To be eligible for a home loan, the applicant must be at least 21 years of age with a regular source of income from employment or self-employment. The loan must terminate before or when the applicant turn 65 years of age. The applicant should also possess at least 6 months of income proof.
An Indian citizen 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. (Persons posted in U.N. organisations and officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as non-temporary assignments are also treated as non-residents). Non-resident foreign citizens of Indian origin are treated on par with non- resident Indian citizens (NRIs).
A person of Indian origin means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who:
- held an Indian Passport at any time, or
- who or whose father or paternal grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955
The Reserve Bank of India (RBI) has granted general permission to NRIs, PIOs and foreign citizens to invest in real estate for their residential purpose.
The general permission covers only residential and commercial property.
NRIs can purchase commercial, as well as residential property in India (except for agricultural land, farm house & plantation property) provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchaser's NRE/FCNR accounts maintained with banks in India.
In this case, a declaration has to be submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment.
The payment of the purchase should be made out of the funds received in India through the financial options made available by the Indian. In case the funds are held in a non-resident account, that account should be maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank.
Yes, NRIs can sell their residential/commercial property without the permission of RBI. If the property is purchased by another PIO, funds towards the purchase consideration have to be remitted to India or paid out of balances in NRE/FCNR accounts.
As per the general permission granted by RBI, NRIs are allowed to receive financial assistance in the form of housing finance from certain financial institutions namely, HDFC, LIC Housing Finance, IDBI etc.
Housing loans can be availed in rupees.
Even though the criteria regarding the purpose of the loan are at par with those applicable to the resident citizens, the repayment period of the loan should not exceed 15 years.
Yes. The housing loan of an NRI or a PIO can be repaid by his/her close Indian relatives.
NRIs have different eligibility criteria in order to get home loans in India. A copy of the passport, copy of work contract is a must.
Having a power of attorney (POA) may not be obligatory but it is nevertheless very important as the financial institute would want a representative since the borrower is not based in India.
Here is a general list of documents needed for NRIs to obtain home loans:
- Passport & Visa
- Appointment letter and contract from the employing company
- Bank statement for the last six month
- Labour card/identity card
- More documents may be needed depending upon the requirements of different banks.
The following individuals (except from Pakistan and Bangladesh) are eligible to apply under OCI scheme:
- Who is a citizen of another country, but was a citizen of India at the time of or after, the commencement of the constitution; or
- Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution; or
- Who is a citizen of another country, but belonged to a territory that became part of India after the 15th day of August, 1947; or
- Who is a child or a grand-child or a great grandchild of such a citizen; or
- (b) A person, who is minor child of a person mentioned in clause (a); or(c) A person, who is a minor child, and whose parents are citizens of India or one of the parents is a citizen of India; or(d) Spouse of foreign origin of a citizen of India or spouse of foreign origin of an Overseas Citizen of India Cardholder registered under section 7A, Citizenship Act 1955, and whose marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the presentation of the application under this section.
- Provided that no person, who is or had been a citizen of Pakistan, Bangladesh or such other country as the Central Government may by notification in the Official Gazette, specify shall be eligible for the registration as Overseas Citizen of India Cardholder.
NRIs/OCB’s are granted the following facilities:
- Maintenance of bank accounts in India
- Investments in securities / shares of, and deposits with, Indian firms / companies
- Investments in immovable properties in India
Yes, the Reserve Bank has granted general permission to NRIs to acquire or dispose of NRI India Properties by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin (PIO) whether resident in India or not.
Under the general permission available, the following categories can freely purchase immovable property in India:
- Non-Resident Indian (NRI) – that is a citizen of India resident outside India
- Person of Indian Origin (PIO) – that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who
- At any time, held Indian passport, or
- Who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).The general permission, however, covers only purchase of residential and commercial property.
NRIs/OCB’s are granted the following facilities:
- Maintenance of bank accounts in India
- Investments in securities/shares of, and deposits with, Indian firms/companies
- Investments in immovable properties in India
Most lenders would consider any property bought during the last 3 -6 months as a regular home loan application. You would be eligible for the same rates and income tax benefits as any other home loan. However, if you delay and the property purchase becomes more than 6 months old it will be treated as Loan against Property. The rates for the same are higher and there would be no tax benefits as well.
You would not be eligible for a loan as most home loan lenders allow only immediate relatives to co-own a property. This means that a parents-son combination and a husband-wife combination are only allowed. The reason for this restriction is that if some dispute arises between the joint borrowers, their incomes might not be pooled any longer and there might be a problem in repaying the loan to the bank.
Yes, a single woman can get a loan. Till a few years back, banks hesitated to give loans to single women fearing loss of income after marriage. With double income families becoming the norm rather than exception, lenders now are lending to single women as well. Many lenders also have special schemes for women offering them a discount up to 0.25%.
No, currently no home loan lender provides loan for purchasing properties abroad. The primary reason being operational difficulties in property verification, disbursement and different legal structure governing both home loan and repossession terms.
Most home loan lenders offer special privileges to self-employed professionals. They recognize the fact that in such cases, income is generally under stated and the earning potential of such individuals is higher that what has been disclosed. Every Housing Finance Institution (HFI) has its own conditions regarding the type of professionals they would cater to. The HFI also decides on the qualifications required for such professionals to qualify for the relaxed norms for loan eligibility calculations.
Yes, you can have as many loans against different properties. The only criteria being that you should be able to repay all the EMIs every month.
Yes, loan for land purchase is available as long as it is for residential purposes only.
- Many mortgage lenders like HDFC and State Bank of India offer this loan. You can get up to 85% of the purchase amount based on your credit profile and paying capacity.
- You get no tax breaks if you take a loan to buy a plot of land. But, if you take a loan for construction, that means a loan to build a house on that plot of land, then you can get a tax break.
- In such a case, the tax benefits are available on both portions of the loan the one to purchase the plot and the one taken to construct the house thereon.
- Please note that the benefits under Section 80C and Section 24 can be availed only when the construction of the house is complete.
Yes, Non Resident Indians can avail of a NRI housing loan to buy a property in India. However, the loan disbursement process as well as the terms & conditions for a loan taken by a NRI are different than regular home loans granted to Indian residents.
Many builders get their projects ‘pre-approved’ by specific home loan lenders. The lender examines the legal documents of the title of that project, the stage of construction as well as the builder’s track record to complete the project in time. It then declares all properties in the project to be ‘pre-approved’. You do not need to go for legal and technical checks in case of a ‘pre-approved’ property.
You’ve chosen a property that’s yet under construction. So the lender makes the disbursement in parts based on the progress of the construction of your property. However till the housing loan is fully disbursed you have to pay simple interest at the rate you have agreed upon with the lender. This is known as the Pre EMI. And from the month following in which the full disbursement is made you will start paying your EMI.
Floor Space Index refers to the ratio of the built up area of a property to the area of the land on which it is built. An FSI of 60% would mean that the total built up area of the building can be equal to only 60% of the area of the land on which it is being built. There are FSI specifications released by the relevant municipal body or development authority for all construction in its area. It is also known as Floor Area Ratio (FAR).
Fixed rate home loan is one where the interest rate on home loans charged by the lender is constant over the tenure of the loan. It is advisable to go in for a fixed rate only if you feel that the rate of interest prevailing in the market have touched rock bottom and the rates can only move upwards. Here are the latest offers on a 10 year fixed rate home loan and 20 year fixed rate home loan from the leading banks and housing finance companies in India.
A floating rate home loan is one where the home loan interest rate charged by the lender keeps changing with respect to the rates in the market over the tenure of the loan. Typically, the rate charged is on the basis of their cost of funds and the prevailing market rates. These rates change periodically. Accordingly the tenure increases or decreases or alternatively the EMI increases or decreases based on whether the rates move upwards or downwards. Every home loan lender decides whether to change the rate of interest or change the tenure at the time of sanction. It is advisable to go in for the floating rate if you feel that the interest rates have reached its peak and can only go downwards. Here are the latest offers on a 10 year floating rate home loan and 20 year floating rate home loan from the leading banks and housing finance companies in India.
Yes, you can convert floating rate home loan into a fixed rate one with no extra charges. However, to convert a fixed rate product to a variable rate product, most banks will charge a small fee. The swap can be done any number of times and at any point of time.
The Fixed Rate of Interest ideally remains fixed over the tenure of the loan. This rate does not change after the final disbursement has been made. It is ideally suited for situations where you expect the rates of interest to go up in the future and this fluctuation in the rates does not affect you adversely. In cases where the disbursement is spread out over a period of time and the rates might have changed in the interim. The rate of interest would remain fixed at the final weighted average rate at which the loan was disbursed. Nowadays, many lenders are reserving the option of changing the rate on a fixed rate home loan after 3 or 5 years. So please read the fine print before you sign up for a fixed rate home loan.
Most lenders do not refund the fees that you pay to them if you cancel the loan after taking the offer letter from them. However, there are few Govt. owned banks which do offer full or partial refund. Almost all the lenders refund the money in case the loan is not sanctioned.
In a monthly rest, the interest is calculated on the outstanding principal at the beginning of every month. Once the interest is calculated at the rate applicable to you for the month it is deducted from the EMI received during the month.
Annual rest works on the same principal only the interest is calculated on your outstanding principal at the beginning of every year. It is also commonly known as “Yearly Reducing Balance”.
Monthly reducing balance is a better option all other things being equal as you get immediate credit for repayment and the interest component keeps reducing almost immediately on a monthly basis.
Almost all lenders charge certain administrative or processing fees apart from interest for providing a home loan in India. You must compare all these charges as well before signing on to a home loan contract.
- Legal fees – payable to the lender or to the legal consultants of the lender.
- Technical or Valuation charges – payable to the lender or to his technical consultant.
- Stamp duty on creation of mortgage – some banks charge this fee whilst other banks normally just have a clause that requires this to be paid in the event the state government actually charges this amount. The escape route for non-payment of this duty are progressively being eliminated and the fact that the consumer carries the liability to pay this duty in the future if demanded by the state government along with interest and penalties in the future. So, this should not really be used by a consumer to eliminate a lender just because he is paying this stamp duty to the government.
- Prepayment Charges – This is the biggest charge that most consumers miss taking into account. A loan can be prepaid either in part or in full at any given point of time. You can also prepay a loan even when it is only partly disbursed. However, most banks have an upper limit on the number of times a person can prepay his loan in a year as well as on the minimum amount you can prepay each time. Until recently, banks charged a penalty for part or full prepayment. Increased competition has forced most banks to allow repayment without any charges if it is funded from own sources. In case the borrower, is transferring the loan to another lender he will need to pay the full charges.
You will be eligible to claim both the interest and principal components of your repayment during the year.
- Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 150,000 or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house).
- Principal can be claimed up to the maximum of Rs. 100,000 under Section 80C. This is subject to the maximum level of Rs 100,000 across all 80C investments.
- You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.
If you took a home loan and are still living in a rented place, you will be entitled to:
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
- HRA benefit
Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.
Yes, you can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. If you are only person repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner). You should enter into a simple agreement with the other borrowers stating that you will be repaying the entire loan. If you are paying part of the EMI, you will get tax benefits in the proportion to your share in the loan.
Yes, you can get the 80C benefit on both loans. However, the total amount that you will be entitled to will be a total of Rs 100,000 across both the homes.
The interest paid on a home loan is not directly deductible from your salary income for either of your flat loans. Income from house property will be calculated for each flat you own. If either of theses calculations shows a loss, this loss can be set off against your income from other heads.
As for Section 24 deduction, on your self occupied house you can take advantage of interest payments up to Rs.1, 50,000. For the other property, you can claim actual interest repaid, there is no limit for the same.
Fluctuating value of the property does not affect your EMI or your home loan liability. If you fail to repay your home loan you will be damaging your credit profile and any chances of getting a loan in the future. In such a case, where you want to dispose of the property because of loss in value. You will be much better off if you prepay your home loan and then sell the property.
Most lenders do not insist on a property insurance when disbursing a loan. However, it is strongly advised to buy an insurance as your home would be one of your most valuable assets. The home insurance rates are very affordable especially when bought for a long duration say 10 years. It would cost close to Rs. 50 per lakh of property value per year.
Yes, you can sell the property with the consent of the lender. This consent letter usually mentions the amount at which the home loan can be considered fully paid off. This amount is inclusive of prepayment charges as applicable and calculated at a future date to give you enough time to find a buyer. Based on this letter, you can negotiate with potential buyers.
If the buyer, wants to take a loan to purchase the property the process is much simpler if he approaches the same lender. Then the lender does not need to release the title papers to another lender before getting the payment.
If the buyer wants to make an outright payment- he can make the payment out to the bank directly based on the consent letter. And the balance amount is paid out to you. The property papers will be released only after the bank has recovered the entire amount including prepayment charges.
Yes, the change in amount can be done at any point before disbursement. Any increase in loan amount will however be subject to the eligibility conditions. The bank might also charge you excess fees on requesting an increase in the loan amount. The bank is not obliged to return excess fees paid in case you are requesting for a reduction in the loan amount.
Please be clear on why you wish to change your loan provider?
- Is it because you want a better interest rate and change in EMI?
- Is it because of service?
- Or, any other reason?
There is usually a pre-payment penalty for the loan, so please understand that you will lose some money when you transfer out of your present lender. Additionally, the new lender might also charge you a loan processing fee. So, you might end up paying two types of fees during this transfer. Ask both the lenders what the fee will be.
Make sure that you do the calculations of whether you will really save money with the transfer or not. The last thing you want to do is pay all these hidden charges. Also, practically speaking, you want to make sure that you are not going to add to your headache on the service levels.
Home loan Interest Rates
After the approval of the loan, you need to choose whether you want to take a fixed rate home loan or a floating rate loan. This is a critical decision that can affect your payments over the tenure of the loan.
In a floating rate loan, the interest rate on the loan depends on a benchmark rate fixed by the home loan lender. This benchmark rate varies as per the market. This change can happen as frequently as once in three or six months. You must choose a floating rate loan, if you are anticipating the interest rates to decrease in the future.
However, even within these categories of floating and fixed rate loans there are terms which differentiate one loan from another. Below are a set of key questions that you must ask your lender to know these differences, and then make an informed choice thereafter.
A Power of Attorney (POA) or letter of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or some other legal matter, sometimes against the wishes of the other. The person authorizing the other to act is the principal, grantor, or donor (of the power).
A Power of Attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property.
A Power of Attorney, or letter of attorney, is a document that authorizes another person, known as the agent or attorney-in-fact—usually a legally competent relative or close friend over 18 years old—to handle any combination of financial, legal and health care decisions. A power of attorney is also referred to as a POA. Generally, one chooses a POA as a provision if he or she becomes incapacitated.
Power of Attorney (POA) is an instrument that is used by people to confer authority on somebody else to legally act on their behalf. POA are of two types.
- Special Power of Attorney (SPA), while an SPA is used for transfer of a specific right to the person on whom it is conferred.
- General Power of Attorney (GPA), the GPA authorizes the holder to do whatever is necessary.
There is no sale clause of immovable property mentioned in POA (notarized)
Registered POA from registration office allows sale clause and POA to any one
Following are the important things to be kept in mind while executing the POA:
- Customer Prepares POA as per defined format.
- Person to execute has to paste his/her photograph along with signature on each page.
- Authenticate/adjudicate the POA from Indian Embassy or local authority.
- Send authenticated/adjudicated POA in India.
- In India, the POA holder has to paste his/her photograph along with his/her left hand thumb impression and signature.
- Then this document will have to be stamped for Rs. 500/- (ESBTR, Franking, Stamp paper) and notarized from a Registered Notary. Please ensure that a stamp of “Before Me” is affixed on the document.
- POA holder and executants Photo ID attach before Notary
You get a 20% rebate on repayment of principal during a financial year. Once again, over the years, the principal repayment eligible for rebate has been enhanced from Rs 10,000 to the current limit of Rs 20,000. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the assessee is also considered under this amount.
Going back to our earlier example
- Taxable income of Rs 4 lakh
- Taxable income stands reduced to Rs 2.5 lakh
- Tax before rebate and surcharge: Rs 49,000 (no surcharge is computed as surcharge is applicable on tax payable after allowing for rebate under Section 88)
- Rebate of Rs 4,000 (20% of Rs 20,000 being principal repayment)
- Tax less rebate of Rs 4,000 + surcharge @ 2%= Rs 45,900
- Tax saved = Rs 49,900 (Rs 45,900 as shown above plus rebate of Rs 4,000)
Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. That means you are allowed to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year.
This is now a substantial amount. It started off with the Income Tax Department offering Rs 15,000 as the maximum amount eligible for deduction in the case of self-occupied property. This later got doubled to Rs 30,000. It did not stop there. After getting enhanced to Rs 75,000, it was then taken to a limit of Rs 1 lakh. Presently, the limit stands elevated to Rs 1.5 lakh.
So, should you borrow money to acquire, construct, repair, renew or reconstruct property on or after April 1, 1999, you get a deduction of up to Rs 1.5 lakh. The criteria being: the property has to be acquired or constructed by March 31, 2003 and be self-occupied.
When put in figures, this is quite an amount
- Assume taxable income of Rs 4 lakh, placing the assessee in the highest tax bracket.
- Assume interest payment during the first financial year is Rs 1.60 lakh
- Taxable income stands reduced to Rs 2.5 lakh (Rs 4 lakh – Rs 1.5 lakh being the maximum limit)
- Total tax amounts to Rs 49,980 (tax of Rs 49,000 + surcharge of Rs 980)
- Tax saved is Rs 45,900 (tax @30% on Rs 1.5 lakh plus 2% surcharge as the investor is in the highest tax bracket)
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 3 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 3 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 Favorable 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.
Type Of Asset: Assets Like House Property, Land And Building, Jewellery, Development Rights Etc. Rate Of Tax Deduction At Source (TDS)
- Long Term – 20.6%
- Short Term – 30.9%
Exemption Available (Only For Long Term Capital Gains) The Long Term Capital Gains Arising On Sale Of A Residential House Can Be Invested In Buying/ Constructing Another Residential House, Within The Prescribed Time. The Exemption Is Restricted To The Amount Of Capital Gains Or Amount Invested In New Residential House, Whichever Is Lower. If The Amount Of Capital Gains Is Invested In Bonds Of National Highways Authority Of India.
(NHAI) Or Rural Electrification Corporation, Then The Entire Capital Gains Is Exempted, Else The Proportionate Gain Is Exempted. As Per The Financial Budget 2007-08, A Cap Of Rs. 50 Lakhs Has Been Imposed On Investment That Can Be Made In Capital Tax Saving Bonds.
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.