Buying a property back home is one of the most sought-after investments for Non-Resident Indians (NRIs) and taking a home loan could be a good option, when the Indian rupee is weakening against the US dollar. NRIs are allowed to buy homes and even take home loans. Both banks and Non-Banking Financial Companies (NBFCs) offer “NRI Home Loans.”
Who is an NRI?
All banks and institutions go by the definition given by the central bank – Reserve Bank of India – when it comes to defining an NRI, and the definition reads, “An Indian citizen who holds a valid Indian passport and stays abroad for employment or carrying out business or vocation under circumstances indicating an intention for an uncertain duration of stay abroad is an NRI.”
Further, the definition explains those eligible to get a home loan under this category would be people who are employed or are carrying out business outside India. If a person is posted abroad by the Indian government or companies or is serving in international agencies like the UN, World Bank, IMF, etc., then also he or she is eligible for the home loan.
For most of us, the biggest dream is owning a home. Different home loans schemes by the banks make that a reality, but is it equally easy for the Non-Resident Indians (NRIs) to get home loan as well? Can they buy a home or a property as easily as us? The answer to these questions is – yes NRIs can get a home loan in India. What you really have to do is meet all the conditions.
Age, employment and salary eligibility
An NRI should meet the criteria of minimum years of work experience abroad and minimum age. Most importantly, not all banks have the same criteria. For instance, in the State Bank of India (SBI), the number of years a NRI should have worked should be 2 years and the minimum age limit is 18 years. But in the case of ICICI Bank, the minimum age is 25 years and one year work abroad is enough to get a loan. And, if you are a self-employed, you should have stayed abroad for at least 3 years.
Banks like ICICI and Axis also have minimum salary per month as one of the eligibility criteria. To take a NRI Home loan in Axis Bank, NRI needs to have a minimum monthly income of 5,000 AED (United Arab Emirates Dirham) if he/she works in any of the Gulf Cooperation Council (GCC) countries while the minimum salary is $3000 per month, if the person is working in the US and other countries.
Interest rate and loan tenor
Previously, there were differences in the interest rate charged for the home loans offered to the residents and NRIs, but now, the interest rates are the same. Along with the interest rate, other charges like processing fee for NRI home loans are similar to the one offered to the resident Indian.
As for tenor, the big banks – like the SBI and HDFC – offer longer period loans of 20 to 30 years, same as the loan period offered to a resident Indian. In some cases, however, the loan tenor is restricted to 10 or 15 years. Bank of Baroda, for example, has limited the loan tenor to 15 years for NRIs, also a 15-year home loan is offered by LIC Housing Finance Ltd to NRIs with a professional qualification.
For home loans, the important documents that the bank requires are a copy of passport, appointment letter, visa, employment related documents – such as three to six-month salary slips – and lastly, an address proof. The person has to submit these documents to the overseas banks located closest to them, in the country they reside. The bank then transfers the documents to the Indian Bank for processing.
Note: Overseas bank’s sole role is to collect and send the documents to India, and it acts just as an intermediary. The verification process is carried only by the Indian Branch.
Repayment of loan
What’s important to note is the repayment of NRI loan needs to be made in Indian Rupees only and no other foreign currency. Also, under the RBI regulations, the repayment of the housing loan by NRIs can only be made by the remittances from abroad through normal banking channels or through a Non-Resident Rupee (NRE) or a Non-Resident Ordinary Rupee account (NRO).
In the case of NRIs, prepayment of loan is permitted, and usually, there is no charge for prepayments, but there are certain exemptions. ICICI, for instance, levies a pre-closure charge of 2% on the outstanding amount, and on the amount pre-paid in the last twelve months, provided the home loan is prepaid in full.
A resident Indian can avail a tax benefit of up to Rs. 1.5 lakh on the principal component and Rs. 2 lakh on the interest component on the repayment of the loan. But can the NRI, who repays the home loan, also avail tax benefits?
If the salary earned abroad is the only source of income, then the NRI is not eligible to claim the tax exemption on home loan repayment. However, NRI is eligible to claim tax exemption for the home loan repayment, if he or she earns an additional taxable income from India apart from the salary earned abroad.