LOAN ZONE

S.C. Dhall

Q. One of my friends is an NRI settled in Canada and he wants to raise a housing loan in India. What are basic requirements for taking housing loan ? — B B Goel

A. At a time when the rupee is weakening against the dollar, taking a housing loan in India can be a good option for the NRIs rather than using up all the money earned in the foreign currency. ‘NRI home loans’ are offered both by banks and non-banking financial companies (NBFCs). NRIs need to meet minimum age and work criteria to take a housing loan in India. Here’s a look at what is required to get this loan and how it differs from a loan taken by a resident Indian.

Eligibility and documents

• An NRI should meet the criteria on minimum age and years of work experience abroad. The criteria vary acrossinstitutions. To avail housing loan from State Bank of India (SBI), the minimum age limit should be 18 years and the applicant should have worked abroad for at least two years. But for ICICI Bank, it is enough if the applicant has worked for one year, but the minimum age should be 25. Those self-employed should have stayed abroad for at least three years.

If an NRI works in any of the Gulf Cooperation Council (GCC) countries, then he would need to have a minimum monthly income of 5,000 AED (United Arab Emirates Dirham), while if employed in the US and other countries, $3,000 per month is the minimum salary that one should be earning to be eligible for an NRI home loan.

Paper work

For the documentation process, a copy of passport, visa and employment-related proof such as three to six months salary slips, appointment letter, employment contract, if any, and address proof, are mandatory. These documents can be submitted to the nearest overseas bank in the country where reside.

The documents will then be sent to the Indian branch for processing. Note that the overseas branch just acts as an intermediary for collecting and sending the documents to India. The verification process happens only in the Indian branch.

Loan tenure and interest rate

Earlier, there were differences in the home loan rates charged for NRIs and resident Indians. But now the rates are the same.

The interest rate and other charges like processing fee for NRI home loans are the same as those offered to resident Indians. Also, the amount of average home loans to NRIs is Rs40 lakh compared with Rs23.5 lakh for a resident Indian. The processing fee is 0.5 per cent of the loan amount but capped at Rs10,000, A ceiling on the processing fee gives NRIs more leeway to take a bigger loan.

When it comes to loan tenure, institutions and banks, such as HDFC and SBI, offer longer periods of 20-30 years — the same as that offered to a resident Indian.

But in some cases, the tenure is restricted to 10-15 years. For example, Bank of Baroda limits the loan tenure for NRIs to 15 years. LIC Housing Finance offers a 15-year home loan to NRIs with professional qualification, but for others it is just 10-year loan.

Repayment

The repayment of an NRI loan can be made only in Indian rupees and not in foreign currency. Under the RBI regulations, the repayment of the housing loan by NRIs can only be made by remittances from abroad through normal banking channels or through a non-resident rupee (NRE) or a non-resident ordinary rupee account (NRO).

Prepayment of loan is permitted for NRIs and this does not attract any fee.

But there are some exemptions. For instance, ICICI Bank levies a 2 per cent pre-closure charge on the outstanding amount and the amount pre-paid in the last 12 months, if the home loan is prepaid in full.

Tax implications

On a home loan, a resident Indian can get a tax benefit on repayment of up to Rs1.5 lakh on the principal and Rs2 lakh on the interest component.

Most of the NRIs who are currently serving their home loans are not aware of the tax implications on the repayment. They just earn their incomes abroad and repay their loans.

If the salary earned abroad is the only source of income, an NRI does not have an opportunity to claim tax exemption on the home loan repayment, since he is not taxable in India.

But, if an NRI earns an additional taxable income from India apart from the salary earned abroad, then he is eligible to claim tax exemption for the home loan repayment.