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).
Persons of Indian Origin (PIO) (not being a citizen of Pakistan or Bangladesh or Shri 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)
Any person of full age and capacity:
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.
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 capital gains. If they have held the property for less than or equal to 2 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 2 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.
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.
Yes, Long-term and short-term capital gains are taxable in the hands of non-residents.
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.
The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The parameters include:
Age : The loan applicant has to be at least 21 years of age.
Qualification: The NRI loan seeker has to be a graduate.
Income: 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.
Payment Options: 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.
Number of dependants: 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.
RBI directive loans: The Reserve Bank of India (RBI) has clarified that Non-Resident Indians (NRIs) and Persons of Indian (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 as 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 banning 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 economical stability of the applicant, home loans for NRIs are quite feasible, because they are well off in economic resources.
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 copy of the passport and a copy of the works contract etc. and of course NIRs 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:
List of Classified documents for Salaried and Self Employed NRI Applicants
Property Documents :
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:
Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are therefore, not required to obtain permission of Reserve Bank.
The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/FCNR accounts maintained with banks in India.
They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration alongwith a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.
Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchaser consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.
In respect of residential properties purchased on or after 26th May 1993, Reserve Bank considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the Property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property.
Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed or from the date of payment of final instalment of consideration amount, whichever is later.