India except the following:

  • Agricultural property
  • Plantation
  • Farm house

Payment of purchase price for acquisition of property can be made only through the following:

  • Funds received by way of inward remittance through normal banking channels
  • Funds held in any non resident account

Transfer of Immoveable Properties in case of an NRI citizen of India:

  • An NRI can transfer the immoveable property other than the properties mentioned above to a person resident in India
  • An NRI can transfer the immoveable property to another NRI

Income-tax Procedure

  • Investment in a property in India should not give rise to any income-tax implications for an NRI.
  • Income from letting out the property would be taxable under the head 'Income from House Property'. Typically, the actual rent received being higher than deemed values, would be taxable in India, at regular slab rates [current maximum slab rate is 30.9 percent* Plus surcharge if applicable*]. Deductions such as
    • Standard deduction of 30 percent of the annual value (i.e., rent received / receivable)
    • certain interest costs in respect of the property could be claimed by an NRI. Where the property is not let out, mitigating tax levy on deemed rental values could be explored having regard to facts.
  • Sale of property could give rise to 'Capital gains' implications, which would be taxable as per the provisions of the IT Act. The capital gains and tax thereon would be computed as per the following illustration:
Full Value of Consideration
Cost of acquisition
Cost of improvement
Expenses incurred in connection with the sale of the property
Capital gains
Capital gains tax:
Long-term capital gains [ie, property held for a period more than 2 years] [20.6 percent];
Short-term capital gains [Other cases] [as per individual slab rates. The maximum slab rate is currently 30.9 percent]

In connection with the above, it should be noted that the benefit of indexation would not be available. However, NRIs could explore the option of claiming certain specified exemptions (subject to conditions) in respect of capital gains arising from sale of property.

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