In cities like Gurgaon, Pune, Faridabad, and Bangalore, the number of immovable properties owned by NRIs is significantly high. NRIs typically acquire properties either through their own funds or by availing bank loans. Additionally, the RBI permits investments in residential properties by NRIs. If you’re an NRI (Non-Resident Indian), you’re fortunate because you can obtain a home loan from Indian banks under conditions akin to those applicable to residents of India. NRIs also receive general approval to acquire immovable property. However, there are specific conditions that financial institution must adhere to when grating loan to NRIs:
- The loan amount, interest rates, and repayment period should be on par with what residents of India get.
- The loan amount should not be credited to the NRE or FCNR account of the NRI.
- The loan amount should be secured by a mortgage on the proposed property, and if necessary, a lien on the assets of the NRI in India.
- Loan installments, interest, and other charges should be repaid by the NRI through remittances out of India, or from the funds in their NRI/NRO/FCNR account in India, or from the rental income derived from the property acquired using the loan.
- The home loan’s interest rate should align with the guidelines set by the RBI (Reserve Bank of India).
It’s crucial for NRIs to note that if the sale proceeds of a house financed through the loan are repaid from the NRO account, repatriation of sale proceeds is not allowed. However, if the loan installments are paid through remittances in foreign exchange received through the banking channel or from the NRE or FCNR account, repatriation of sale proceeds in foreign currency is permitted.
Renting Out Property by NRIs
Good news for NRIs – there’s a general permission to rent out property and earn income in India. The lessee (the one renting the property) should transfer the rent to the NRO or NRE account of the NRI. However, it’s important to note that the rental income earned by the NRI is taxable in India since the income is generated within the country. The tenant is also responsible for deducting TDS (Tax Deducted at Source) on the NRI at a rate of 31.20% and filing TDS returns. We’ll meet detailing the income tax on NRI rental income from immovable property in India in a separate article.
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