ACQUISITION & TRANSFER OF IMMOVABLE PROPERTY IN INDIA:
GOVERNING REGULATIONS: FEMA 21/2000-RB
Person resident outside India i.e. Non – Resident Indian (NRI) or foreign national of Indian origin (PIO) or foreign national of non – Indian originare not allowed to purchase ortransfer immovable property except as per FEMA Act or any regulations made under FEMA by RBI.
This article, in particular, discusses the repatriationof sale proceeds of immovable property in India. For understanding on repatriationof sale proceeds ofassets in general, please refer our articlehttp://klaggarwal.com/others/remittance-of-assets-by-non-resident/
We discuss here the regulations as applicableaccording to residential status:
NON – RESIDENT INDIAN (NRI) & PERSON OF INDIAN ORIGIN (PIO):
ACQUISITION OF IMMOVABLE PROPERTY–
NRI and PIO have been defined inFEMA 21/2000 RBas:
NRIis a citizen of India who is residing outside India.
PIOmeans an individual (not being a citizen of Pakistan or Bangladesh orSri Lanka or Afghanistan or China or Iran or Nepal or Bhutan)who:
- at any time held an Indian Passport or
- who or either of his father or mother or whose grandfather or grandmother was a citizen of India by virue of the Constitution of India or the Citizenship Act, 1955.
It should be noted that:
- China includes Hongkong and Macau.
- Spouse clause as givenin PIO definition in other FEMA circular/ notifications has been dropped here.
As per FEMA 21/2000- RB and other recent notifications, NRI & PIO have been granted general permission to purchase immovable properties in Indiaexcept agricultural land orplantation property or farm house
The funds may be repatriated to India (for purchase of property) through bank channels by way of inward remittance or debit to existing non – resident account maintained in accordance with the provisions of FEMA, 1999. No other mode of payment is acceptable (e.g. traveller’s cheque or foreign currency notes, etc.)
A NRI/PIO can also acquire a property by way ofgift and inheritancefrom a Resident or Non – Resident. However, agricultural land, plantation property ora farm house cannot be acquired asgift.
A PIOwho is a citizen of prescribed countries (as per PIO definition given above) can only take an immovable property on lease not exceedingfive years. If he intends to purchase a property, RBIapproval is required.
TRANSFER –
An NRI/PIO may transfer his immovable property to a resident/ non resident (NRI/PIO). However, hecan sell his existing agricultural land orplantation property or farm house only to a resident.
If a PIOwho is a citizen of prescribed countries (as per PIO definition given above) wish to transfer his property, he shall need priorRBI approval.
REPATRIATION OF SALE PROCEEDS OF IMMOVABLE PROPERTY-
- The repatriation of proceeds of residential property by NRI/PIO is limited to two such properties.
- The repatriation of proceeds of agricultural land orplantation property orfarm house is not allowed.
The existing FEMA regulations permit an overall remittance limit ofUSD 1 million from NRO account for bonafide purposes. This remittance limit is available to NRI/PIO for each financial year. The sale proceeds of immovable property can thus be credited to NRO account & be further remitted under the overall USD 1 million limit.
There is an ambiguity in FEMA notifications in the sense that the persons covered under6(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. Similarly, the FAQs on acquisition and transfer of immovable property clearly saythat an NRI who had purchased an immovable property while he was resident can transfer the property and repatriate the sale proceeds.
However, the repatriation needs to be done net of taxes.ADshave been provided significant powers to ensure that the repatriation is being done after all necessary taxes have been paid/ provided for.
The NRI/PIO can freelyrent out their immovable propertyand therentalincome 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.
RESIDENTBUT NOT CITIZENOF INDIA:
A foreign national who hasresidedin India for 182 days & more in the preceding financial year & who has the intention to stay for anindefinite period can also buy property in India.
It is important here to note that the foreigner may have come to India for employment, vocation or for any other purpose & he may be residing in India for more than 182 days (in the preceding financial year) but if it cannot be adjudged that he has an intention of staying for an indefinite period, than he cannot buy property in India. The intention to stay for an indefinite period should be unambiguously reflected by all means including type of visa granted. The onus to prove this intention lies with the foreigner.
FOREIGN NATIONAL OF NON – INDIAN ORIGIN:
- A foreign company establishing its branch office, liasion office, site, project office etc. in India falls under this category.Any foreign company which has takenRBI approval (as per FEMA 22/2000 RB)for establishing a branch office or project office in India, may acquire an immovable property if it is deemed necessary for the purpose. Form IPI needs to be submitted with RBI within 90 days from the date of such acquisition. However, a company establishing liaison office cannot acquire immovable property without prior approval of RBI.
- Foreign nationals other than above can inherit an immovable property only from a person who was resident in India. If they wish to purchase any immovable property in India, they need to take RBI approval. The transfer of such property which was acquired after RBI approval shall again need RBI approval.
A foreign nationalcan take on lease an immovable property for 5 years without approval of RBI.
Further, foreign companies which are incorporated in prescribed countries (as mentioned in PIO definition) cannot acquire immovable property in India after establishing a branch office as per applicable FEMA guidelines/provisions. They need RBI approval.
