In this article, Lakshmi CM pursuing M.A, in Business Law from NUJS, Kolkata discusses Acquisition and transfer of immovable property in India.
The procedure and regulation for acquisition and transfer of immovable property in India by Non-Resident Indians is governed by the Foreign Exchange Management Act, 1999 (FEMA). The FEMA empowers the Reserve Bank of India to frame regulations to restrict, prohibit and regulate the acquisition or transfer of immovable property in India by Residents outside India. The regulations governing acquisition and transfer of immovable property in India are notified under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time. Part II of the “Master Direction 12/ 2015-16 – Acquisition and Transfer of Immovable Property under Foreign Exchange Management Act, 1999” issued by the Reserve Bank of India details the provisions for acquisition and transfer. The provisions of the Master Direction have been detailed in the following paragraphs.
Important Definitions defined under the Master Direction
Regulation 2.1: ‘Non-Resident Indian’ (NRI) is a citizen of India resident outside India.
Regulation 2.2: ‘Person of Indian Origin’ (PIO) 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 at any time, held an Indian Passport or who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
Regulation 2.3: ‘Repatriation outside India’ means the buying or drawing of foreign exchange from an authorised dealer in India and remitting it outside India through banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency.
Regulation 2.4: ‘Transfer’ includes sale, purchase, mortgage, exchange, pledge, gift, loan or any other form of transfer of right, title, possession or lien.
Acquisition of Immovable Property by NRI and PIO
As per the Master Direction, a person resident outside India who is a citizen of India, NRI or PIO can acquire by way of purchase, any immovable property in India other than agricultural land, plantation property, and farm house.
He can also transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India but only to a person who is a citizen of India or to a person of Indian origin resident outside India or to a person resident in India. Agricultural land, plantation property, farm house acquired by way of inheritance shall be transferred only to Indian citizens permanently residing in India. Transfer by way of gift of residential or commercial property in India, to a person resident in India or to an NRI or to a PIO resident outside India is permitted under the Regulation. Thus, the general permission, covers only purchase of residential and commercial property and not for purchase of agricultural land/plantation property/farm house in India.
Payment for Acquisition
The 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 outsider India or Funds held in any non-resident account in India like the Non Resident Rupee (NRE) / Non Resident Ordinary Rupee (NRO) / Foreign Currency Non-Repatriable (FCNR -B) 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. No payments can be made either by traveller’s cheque or by foreign currency notes or any other mode except those specifically through the afore mentioned accounts.
Acquisition of Immovable Property by person resident outside India for carrying on a permitted activity
The Master Direction provides that, person resident outside India who carry out permitted business activity in India may establish an office or branch office, other than a liaison office in India. This office may be established by acquisition of immovable property in India and such an office shall be incidental to the activities carried on in India. As per Regulation, the person setting up such an office shall file with the Reserve Bank a declaration in FORM IPI, within 90 days from the date of the acquisition. The immovable property can be mortgaged to an Authorised Dealer as a security for any borrowing. Acquisition of immovable property in India for a branch or other place of business by entities with its origin/nationality or ownership of countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Hong Kong, Macau, Nepal, Bhutan shall require prior approval of the Reserve Bank of India.
Acquisition of Immovable Property by a foreign national resident in India
A foreign national resident in India does not require approval from Reserve Bank but approvals if any required in terms of regulations prescribed by other authorities such as the concerned State Government etc. must be obtained by him/her. However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan requires specific prior approval of Reserve Bank. A foreign national who is residing in India for more than 182 days during the preceding financial year for taking up employment or carrying on business/vocation or for any other purpose indicating his intention to stay for an uncertain period can acquire immovable property in India as he would he falls under the definition of a ‘person resident in India’ as per FEMA. To be treated as a person resident in India under FEMA, a person has not only to satisfy the condition of the period of stay but also his purpose of stay as well as the type of Indian visa granted to him shall clearly indicate the intention to stay in India for an uncertain period. In this regard, to be eligible, the intention to stay has to be unambiguously established with supporting documentation including visa.
Acquisition of Immovable Property by Foreign Embassies, Diplomats, Consulate Generals
Foreign Embassies, Diplomats, Consulate Generals may purchase immovable property (other than agricultural land/ plantation property/ farm house) in India as per the provision of Regulation 5 of the Master Direction, with the Clearance from the Government of India, Ministry of External Affairs shall be obtained for such purchase, and the consideration for acquisition of immovable property in India shall be paid out of funds remitted from abroad through the normal banking channels. The property so acquired shall be mortgaged with an authorised dealer as a security for any borrowing.
Transfer of Immovable Property
Transfer or sale of immovable property by a PIO, which are permissible as per the Regulations are categorised under the following heads:
- Transfer of immovable property other than agricultural land, farm house or plantation property to a person resident in India.
- Gift or sell agricultural land, farm house, plantation property to a person resident in India who is a citizen of India.
- Gift residential or commercial property to a person resident in India or to an NRI or to a PIO resident outside India or to an NRI or to a PIO resident outside India.
Transfer or sale of immovable property by an NRI shall be made as follows
- Transfer of immovable property to a person resident in India
- Transfer of immovable property other than agricultural land, plantation property or farm house to an NRI or a PIO resident outside India.
An NRI or a PIO and a foreign national of Indian origin can inherit and hold immovable property in India from a person who was resident in India. However, a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan should seek specific approval of Reserve Bank. The immovable property can be inherited from a person resident in India or a person resident outside India. However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange regulations applicable at that point of time.
Repatriation of sale proceeds of immovable property
The proceeds of the sale of immovable property made by an NRI or a PIO shall be repatriated in compliance with the provisions of the Regulations and the amount to be repatriated shall not exceed the amount paid at the time of the acquisition received by way of normal banking channels or out of funds held in the FCNR(B) or NRE Account. In case of sale of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. In case an immovable property in India has been purchased by an NRI/ PIO out of housing loans availed in terms of Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time, and the repayments for such loans are made out of remittances received from abroad through banking channels or by debit to the NRE/ FCNR(B) account of the NRI, such repayments may be treated as equivalent to foreign exchange received.
Residential and Commercial Property
An NRI or PIO can acquire a residential or commercial property in India in compliance with the provisions of the RBI regulations. Such a property can be sold by them to a person resident in India or an NRI or PIO. Such a property can also be mortgaged with an authorised dealer or housing financial institutions without the approval of the RBI. In the case of a mortgage with a foreign national of non-Indian origin, the prior approval of the RBI shall be obtained.
Refund of advance made for booking of a residential or commercial property
The refund of advance made by the builder or seller due to non-allotment of the property shall be credited to NRE account.
Loan for acquisition of residential property
NRI or PIO can avail loan from an authorised dealer for acquiring residential property for his own use against the security of funds held in the NRE Fixed Deposit account / FCNR (B) account. Such loans can be repaid by way of inward remittance through normal banking channel or by debit to his NRE / FCNR (B) / NRO account or out of rental income from such property or by the borrower’s close relatives, through their account in India by crediting the borrower’s loan account.
Prohibition on acquisition or transfer of immovable property
Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India, other than on lease, not exceeding five years.
Foreign nationals of non Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. Foreign Nationals of non Indian origin who have acquired immovable property in India by way of inheritance with the specific approval of RBI can not transfer such property without prior permission of RBI. But, he/she may take residential accommodation on lease provided the period of lease does not exceed five years. In such cases, there is no requirement of taking any permission of or reporting to Reserve Bank. A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India through gift.
TAX Payment
Transaction involving acquisition of immovable property under the RBI regulations shall be subject to applicable tax laws in India.
The Government of India by way of press release dated February 01, 2009 has advised State Governments to be extra vigilant in matters of acquisition and transfer of immovable property in India by a person resident outside India and satisfy themselves about the eligibility under FEMA before registering a sale or purchase of immovable property in India. The State Government can enquire both the buyers and sellers. The relevant travel documents and the nature of visa may also be verified before registering such sale/purchase. Government has further advised all including concerned authorities in the State Governments that wherever appropriate, the authorities may consider reviewing registration of sale/purchase already made to determine their compliance with legal requirements. The requirements of the respective State laws shall be complied with by the persons acquiring immovable property.
