The Foreign Exchange Management Act, 1999 (FEMA) empowers the Reserve Bank of India (RBI) to frame appropriate rules and guidelines to regulate the sale and purchase of immovable property in India by Non-Residents, including Non-Resident Indians (NRI), Persons of Indian Origin (now replaced with Overseas Citizen of India) or foreign nationals.
The appreciation in the prices of real estate in India is often seen as a lucrative opportunity for NRIs, OCIs, etc to invest their money in India. Let us see as to how a person not resident in India can acquire and sell immovable property situated in India.
Who is a Non-Resident Indian (NRI) and Overseas Citizen of India (OCI)?
A Non-Resident Indian (NRI) is a citizen of India residing outside India.
An Overseas Citizen of India (OCI) means an individual who has held an Indian passport at any point of time or either of whose father, mother, grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955. However, it is to be remembered that such an individual cannot be a citizen of Sri Lanka, Pakistan, Bangladesh, China, Iran, Afghanistan, Nepal or Bhutan.
Which type of Property can be Acquired by Non-Residents?
Immovable property of any type except agriculture land, plantation property and farmhouse can be purchased by a NRI or OCI in India. Such immovable property may be a residential or a commercial property.
Furthermore, an NRI or OCI can also acquire such immovable property by way of a Gift by any person who is a resident in India or by an NRI/OCI. However, such immovable property cannot be an agriculture land.
With respect to acquiring of an immovable property by way of inheritance, a NRI or OCI can acquire such immovable property by way of inheritance from a person resident in India or even from a person resident outside India provided that such person had acquired the demised property in accordance with the laws in force at that time. It is to be noted that with respect to acquisition of immovable property by inheritance, there is no bar on an NRI/OCI to inherit immovable property in the nature of agriculture land, plantation property or farm house.
It is also to be noted that there is no restriction on the number of properties an NRI/OCI can acquire in India.
Can a Foreign National or a Foreign Company buy Immovable Property in India?
With respect to foreign nationals who are not of Indian origin and resident outside India, they cannot purchase immovable property in India. However, there is no restriction on them inheriting a property provided that same was inherited from a person who was resident in India.
With respect to foreign companies having an office in India, they may purchase immovable property which is necessary only for the purpose of carrying out their business activities. Needless to mention, the prescribed declarations with the Reserve Bank of India need to be filed for such purpose.
To whom can a Non-Resident transfer property?
A non-Resident meaning a NRI or OCI can transfer any property to any person who is a resident in India or to a NRI or OCI.
Furthermore, a NRI or OCI can also transfer by way of Gift, their property to any person resident in India or to a NRI or OCI.
With respect to sale/gift of immovable property in the nature of agriculture land or plantation property, a non-resident can sell/gift the same only to a person resident in India who is a citizen of India. It is reiterated herein that an NRI/OCI could have acquired the agriculture land or plantation property only by way of inheritance.
Are There any Restrictions on the mode of payment for Acquiring the Property?
There are certain restrictions which are put in place for NRI/OCIs in terms of making the payment towards the sale consideration of the property.
The payment of sale consideration can be made only by way of funds received by inward remittance through normal banking channels or by debit to their NRE/NRO bank accounts.
Further, the payment of sale consideration cannot be made by traveler’s cheque or in foreign currency notes.
In case the deal does not go through, and the non-resident is entitled to refund of the part of sale consideration already paid by him, then such refund can be credited to their NRE Bank account provided that original payment was made through the NRE Bank account.
What Should be kept in mind while Acquiring Property in India?
Acquisition of immovable property is more often than not a big investment. Hence, it is imperative that certain pointers be kept in mind while considering buying an immovable property, such as:
- Verification of the seller’s identity.
- It is always advisable that a physical inspection of the property be done so as to ensure that there are no encroachments on the property.
- A thorough title search of the property be carried out so as to ensure that the seller is the legal owner of the property. This can be done by perusing the title documents of the property so as to ensure completion in the chain of title.
- Revenue records pertaining to the property be inspected to ensure that property is mutated in the name of the seller.
- Inspection of receipts pertaining to property tax, electricity dues, water dues and all other government levied charges be ensured.
- Release Certificate from the Bank, in case the property was earlier mortgaged, and the seller has cleared the entire dues of the Bank.
Miscellaneous Pointers
- Once an immovable property is acquired by an NRI/OCI, the same can be rented out to any person. The rent so received can be repatriated after paying the applicable taxes.
- Further, the proceeds from sale of a property owned by an NRI/OCI can be repatriated after paying the applicable tax in India.
- No formal intimation to the Reserve Bank of India is required to be given by an NRI/OCI while purchasing an immovable property, whether commercial or residential.
- NRI/OCIs can also avail of home loan to purchase an immovable property in India.
Conclusion
As can be seen from the above, there are certain restrictions placed on non-residents i.e. NRIs, OCIs or foreigners on acquisition and sale of immovable property in India. It is important that all the laws, rules and regulations be strictly adhered to while dealing with property in India so as to avoid any legal complications either in India or in their home country. Further proper due diligence is also required to be undertaken while acquiring property in India.
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