When a non-resident Indian (NRI) opts to purchase a property in India, there are several regulations that govern how such a purchase can be financed.
Sources, for financing a real estate investment in India
The money for purchasing a property in India, has to come through banking channels only. Consequently, the payment cannot be tendered in the form of traveller’s cheque or foreign currency. An NRI can also use the money in his/her credit, in non-resident external (NRE) rupee or non-resident ordinary (NRO) or foreign currency non-resident (FCNR) account, maintained in India.
NRIs are allowed to purchase property in India, by availing home loans in Indian rupees, from banks or housing finance companies. The home loan can also be granted by the Indian employer of the NRI employee, for the purpose of financing of the property.
Obtaining a home loan
As NRI investment in Indian real estate is only allowed in residential or commercial properties, banks too, can finance only these properties. Almost all banks offer home loans to NRIs for buying a house or constructing one. One can also get a loan, for purchase of land (non-agricultural), for constructing a house in India.
The application for the home loan can be made online, as well as offline. The nature of documents that need to be submitted, will depend on whether the NRI is a salaried employee or whether s/he is self-employed. It will also vary, depending on the NRI’s country of residence. Nevertheless, copies of one’s passport and visa, passport-sized photographs and proof of residence in the foreign county, will be required in all cases.
Depending on whether the NRI is salaried or self-employed, s/he also has to fulfil a minimum period of stay in the country of present residence, to avail of the home loan. Banks may also insist on an acceptable co-applicant, or an NRI guarantor. The NRI guarantor too, has to submit documents pertaining to identity proof, address proof and income proof.
Servicing the home loan
EMIs on the home loan can be paid through remittances from outside India, through a proper banking channel, or by debiting the NRE, or NRO, or FCNR account. In case the property is let-out, the rental yields can be used for servicing the NRI home loan. Money transferred to the NRO account from close relatives, can also be used for servicing the home loans. In case the property is purchased for self-occupancy, the NRI can avail of a loan against the FCNR or NRE account deposits, of up to Rs 1 crore, for servicing the home loan.
Remittances out of India
An NRI is allowed to repatriate some of the funds, in case the property so acquired is sold. However, the number of properties (whether purchased or inherited), for which s/he can remit or send money to India, is restricted to two. Moreover, the amount that can be repatriated, cannot exceed the amount (denominated in foreign currency) received as remittances from outside India, either for purchase or servicing of the NRI home loan. Under normal circumstances, an NRI is allowed to remit an amount of USD 1 million in a year, out of India, from his NRE, NRO, or FCNR accounts, which includes the amount remitted for sale of a house.
(The author is a taxation and home finance expert, with 35 years’ experience)