Acquisition and Sale of Estate in India by Non Resident

Article posted by: office@indialawoffices.com

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Person residing outside India, i.e., Nonresident Indian (NRI) or foreign national of Indian origin (PIO) or foreign national of Non Indian origin are not allowed to purchase or transfer immovable property except as per FEMA act or any regulations made under FEMA by Reserve Bank of India (RBI). The FEMA empowers the RBI to frame necessary regulations for the sale and purchase of property by NRIs. The rules for Nonresident Indian and person of Indian origin are same for sale and purchase of property.

Type Of Property Nris Can Sell And Purchase

A. Property with NRIs can Purchase

NRIs can purchase the residential or commercial property. It can be a constructed unit or plot/land. There is no restriction on the NRI property investment. The only restriction is on the purchase of an agricultural land which would include plantation property and farm house. All such property purchase excluding agricultural property is under general permission granted by RBI to NRIs (citizen of India) and PIO have to meet two conditions:

  • PIO held Indian passport at any time in the past
  • Either s/he or his/her father/grandfather was citizen of India by virtue of the Constitution of India or Citizenship Act,1955

The general permission is not available for the purchased of agricultural land or plantation property or farm house in India. It does not mean that agricultural land cannot be bought by NRIs. It is possible but only with permission/specific approval of Reserve bank of India. One also needs to check the local state laws before purchase of agricultural land as some states allow only agriculturist or farmers to purchase agricultural land. Though, for purchases under general permission, intimation to RBI is not required.

B. Property with NRIs can Sell

There is no restriction on the sale of property to resident India by NRIs, i.e., type of property can be sold to resident Indian, POI and NRI. The only exception is that agricultural land or plantation property or farm house cannot be sold to NRI or PIO. The rule is different for PIO in this case though. A PIO can sell non agricultural property/land to resident Indian. But PIO cannot sell agricultural land or plantation property or farm house to a resident Indian. If a PIO inherited agricultural land from their forefathers then PIO can sell or gift agricultural land or plantation property or farm house only to resident Indian who is also citizen of India permanently in India. In general, PIO can sell the property to NRI and Resident Indian. If the buyer is also PIO then the prior approval from RBI is required.

C. Gift/Inheritance:

Normally, there is no restriction to accept any type of property i.e. commercial or residential as a gift or acquire through inheritance. The donor can be resident Indian, PIO or NRI. The only exception is that agricultural land cannot be gifted to NRIs or PIO. Agricultural land or plantation property or farm house can only be inherited. For example, NRIs cannot purchase agricultural land but he/she is free to inherit the agricultural land. There is no restriction. Therefore, NRIs can sell the inherited agricultural land only to the resident Indian. In the case of PIO, rules are slightly different. PIO can inherit any immovable property including agricultural property only from a person who acquired this property in compliance with foreign exchange law or FEMA as applicable at the time of acquisition. A PIO can gift the residential or commercial property to Resident Indian, NRI (Citizen of India) or PIO.

Payment For Acquisition

Payment for acquisition of property can be made out of:

  • Funds received in India through normal banking channels by way of inward remittance from any place of India or
  • Funds held in any Nonresident account maintained in accordance with the provisions of the foreign exchange management act, 1999 and the regulations made by Reserve bank of India from time to time.

Such payments cannot be made either by traveler’s cheque or by foreign currency notes or by other mode than those specially mentioned above. A person resident outside of India who is a person of Indian origin (PIO) can acquire any immovable property in India other than agricultural land/farm house/plantation property:

    • By way of purchase out of funds received by way of inward remittance through normal banking channels or by debit to his NRE/NRO/FCNR(B) account.
    • By way of gift from a person resident in India or NRI or PIO.

By way of inheritance from any a person resident in India or a person resident outside India who had acquired such a property in accordance with the provisions of the foreign exchange la win force or FEMA regulations at the time of acquisition of the property.

A PIO may transfer any immovable property other than agricultural land/ plantation property/ farm house in India

      • By way of sale to a person resident in India
      • By way of gift to a person resident in India or nonresident Indian or a PIO

A PIO may transfer agricultural land/ plantation property/ Farm house in India by way of sale or gift to resident in India who is a citizen of India.

Repatriation Of Sale

Repatriation of sale proceeds In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by NRI / PIO, the authorized dealer will allow repatriation of sale proceeds outside India provided;

      • The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA Regulations;
      • The amount to be repatriated does not exceed
        • The amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of fund held in Foreign currency Non-Resident Account or
        • The foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property.
      • In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. In the case of sale of immovable property purchased out of Rupee funds, ADs may allow the facility of repatriation of funds out of balances held by NRIs/PIO in their Non-resident Rupee (NRO) accounts up to US$ 1 million per financial year subject to production of undertaking by remitter and a certificate from the Chartered Accountant in the formats prescribed by the CBDT.

There is an ambiguity in FEMA notifications in the sense that the persons covered under 6(5) of FEMA, 1999 ( NRI who has purchased the property while he was resident) cannot remit sale proceeds of such property outside India except with the prior approval of Reserve Bank. However, on detailed analysis one would find that the Master Circular on Remittance Facilities for NRI/PIO mentions this prohibition very obliquely.

However, the repatriation needs to be done net of taxes. The NRI/PIO can freely rent out their immovable property and the rental income being a current account transaction can be freely remitted outside India.

The property owned by NRI/ PIO can also be mortgaged to AD/ housing finance institution or an Indian Bank without any approval of RBI. However, mortgage to a foreign bank would need the prior approval of RBI.

Exceptions

RBI Permission is required for Sale and Purchase of Property in India by

        • Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan. Even to lease a property in India, RBI permission is required. The lease duration cannot exceed 5 years.
        • Foreign Nationals of non-Indian origin residing outside India cannot purchase any property in India. In the case of inheritance from resident Indian, Permission of RBI is required both at the time of inheritance and at the time of sale of such property. Just to add that property cannot be gifted to foreign nationals. For a residential lease of up to 5 years, permission from RBI or reporting to RBI is not required by the foreign nationals.

Important Pointers

        • NRIs can avail home loan against property in India from banks/lenders abroad with prior approval from RBI. The reason for this query is that home loan interest rate in some countries like USA etc is very low. Therefore, it is beneficial for NRIs to avail home loan from the country of residence and mortgage the property in India to bank/lender abroad.
        • In case the deal does not go through because of any reason, the amount paid to the seller can be refunded in the same account from which the payment was made i.e. NRO/NRE/FCNR (B) account. If the payment was made from inward remittance then the amount refunded should be credited only to the NRE account.
        • NRIs can receive rental income in NRO or NRE account. This income can be remitted after paying taxes in India.
        • The definition of Resident Indian is different under FEMA and the IT Act. In this post, the definition of Resident Indian is based on FEMA i.e. a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April to March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period. Therefore, purpose or intention of stay is also critical.
        • Last but not least, to avoid any future tax issue/hassle NRIs can always opt for Advance Ruling. I discussed it in detail in my post, Advance Ruling – NRIs can avoid tax issues.

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