NRI Dealing with Immovable Property by FEMA

Acquisition and transfer of immovable property by the non- resident in India and Indian residents outside India are regulated by the Foreign Exchange Management Act, 1999 (FEMA) read with Notifications released on January 31, 2016, and Notifications released on March 26, 2018, respectively. These regulations are amended from time to time through the published notifications. 

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It also noted that Reserve Bank is authorized to issue directions to Authorised Persons whenever necessary through A.P circulars in regard to change in any regulations or the manner the relative transactions to be conducted with their customers and constituents. The Master Direction shall be amended simultaneously.

The Foreign Exchange Management Act, 1999 authorized the RBI  to frame rules and regulations to prohibit, restrict, or regulate the acquisition and transfer of immovable properties in India by a person resident outside India. The regulations for acquisition and transfer of immovable property are specified in FEMA, 1999, or Notification dated March 26, 2018, as amended from time to time. In addition to this, it has to be noted that these restrictions do not apply to the acquisition and transfer of immovable property in India by a person resident outside India on a lease exceeding 5 years.

Definitions:-

1.Non-resident Indian- It is a person who is a resident outside India but is a citizen of India.

2. An overseas citizen of India– it is a resident outside India who registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

3. Repatriation outside India- this means buying and drawing of foreign exchange from an authorized dealer in India and taken it outside India through normal banking channels or crediting it to an account having foreign currency or to an account in Indian currency maintained with an authorized dealer from which it can be converted in foreign currency.

4. Transfer- it includes purchase, sale, mortgage, exchange, pledge, gift or loan, or any other form of transfer of right, title, possession, or lien.

5. Relative- it has the same meaning as mentioned in Section 2(77) of the Companies Act, 2013.

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Acquisition of property by NRI

An NRI or an OCI can acquire immovable property in India other than agricultural land, plantation property, and farmhouse in India. There is a prohibition for the acquisition of this type of property as this prevents takeover of agricultural lands by NRI and OCI which results in a reservation of land for farmers so that they can earn their livelihood and improve their standard of living.

An NRI or an OCI can acquire any immovable property by way of gift other than plantation land, farmhouse property, or agricultural land in India, from a person resident in India or from an NRI or an OCI. As per the FEMA perspective, the definition of a relative in the Income Tax Act,1961 must also be noted.

An NRI or an OCI can acquire the immovable property in India from a person resident outside India through inheritance subject to the condition that the giver of the immovable property acquired the inheritance property as per the Foreign Exchange Regulations for the time being in force.

An NRI or an OCI can acquire the property in India through inheritance from the person resident in India. However, he can acquire the plantation property, farmhouse property, agricultural land through inheritance only but he can not repatriate the income proceeds from the sale of the property in inheritance outside India. Provided that, an NRI or a PIO can remit outside India not exceeding US $1,000,000 per year out of the balances NRO accounts/ sale proceeds by way of purchase/ the assets acquired by him by way of inheritance in India/ legacy/ rupee funds.

Payment of acquisition of Immovable property:-

NRIs and OCIs can make a payment, if any, for transfer of immovable property out of funds received in India through normal banking channels by way of transfer of amount remittance from any place outside India or debit of NRE / FCNR/ NRO account.

Such payment can not be made either through traveler cheques or by foreign currency notes or by any other mode specified.

Joint acquisition by the spouse:-

A person resident outside India, not being a non- resident Indian or an Overseas Citizen of India, who is a spouse of a Non- resident Indian or an Overseas Citizen Of India may acquire one immovable property other than plantation property, agricultural land or farmhouse property, jointly with his or her NRI or OCI spouse.

Consideration for transfers under this section can be made out of the funds received in India through the normal banking channels by way of inward remittance from any place outside India or by the debit of non- resident account of the person concerned maintained in accordance with the Act or the rules framed thereunder. Payments cannot be made either through traveler cheques or by foreign currency notes or any other mode which are specified therein.

Provided that, that the marriage should have been registered and subsisted for a continuous period of not less than 2 years immediately preceding the acquisition of such property. The non- resident spouse must not be prohibited from the acquisition of the immovable property in India.

Permitted activity on the immovable property:-

A branch or office or any other type of office in India, other than a liaison office, established by a person resident outside India or an NRI  may acquire immovable property in India which is necessary for or incidental to the activity carried in India by branch or office.

Such a person is required to file with the Reserve Bank of India a declaration in the form IPI, not later than 90 days from the date of acquisition. In addition to this, the immovable property so acquired can be mortgaged with the Authorised Dealer as a security of a borrowing.

Provided that, acquisition of immovable property in India by the branch, office, or the place of persons of business of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Honk Kong, Macau, Bhutan or Nepal requires the approval of Reserve Bank of India.

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Repatriation of sale proceeds of Immovable Property:-

A person acquiring property or his successor can not repatriate outside India the sale proceeds outside India the sale proceeds of such immovable property without prior permission of the Reserve Bank of India. However, if such person is NRI or a PIO wants to use remittance facilities to make payments in India, he/ she can utilize the remittance facilities available under the Foreign Exchange Management (Remittance of Assets) Rules, 2016, as amended time to time.

In the event of sale of immovable property other than agricultural land, plantation property or farmhouse property in India by an NRI resident outside India, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provide the following condition must be satisfied:-

1. The immovable property acquired by the seller was in accordance with the provisions of Foreign Exchange Law for the time being in force at the time of acquisition.

2. The amount for acquisition of the immovable property was paid in foreign exchange received through normal banking channels or out of the funds held in the FCNR account or NRE account.  

3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

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