In India, investment in immovable property is considered as one of the essential requirements. For many Indian families, investment in immovable property is for generating additional source of income to earn rent and capital gains. Specially between 1990 to 2010, property rates in India had gone up considerably and many families have been creating wealth through investment in immovable property as rental income becomes consistent and regular. Also property rates increases at a regular interval. Many Indians have left India for pursuing higher studies and better career options. While few of them settle permanently outside India, few come back to India to stay with their family. Those who settle permanently outside India, may want to buy immovable property or gift an immovable property to their resident Indian relatives. Also, recently there has been buzz about acquiring immovable property in USA and Canada due to reduction of interest rates. Accordingly, apart from being a necessity, investing in an immovable property in India or outside India has always been a source of investment opportunity not only for resident Indians but also for Non-Resident Indians.
Under Foreign Exchange Management Act, 1999 (“FEMA”), the term ‘immovable property’ has not been defined. In general parlance, it includes all types of immovable properties, viz. Residential, Commercial, Industrial and Agricultural property.
Acquisition of immovable property in India by person resident outside India:
Acquisition or transfer of immovable property in India, involving foreign exchange is considered as a capital account transaction and is governed under section 6(3)(i) of the FEMA read with FEMA (Non-debt Instruments) Rules, 2019.
Prohibition from acquisition of immovable property in India:
Under FEMA, thrust is on the residential status of a person as determined under section 2(v) of the FEMA and not dependent on citizenship status. However, prior approval of RBI needs to obtained for citizen of 10 countries, viz., Pakistan, Bangladesh, SriLanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong-Kong, Democratic People’s republic of Korea, irrespective of their residential status. Such an individual can also take immovable property on lease for period not exceeding 5 years.
Restriction for acquisition, holding, sale of immovable property in India:
There is general restriction on a non-resident individual for buying agricultural land / plantation property / farm house in India. However, a general exception is given to NRI / PIO, when there is change in residential status of a resident individual turning into NRI/ PIO. Any immovable property held by such an individual is allowed to be retained in its existing form even after there is change in their residential status. Also, any property received pursuant to inheritance from a person resident in India, is allowed to be retained by such an individual becoming NRI/PIO subsequently. However, there might be possibility of restriction on such person to use agricultural land / plantation property / farm house while he / she is maintaining non-resident status. Also, such NRI / PIO can sell agricultural land / plantation property / farm house, to person resident in India only and not to any other non-resident or NRI / PIO. Further, such NRI / PIO can not continue to be partner in a partnership firm which is involved in agricultural / plantation activity or real estate business i.e. dealing in land and immovable property, once they loose title of resident in India.
For any other property, there is no restriction on NRIs / PIOs to acquire, own, hold or transfer. For a foreign national, there is restriction to acquire any immovable property unless such foreign national fulfils criteria of physical stay of minimum 182 days, i.e. once a foreign national becomes resident Indian, he / she can acquire immovable property in India.
Mode of Payment:
Mode of payment for acquisition of property by NRI / PIOs in India is prescribed as under:
- Inward remittance through normal banking channel;
- Out of funds held in NRE/ FCNR/ NRO accounts maintained in India;
- No payment can be made either by traveller’s cheque or by foreign currency notes or any other mode other than specifically permitted
Repatriation of sale proceeds of immovable property by NRI / PIOs:
NRIs / PIOs are allowed to remit full sale proceeds, net of taxes for upto 2 residential properties and full repatriation is allowed for sale proceeds, net of taxes for other properties. For sale of properties beyond 2 residential properties is allowed to be repatriated under USD 1 million scheme per year.
Further, if any advance money paid for buying of residential property which gets refunded, such advance money along with interest on same, earnest money, purchase consideration on account of non-allotment and / or cancellation of booking for purchase of immovable property, is permitted to be credited to NRE/ FCNR account if original remittance has been made from such an accounts.
Renting of immovable property by NRI / PIO:
No RBI approval is required for renting of immovable property by NRI / PIO. Rent income can be credited to NRO account / NRE account / directly remitted abroad subject to deduction of payment of appropriate taxes.
Acquisition of immovable property through a legal entity (viz. Company, LLP, Partnership Firm) by NRI / PIO:
NRIs, OCIs, including a company, trust and a partnership firm incorporated outside India and owned and controlled by NRIs and/or OCIs, is permitted to invest in immovable property situated in India on a non-repatriation basis. Non-repatriation basis, here, would mean that only interest, dividend, current income can be remitted outside India. For remitting sale proceeds of immovable property, repatriation can only be made under USD 1 million scheme and needs to be credited to NRO account only. Also, since investment is allowed on a non-repatriation basis, no pricing norms are required to be followed.
The term ‘owned and controlled’ has not been defined in this context. However, reference can be made from regulation 14 where it is stated that at-least 50%, beneficial ownership by NRIs/ PIO and right to appoint majority of directors / partners/ designated partners lies with NRIs/ OCIs.
Company, trust, Partnership firm as stated above are not allowed to invest in Nidhi Company, agricultural / plantation activity or real estate business / construction of farm houses / dealing in TDRs. Further mode of investment in such legal entity is allowed to be through inward remittance / NRE / FCNR (B) / NRO Accounts in India.
FDI in LLP is allowed only if sector in which LLP caters to, is allowed foreign investment up to 100% under automatic route and there are no FDI linked performance conditions. Since Construction / development of real estate activities are not allowed under automatic route, foreign investment in LLP engaged in construction / development of real estate is also not allowed.
Acquisition of immovable property by person resident outside India:
Acquisition or transfer of immovable property outside India, involving foreign exchange is considered as a capital account transaction and is governed under section 6(3)(h) of the FEMA read with Notifications[1].
Acquisition of immovable property by an individual, being resident in India can be carried out through,
- Out of funds held in RFC account / Funds held abroad acquired as a NR – without any ceiling;
- Jointly with a Non-resident relative provided there is no outflow of funds from India;
- Under Liberalised Remittance Scheme (LRS) – Investment within limit of US $ 250,000 during a financial year;
- Members of a family can pool their remittances – the property should be in joint names of remitters
- By way of gift / inheritance, from a person resident outside India who is relative of such person, viz. Spouse, Brother, Sister, Lineal Ascendant or Descendant.
- Immovable property can be retained by such person if acquired while he / she was resident of country outside India.
In case, resident Indian is a foreign national, there is no restriction on such person to acquire immovable property outside India.
As acquisition of immovable property is considered a lucrative investment opportunity, same is regulated under FEMA law in order to maintain cost fluctuations. Depending upon residential status and citizenship status of an individual investment into immovable property can be carried out in India or outside India.
For more detailed discussion on the above subject, please do not hesitate to connect at contact@devadhaantu.in
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[1] Notifications No. 7(R ): Transfer of immovable property outside India, other than a lease not exceeding 5 years, by a resident in India dated December 29, 2015 and Notification No. 120: Transfer or issue of any foreign security by a person resident in India, dated April 7, 2004.
