At Piramal, we aim to help you resolve every concern and doubt. We have compiled basic legal information to help you buy a house in India. Read through the following points and get in touch with us if you have any more queries.
Non-resident Indians holding Indian passport do not require any permission from RBI for acquiring immovable property for bona-fide residential purposes. Non-resident Indians holding Indian passport may pay the purchase consideration either by remittance of funds from abroad through normal banking channels or out of NRO/NRE/FCNR account.
Get a copy of the title report by the solicitor of the property. Make sure that there are no conditions written in fine print and that there are no specific reservations by the state government.
Look for specific clearance reports. For instance, if the construction is near a seafront, you will need to check for a Coastal Regulation Zone (CRZ) clearance. If the project is being constructed over or in the close vicinity of a heritage building, you must check for any heritage reservations for the premises. The idea is to ensure that you do not get stuck with a property that is or may get caught in any sort of disputes. Lack of clearance of titles also means that you will not be able to avail home loans.
If you are a NRI, acquiring a home loan in India can be a complicated and confusing process. Go through the following information to understand the process of receiving a home loan.
The Non-Resident Indians (NRIs) are recognized under the Foreign Exchange Regulatory Act, 1973. Every bank and housing finance companies follow the RBI guidelines to define NRI - "An Indian citizen who holds a valid document like Indian passport and who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a NRI."
Broadly categorised, Non-Resident Indians qualifying for NRI housing loans are:
- Indian citizens who stay abroad for employment or for carrying on business or vocation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad
- Government servants who are posted abroad on duty with the Indian missions and similar other agencies set up abroad by the Government of India where the officials draw their salaries out of Government resources
- Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, International Monetary Fund (IMF), World Health Organization (WHO), Economic and Social Commission for Asia and the Pacific (ESCAP);
- Government servants deputed abroad on assignments with foreign Governments or regional/international agencies like the World Bank, International Monetary Fund (IMF), World Health Organisation (WHO), Economic and Social Commission for Asia and the Pacific (ESCAP)
- Officials of the State Government and Public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or offices abroad
Documents required for Resident Indians as well as for NRIs for getting Home Loans are different in some respect. Home loans for NRIs are available for construction of new house/flats, purchase of old house/flat addition/alteration to an existing house and repairs/renovation etc. NRIs can avail of loans by mortgaging an existing residential property.
However, for availing home loans, NRIs have to fulfill certain conditions according to provisions of the Income Tax Act. They should have stayed in India for a period of 182 days or more within an assessment year or they should have stayed in India for at least a total of one year or more.
The FDI Policy that permits FDI up to 100% from foreign/NRI investor under the automatic route has boosted NRI confidence. Banks have attractive NRI housing schemes to accommodate the housing needs of NRIs. From the stables of HFCs, NRI housing finance plans with suitable repayment options are available.
Last but not the least, NRIs should take due care while selecting their home loan provider companies or HFCs. Considering the geographical distances involved, it is significant that loan seekers associate with a proactive and responsive HFC.
RBI Directive Loans:
The Reserve Bank of India (RBI) has clarified that Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO), purchasing immovable property in India should pay for the acquisition by funds received in India through normal banking channels by way of inward remittance from outside the country.
The NRIs and Resident Indians can also acquire immovable property in India other than agricultural property, plantation or a farmhouse. It has issued certain directive for sanctioning home loans to Non-Resident Indians.
The guidelines provided are:
- The home loan amount should not exceed 85% of the cost of the dwelling unit, as the remaining amount that is 15% needs to be provided an own contribution towards the cost of unit financed
- The cost of dwelling unit which is own contribution financed less the loan amount, can be met from direct remittances from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and/or Non-Resident (Ordinary) [NR (O)] account in India
- However, repayment of the loan, comprising of the principal and interest including all the charges are to be remitted to the HFC from abroad through normal banking channels, the Non-Resident (External) [NR(E)] Account and/or Non-Resident (Ordinary) [NR (O)] account in India
The repayment option for NRIs as they can pay through the funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999, and the regulations made by the RBI from time to time. As most of the home loan provider companies consider the economic stability of the applicant, home loans for NRIs are quite feasible, because they are well in economic resource.
Eligibility for NRI:
The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The parameters include:
|Age||Qualification||Income||Payment options||Number of dependants|
|The loan applicant has to be 21 years of age.||The NRI loan seeker has to be a graduate.||The loan applicant has to have a minimum monthly income of $ 2,000 (although, this criterion may differ across HFCs). The eligibility is also determined by the stability and continuity of your employment or business.||The NRI also has to route his EMI (Equated Monthly Installments) cheques through his NRE/NRO account. He cannot make payments from another source say, his savings account in India.||The eligibility of the applicant is also determined by the number of dependents, assets and liabilities.|
An NRI applicant is eligible to get a home loan ranging from a minimum of Rs 5 lakhs to a maximum of Rs 1 crore, based on the repayment capacity and the cost of the property, which although is variable by the priorities of the home loan provider. Also Home Loan Tenure for NRIs is different from Resident Indians. 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.
However, a NRI can enhance his loan eligibility by applying for home loans with a co-applicant who has a separate source of income. Also, the rate of interest for home loans to NRIs is higher than those offered to Resident Indians. The difference is to the extent of 0.25%-0.50%. Some HFCs also have 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 for Loan:
The documentation required to be submitted by the NRIs are different from the Resident Indians as they are required to submit additional documents, like a copy of the passport, a copy of the works contract, etc. And of course NRIs have to follow certain eligibility criteria in order to get Home Loans in India. Another vital document required while processing an NRI home loan is the power of attorney (POA). The POA is important because, since the borrower is not based in India; the HFC would need a 'representative' 'in lieu of' the NRI to deal with and if needed. Although not obligatory, the POA is usually drawn on the NRI's parents/wife/children.
The documents needed for obtaining NRI home loans are:
- Passport and Visa
- A copy of the appointment letter and contract from the company employing the applicant
- The labour card/identity card (translated in English and countersigned by the consulate), if the person is employed in the Middle East Salary certificate (in English) specifying name, date of joining, designation and salary details
- Bank Statements for the last six months
List of Classified Documents for Salaried and Self Employed NRI Applicants:
|Salaried NRI Applicants||Number of dependants|
|Copy of valid passport showing VISA stamps||Passport copy with valid visa stamp|
|Copy of valid visa / work permit / equivalent document supporting the NRI status of the proposed account holder||Brief profile of the applicant and business/ Trade license or equivalent document|
|Overseas Bank A/C for the last 3 months showing salary credits||6 months overseas bank account statement and NRE/ NRO account|
|Latest contract copy evidencing Salary / Salary Certificate / Wage Slips||Computation of income, P&L account and B/Sheet for last 3 years certified by the C.A. / CPA or any other relevant authority as the case may be (or equivalent company accounts)|
- Original title deeds tracing the title of the property for a minimum period of the last 13 years
- Encumbrance Certificate for the last 13 years
- Agreement of sale/construction, if any
- Receipts for payments made for purchase of the dwelling unit
- Approved plan/license
- ULC clearance/conversion order etc.
- Receipts for having invested the margin money through normal banking channels from the Non-Resident (External) account in India and/or the Non-Resident (Ordinary) account in India
- Latest tax paid receipt
- Allotment letter from the co-operative society/association of apartment owners
- Agreement for sale/sale deed/detailed cost estimate from Architect/Engineer for property to be purchased/constructed/extended/improved
- Copy of approved drawings of proposed construction/purchase/extension
- Additional documents to be submitted by Person of Indian Origin
Photocopy of PIO Card:
If the PIO card is not available, photocopies of any of the following documents:
- The current passport, with birthplace as 'India'
- The Indian passport, if held by the individual earlier
- Parents/grandparents Indian passport/birth certificate/marriage certificate substantiating the individuals claim as a person of Indian origin
Q1. Who is NRI?
Non Resident Indian (NRI) is a citizen of India, who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Non-resident foreign citizens of Indian Origin are treated at par with Non Resident Indian (NRIs).
Q2. Who is a PIO?
Person of Indian Origin (PIO) (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who (a) at any time, held Indian passport, or (b) who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
Q3. Who is OCI?
(a) Any person of full age and capacity:
- Who is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution, or
- Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution, or
- Who is a citizen of another country, but belongs to a territory that became part of India after the 15th Day of August, 1947.
- Who is a child of such a citizen,
(b) A person, who is minor child of a person mentioned in clause
(c) Provided that no person, who is or had been a citizen of Pakistan, Bangladesh shall be eligible for registration as an Overseas Citizen of India
Documents required for buying property
- - Pan card (Permanent account number)
- - OCI/PIO card (In case of OCI/PIO)
- - Passport (In case of NRI) - Passport size photographs
- - Address proof
Q1. Who can purchase immovable property in India?
Under the general permission granted by RBI, the following categories can freely purchase immovable property in India:
- (a) Non-Resident Indian (NRI) - that is a citizen of India residing outside India
(b) Person of Indian Origin (PIO) - that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who
- at any time, held Indian passport or
- who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
The general permission, however, covers only purchase of residential and commercial property and not for purchase of agricultural land/plantation property/farm house in India. OCI can purchase immovable property in India except agricultural land/plantation property/farmhouse.
Q2. Can a NRI/PIO acquire agricultural land/plantation property/farm house in India?
Since general permission is not available to NRI/PIO to acquire agricultural land/plantation property/farm house in India, such proposals will require specific approval of Reserve Bank and the proposals are considered in consultation with the Government of India.
Tax on Income from Immovable Property Selling/Renting
Q1. What is the Tax treatment for income generated from property selling or renting for NRI/ PIO/OCI?
The mere acquisition of property does not attract income tax. However, any income accruing from the ownership of it, in the form of rent (if it is let out)/annual value of the house (if is not let out and it is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is taxable in the hands of the owner.
Q2. Do NRI/PIO/OCI have to file return in India for their property rental income and Capital Gains Tax?
The Government of India has granted general permission for NRI/PIO/OCI to buy property in India and they do not have to pay any taxes even while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to nine capital gains. If they have held the property for less than or equal to three years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more than three years, then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.
Q3. How does the Double Taxation Avoidance Agreement (DTAA) work in the context of tax on income and Capital Gains tax paid in India by NRI?
India has DTAA’s with several countries, which give a favourable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.
Capital Gains Tax on NRI/PIO/OCI
Q1. Does Capital Gains Tax (CGT) apply to NRI/PIO/OCI?
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.
Q2. How is Rate of CGT computed?
Type of Asset: Assets like house property, land and building, jewellery, development rights etc.
- Rate of tax deduction at source (TDS)
- Long term - 20.6%
- Short term - 30.9%
Exemption available (only for long term capital gains)
The long term capital gains arising on sale of a residential house can be invested in buying/constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. 11 If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.
Q3. How does Double Taxation Avoidance Agreement work in the context of CGT paid in India on the foreign tax treatment?
In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
Repatriation of funds
Q1. What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI/PIO as prescribed by the Reserve Bank of India?
If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:
- In foreign exchange received through normal banking channel or
- By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.
- Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s out of foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account up to USD one million, per financial year, as discussed below.
- If the property was acquired out of Rupee sources, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bona-fide purposes to the satisfaction of the Authorised Dealer bank and subject to tax compliance. The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.
Q2. Can the rental income from property be repatriated and what are the RBI rules?
The rental income, being a current account transaction, can be repatriated, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.
NRI/PIO/OCI Home loans
Q1. Are NRI/PIO/OCI eligible for Housing loans to buy property from any Indian Bank?
An authorised dealer or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a non-resident Indian or a person of Indian origin residing outside India. For acquisition of a residential accommodation in India, subject to the following conditions, namely:
- The quantum of loans, margin money, and the period of repayment shall be at par with those applicable to housing finance provided to a person residing in India
- The loan amount shall not be credited to Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident non-repatriable (NRNR) account of the borrower
- The loan shall be fully secured by equitable mortgage by deposit of title deal of the property proposed to be acquired, and if necessary, also be lien on the borrower’s other assets in India
- The instalment of loan, interest and other charges, if any, shall be paid by the borrower by remittances from outside India through normal banking channels or out of funds in his Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Ordinary (NRO)/non-resident Special Rupee (NRSR) account in India, or out of rental income derived from renting out the property acquired by utilisation of the loan or by any relative of the borrower in India by crediting the borrower’s loan account through the bank account of such relative (The word ‘relative’ means ‘relative’ as defined in section 6 of the Companies Act, 1956.)
- The rate of interest on the loan shall conform to the directives issued by the Reserve Bank of India or, as the case may be, the National Housing Bank
Q1. Who should file tax returns?
If you are an NRI/OCI/PIO, you would have to file your income tax returns if you fulfill either of these conditions:
- Your taxable income in India during the year was above the basic exemption limit of ` 1.6 lakh OR
- You have earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit
Note: The enhanced exemption limit for senior citizens and women is applicable only to residents and not to non-residents.
Q2. Are there any exceptions? Yes, there are two exceptions:
- If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns
- If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return
Tip: You may also file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below Rs 1.6 lakh but the bank deducted tax at source on your interest amount, you can claim a refund by filing your tax return.
Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return.
Q3. What’s the best way to file tax returns?
Traditionally, you could file your return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file returns on your behalf. But nowadays, the easiest option for NRIs to file their Indian tax returns is by using the online platform. There are several options to file online.