Like other resident
Indians, NRIs too have become conscious of putting in their money where the
bigger buck is!
Hence, investment in commercial property is being preferred over-investment in residential properties by NRIs.
Well, the rise in rental income from commercial property and growth in demand for commercial property is the main reason behind the shift in the trend. The growing economy and liberal policies of the Government of India are attracting investment by NRIs in the commercial sector.
Also Read: Can NRIs buy property jointly with resident Indian?
What kind of properties
can NRIs invest in?
- NRIs are permitted to invest in commercial property, i.e. those
purely intended for business purposes.
- An investment in commercial property could broadly mean
purchasing factories, office spaces, industrial units, retail complexes, malls,
medical centers, hotels, retail outlets, warehouses, and garages, etc. Or for commercial renting.
- Residential Properties
finance the investment?
- Fact is, NRIs purchase commercial property by using funds from
their bank accounts in India (through funds in NRE/NRO/FCNR account) or through
remittances using normal banking channels.
- NRIs can also avail loans for the purchase of property in India
just like resident Indians. They can claim benefits under Section 24 and
Section 80C of the Income Tax Act.
- The added advantage being that, by availing loan from a bank, an NRI gets the facility of getting the property papers evaluated by bank officials who exercise due diligence before sanctioning the loan.
How to avail a loan:
The conditions are general and may vary from bank to bank.
Also Read: Saving yourself from fraud while buying or selling a property
- The NRI can be a salaried person or self-employed. Different banks have different eligibility criteria.
- The income of NRI matters while taking a loan. The income slab is different depending upon the country of residence of the NRI.
- Many banks require a co-applicant who is a resident Indian, preferably a person who is a close relative of the NRI and should ideally be from the place where the loan has been applied for.
- The period of loan also varies from bank to bank. The period of repayment in case of commercial loans for NRIs varies from 5-15 years. The period is shorter for NRIs as their repaying capacity is more than resident Indians.
- The rate of interest depends upon the loan amount and the repayment period selected.
- 80-85% (some banks allow only 60-65%) of the loan amount is permitted against the value of the property. The loan amounts that can be availed depends upon the income also.
What are the required Documents and concerned rules for availing a loan?
An NRI would require the following:
Also read: Transfer of Property on the basis of Registered or Unregistered Will
- Work permit
- Salary certificate
- Proof of residence
- IT returns
- IDs – photographs
Please Note: The Aadhar Card is not mandatory for availing a loan.
Loan Document rules:
- NRIs can execute the documents on their own by ensuring their physical presence in India or through a Power of Attorney.
- This would be subject to all rules related to the execution of the POA by NRIs.
Loan to NRIs for business activities against bank deposits:
- RBI permits sanction of loan to NRI for doing business activities in India against their bank deposits.
- This loan is not for investment in real estate business but is granted only for carrying a business activity other than this.
- RBI issues guidelines for permitting the amount of loan to NRIs for carrying business activities against the NRE/FCNR/NRO accounts.
- The bank may fix minimum and maximum limits as per the said guidelines.
- The loan amount is sanctioned after scrutiny of all documents. NRI also has to make a personal contribution towards the commercial property purchase before a loan is disbursed.
How do NRIs
repay their property loans?
- The loan amount is repaid as per decided EMIs. For repayment of
the loan, an option of prepayment of the loan amount is also available to NRI
subject to the foreclosure charges.
- Repayment is made through Internet Banking or ECS from NRE/NRO
account as permitted by RBI.
FINANCE AND PROPERTY
With the changing scenario, the demonetization, and introduction of new rules and limits related to investments, finance, and property, India is trying to create a transparent environment for all its citizens. This affects everyone whether a permanent citizen or an NRI. Therefore, we want to make an effort and refresh the knowledge of NRIs about the property documents needed and other provisions made by the government to safeguard their interest.
The NRIs need to be acutely aware of what steps they can take to protect themselves from all the changes that are going on.
To begin with, here’s a peak into some terms used in the financial transaction scenario.
- An NRI (Non-Resident Indian) is a resident of India who holds an Indian passport and has provisionally immigrated to another country for six months or more for work, residence or any other purpose.
- A Person of Indian Origin (PIO) is who used to be a resident of another country other than Pakistan, Bangladesh, Sri Lanka, Afghanistan, Bhutan, Nepal, and China but his/her ancestors were Indian nationals at least four generations away.
The PIO scheme was withdrawn by the government of India in January 2015 and merged with OCI scheme. To become equal to the current OCI, the PIO will need to get a unique stamp saying “lifelong validity” and “registration not required,” in their PIO card.
- Overseas Citizenship of India (OCI) is a scheme that was introduced in response to demands for dual citizenship by the Indians who migrated after 26 January 1950, particularly in developed countries except those who are settled in Bangladesh and Pakistan. The card is the proof of lifelong visa and has “Life Time Visa” printed on it. It will be valid with any valid passport.
Before Feb. 2015, passengers holding OCI card were required to carry the lifetime visa sticker passport while traveling to India. This requirement was removed. Now the OCI only need to have his/her card (the blue booklet), and current valid foreign passport to travel to and from India.
- Types of Bank Account NRIs
To encourage NRIs and PIO staying overseas to invest in India, the government has allowed these individuals to open three types of NRI accounts:-
- FCNR Account
- NRO Account
- NRE Account
- FCNR stands for Foreign Currency Non-Resident Account.
- It is denominated in one of the major six currencies –
- US Dollar
- Pound Sterling
- Japanese Yen
- Australian Dollar
- Canadian Dollar
- It is a fixed deposit foreign currency account.
- These accounts are used by NRIs to park overseas incomes as foreign exchange in India without having them to convert them to rupees.
- The principal amount received is in foreign currency, and therefore, the interest earned is in the same currency and also completely tax-free.
- FCNR Accounts are fully repatriable, and transfer of funds from FCNR to NRE account and vice versa is allowed.
- The funds from the local sources are not authorized to be transferred to FCNR accounts.
- These accounts can be held either as a joint account or in a single account. The joint account holder should be an NRI, but the beneficiary can be an NRI or a resident.
- An NRO Account stands for Non-Resident Ordinary.
- It is a savings or current account held by NRIs in India that helps them to manage their income they earn in India such as rents, dividends, or pension from abroad.
- The account holder can deposit and manage accumulated rupee fund conveniently through this account.
- Foreign Currency deposited into the account is converted into Indian Rupees.
- Any NRI can open an NRO account.
- The transfer of funds from NRO to NRE account is not allowed.
- An NRE Account stands for Non-Resident External.
- It is a current or savings account held in India that allows the account holder to bring funds from outside and transfer it to India conveniently and securely.
- The money transferred to this account in any foreign currency is converted to INR.
- Transfer of funds from NRE to NRO or FCNR account is allowed.
- It is important to note here that funds from local sources are not authorized to transfer to NRE accounts unless they are eligible to be remitted abroad.
Since India is trying to go digital, making its economy and infrastructure strong, it affects the management of finance and property, so it’s best for NRIs to be up-to-date. Being up-to-date about economic changes and property documents required empowers them to face any issue without any complication.