Home Loan FAQs - Frequently Asked Question - Part - 3

Q1.  Are NRI/PIO/OCI eligible for Housing loans to buy property from any Indian Bank? 

Ans: 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. A maximum of 80 per cent amount is financed by the financial institution. The rest has to be given by the NRI.

For acquiring a residential property in India, the buyer is subject to the following conditions, namely:

a) 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.

b) 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.

c) The loan shall be fully secured by an equitable mortgage by deposit of title deal for the property  proposed to be acquired, and if necessary, also be lien on the borrower’s other assets in India.

d) 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 utilization 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.)

e) 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.

Q2.  Which documents are required to buy a property in India?

Ans: The following documents are required for buying a property in India:

a) Pan card (Permanent account number)

b) OCI/PIO card (In case of OCI/PIO)

c) Passport (In case of NRI)

d) Passport size photographs

e) Address proof

Q3.  Which documents are required for a home loan?

Ans: For salaried individuals, the following documents are required:

a) Copy of employment contract

b) Latest Salary slip

c) Latest work permit

d) Bank statement for 4 months or NRE/NRO a/c 6 months statement

e) Passport/visa copy

f) Utility bill for address proof

g) PIO/OCI card

h) Power of Attorney (if applicable, in respective bank’s format)

i) Customer credit check report

j) Property agreement duly registered or other related docs

k) Income Tax returns last 2 years

For self-employed, the following documents are required.

a) Balance sheets and P&L a/c of the company for last 3 years

b) Bank a/c statements for the last 6 months for company and individual, both

c) Income tax returns (3 years)

d) Passport/visa copy

e) Utility bill for address proof

f) PIO/OCI card

g) Power of Attorney (if applicable, in respective bank’s format)

h) Credit check report

i) Property agreement or other related docs


Read Other: Legal NRI FAQ's, Tax NRI FAQ's.
                    
About the Author: Naveen Kr. Jain, VP, Head of Operations & Customer Services, IndiaHomes Property Group, is an MBA & LLB with 16 years of experience in operations and customer services. At IndiaHomes.com, he is responsible to ensure that all processes, policies and practices followed by the organisation are customer centric and should result in an optimal solution for the end user. Naveen has held senior leadership roles in ING Vysya Bank, HDFC Bank & Stock Holding Corporation of India. Being a certified six sigma black belt & ISO 9001: 2008 lead auditor, the implementation of quality management systems and standards for operational excellence have been Naveen’s key strengths and areas of focus.

Tax NRI FAQs - Frequently Asked Question - Part-2

With Continuation to Legal NRI FAQ's, lets find below Tax NRI FAQ's.

Q1. Does Capital Gains Tax (CGT) apply for NRI/PIO/OCI?

Ans: Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.

Q2. Do NRI/PIO have to file returns in India for their property rental income and Capital Gains Tax?

Ans: 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 9 capital gains. If they have held the  property for less than or equal to 3 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 then 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.

Rate of tax deduction at source (TDS):

Long term: 20.6%

Short term: 30.9%

Q3. Is there a way for exempting the tax upon income generated by the property located in India? How does the Double Taxation Avoidance Agreement work in the context of tax on income and Capital Gains tax paid in India by NRI?

Ans: 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 the amount invested in new residential house, whichever is lower.

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 gain is exempted, else only 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.

India has DTAA’s with several countries which give a favorable 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 under most tax treaties in view of the fact that the property is situated in India.

Q4. How does Double Taxation Avoidance Agreement works in the context of CGT paid in India for the foreign tax treatment?

Ans: 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.

Q5. What’s the best way to file tax returns?

Ans: 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.

However 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.

Q6. 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?

Ans: (a) 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:

(i) In foreign exchange received through normal banking channel or

(ii) 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.

(b) 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 bonafide purposes to the satisfaction of the Authorized 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.

Q7. Is the rental income from property repatriable and what are the RBI rules?

Ans: The rental income, being a current account transaction, is repatriable, 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.

Read Other FAQ's:  Legal NRI FAQ's, Home Loan FAQ's


About the Author: Naveen Kr. Jain, VP, Head of Operations & Customer Services, IndiaHomes Property Group, is an MBA & LLB with 16 years of experience in operations and customer services. At IndiaHomes.com, he is responsible to ensure that all processes, policies and practices followed by the organisation are customer centric and should result in an optimal solution for the end user. Naveen has held senior leadership roles in ING Vysya Bank, HDFC Bank & Stock Holding Corporation of India. Being a certified six sigma black belt & ISO 9001: 2008 lead auditor, the implementation of quality management systems and standards for operational excellence have been Naveen’s key strengths and areas of focus.

Things to look for while buying an under construction home

Home seekers, mostly prefer buying apartments in under construction buildings because they are less expensive than completed ones. Based on the construction stage along with the response received from investors and buyers, the developer may offer a discount of 15 to 30 percent. Moreover, the design of a particular flat can be altered without investing more money in renovations. At the time of booking a buyer has to pay the booking amount only and get a year at least for arranging the rest of the corpus. For fully built properties, this is not possible.

However, all is not as rosy with under construction properties as there is a lot at stake when it comes to buying under construction homes or properties. 

If you are thinking of buying a property prior to launch or during construction, you must inspect the location’s connectivity and social infrastructure, future returns from the project and whether the builder has the ability of timely delivering the project. If there is a sudden market crash or the developer exhausts his fund or the bank ceases to fund the project, the project may be stuck in limbo. Small developers normally do not have the funds needed for spearheading a project at the time of announcement. For ensuring liquidity, they attempt to sell the property to end-users and investors at pre-launch. If the minimum sales needed for launching the project are not reached, then the construction may be deferred.

Verifying the reputation of a developer is very important as there are several developers who enter to ride the high wave of the realty market, but, are actually traders who will be constructing this apartment complex for the first and last time in their lives. They are often devoid of bank funds, experience and technical knowledge. More often than not, they work on disputed lands. You must make sure you do not invest your money in such projects as it would never be realised.
It is advisable to always opt for construction linked payment plans where the payment needs to be made as per the construction progress of the building. Therefore, even if there is a delay in the project, your corpus does not get locked.


Make sure you hire an experienced attorney who specialises in issues related to real estate. Your lawyer will then be able to check the authenticity of the project and also the approvals that the builder has in hand.

NRI’s Legal FAQ's - Frequently Asked Question Part -1

This is a three part series, wherein our experts answer all NRI questions related to buying property in India.

Whenever an NRI or PIO plans to buy a new home or any property in a foreign country, they tend to seek clarity in certain areas. These questions will answer all the common customer queries about owning and buying a property in India. Refer this NRI guide sectioned into legal, home loan and tax categories, to accustom yourself with laws, rules and important information on the Indian real estate sector. 

Legal FAQs

Q1. Why to invest in property in India?
Ans: To tap the potential of Indian real estate market and expedite the sector with a double digit growth rate, the developers have shifted their focus to offer timely possession of projects and adapt to the new FDI rules.
The economic contribution of the real estate sector is most likely to increase significantly during the period, from 6.3% in 2013 to almost 13% in 2025. This spiral growth is attributed to the intensive demand for first-rated projects that can be delivered on time.
During H1 2014, prices in Bangalore have appreciated at the fastest pace of 11%, compared to H1 2013. Mumbai, currently suffering a downfall of 49% is expected to recover the sales volume by the end of FY 2014. As real estate demand in India improves, capital values in other major cities are also likely to increase, albeit marginally.
Purchasing a property in India, thus, stands as a top priority for a non-resident Indian (NRI). The purchase transaction is governed by the Reserve Bank of India (RBI) and the rules and regulations that fall under the purview of the Foreign Exchange Management Act (FEMA).

Q2. Who is an NRI?

Ans: 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).

Q3. Who is a PIO?
Ans: 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).

Q4. Can an NRI/PIO purchase immovable property in India?
Ans: 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:
(i) At any time, held an Indian passport or
(ii) 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.

Q5. Can an NRI/PIO acquire agricultural land/plantation property/farm house in India?
Ans: It requires specific approval of Reserve Bank of India and the proposals are considered in consultation with the Government of India.

Q6. What is the Tax treatment for income generated from property selling or renting for NRI/ PIO/OCI?
Ans: 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 (it 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.
  
Q7. Is there any restriction upon the number of properties bought by NRI/PIO/OCI?
Ans: There is no restriction on the number of properties that can be bought.

Q8. Is there any specific way of payment for buying / acquisition of immovable property by NRI/PIO should be made out of?
Ans: There are multiple ways as mentioned below:

      (a) Funds received in India through normal banking channels by way of inward remittance from any place outside India
      (b) Funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank
       (c) No payment of the purchase price for acquisition of immovable property shall be made either by traveler’s cheque or by foreign currency notes or by other mode other than those specifically permitted as above

Q9. What are the key points to be considered at the time of purchase?

Ans: Investment in real estate is a simple but long-term move so, one should be cautious enough at the time of purchase to secure the deal.

Few points of consideration are mentioned below:
   (a)  Property Title: The title of property should be clear from the issues and the seller should have the required right to sell it, especially if it is inherited or any joint property.
  (b)  NDC: Always check that there will be no outstanding electricity/water bills or any other authority dues pending with the property. Take a no dues certificate from the seller at the time of purchase
   (c) Bank release letter: It is advisable to take the bank release letter from the concerned bank, if the property had been mortgaged as security in any type of loan
  (d) Permits: The property for sale should have all approvals and permits from the civic authorities in terms of construction
  
Q10. What are the key points that ensure a safe deal to buy a property in India?

Ans: Below are the key safety measures to be considered while buying a property:

  (a) Whenever you plan to invest in real estate, you should go through the proper channels, either through a Reliable Broking Firm, friend or relative to ensure the authenticity of the property
 (b) You can also approach through property expos and seminars to choose a right property and select reputed developer
  (c)  It will be wise to get the title papers of the property verified by a lawyer before going ahead
If and when you want to purchase /dispose the property, you can give Power of Attorney to a reliable person who is resident in India & who may be able to act on your behalf to complete formalities such as registration, possession, execution of the agreement of sale, etc.

Read Other FAQ's:  Tax NRI FAQ's , Home Loan FAQ's

About the Author: Naveen Kr. Jain, VP, Head of Operations & Customer Services, IndiaHomes Property Group, is an MBA & LLB with 16 years of experience in operations and customer services. At IndiaHomes.com, he is responsible to ensure that all processes, policies and practices followed by the organisation are customer centric and should result in an optimal solution for the end user. Naveen has held senior leadership roles in ING Vysya Bank, HDFC Bank & Stock Holding Corporation of India. Being a certified six sigma black belt & ISO 9001: 2008 lead auditor, the implementation of quality management systems and standards for operational excellence have been Naveen’s key strengths and areas of focus.