Buying a house is not difficult for Non-Resident Indians (NRIs) any more as the NRI Housing Loan makes the property investment a lot more convenient. Any individual staying abroad for Employment or for carrying on business or vacation outside India or for any other purpose in circumstances indicating an indefinite period of stay abroad are eligible for NRI Housing loan. Apart from that, Government Servants posted abroad on duty with the Indian missions or deputed abroad on assignments with Foreign Governments or Regional/International Agencies are also entitled to these loans.
NRI Housing loan is offered by some of the Premier Financial Institutions and banking in India such as ANZ Grind lays Bank, ICICI Bank, HDFC, HUDCO, CITIBANK, LIC etc. As an NRI, you can avail a maximum loan of Rs.1, 00, 00, 000/- or 85% of the cost of the property including the cost of land, whichever is lower. The rate of interest will vary from 11.25% to 14.25% per annum depending in the Financial Institution. At the time of making application for the loan a processing fee is payable between 1 to 2% of the loan amount that is applied for depending on the Institution.
The amount of loan to be borrowed will depend upon a person's repaying capacity. To arrive at the repaying capacity, Banks do take into consideration factors such as income, age, qualifications, work experience, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation, alternate employment prospects when the concerned person returns to India and savings history.
While applying for a home loan in India, the following documents are to be submitted along with the application:
1. Employment/Residency related documents:
• Employment contract;
• Latest salary slip;
• Latest work permit;
• Identity card issued by the present Employer;
• Visa stamp on the passport;
• Continuous Discharge Certificate (if applicable); and
• Overseas Bank Account Statement of the last few months.
2. Property Related Documents:
• Receipts for payments made for purchase of the dwelling unit;
• Copy of approved drawings for the proposed construction/purchase/extension;
• Agreement for Sale/Sale Deed;
• A detailed cost estimate from Architect/Engineer for property to be purchased/constructed/extended;
• Allotment letter;
Once the loan is sanctioned, the period of repayment of the loan is determined which normally falls in the range of three to ten years. Loan can be repaid through Equated Monthly Installments (EMIs) comprising principal and interest. EMI payments can be made through post dated cheques from your Non-Resident (External) Account/Non-Resident (Ordinary) Account in India.
Incentives are offered under the Income tax Act on the investment in housing properties. Incentives come by way of deduction of payment of interest on the borrowed amount to buy or construct the house. Provisions relating to such deductions are provided in Section 24 of the Income Tax Act. The interest paid on a housing loan can be deducted from out of the taxable income of an Assessee according to this Section. The interest is permitted both on an accrual basis or due basis even if it is not actually paid in the year of accounting. To claim the deduction, the Assessee has to present a certificate from the Lender to whom the interest has to be paid on the borrowed capital pointing out the amount of interest paid or payable. The money should have been borrowed for acquiring the property or for constructing the property or repair of the property. Interest paid on a new loan taken to repay another existing loan is also permitted. The amount can be deducted in five equal installments starting from the previous year in which the house is acquired or built.
The first installment has to be deducted in the year of completion of property construction or the property is acquired and the remaining four installments in the four following years. Deduction for the full year is allowed even if one day is left in the year.
The maximum amount that can be deducted is Rs.1.5 lakhs. The money should have been borrowed on or following April 1, 1999 for acquiring it or for the construction. It is necessary that such acquisition or construction should have been finished within three years from the end of the financial year, in which the capital was borrowed. It has to be certified by the Lender that the interest is payable for the loan advanced for acquiring or constructing the house.
The deduction amount is limited to Rs.30, 000 if the money has been borrowed prior to April 1, 1999.
The date when the construction was started is not important. It is important only when the construction is completed within three years from the end of the financial year in which the money was borrowed. It is also not necessary that the whole cost to be financed though loan. Any portion of the cost of the house can be financed through loan.
It is advisable for purposes of tax to borrow and build or purchase instead of using one's own fund. The reason is that, if one uses his own fund he will not get any tax deduction from his total income.
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