Dated 1st September, 2020
The Foreign Exchange Management Act, 1999 (FEMA) has empowered the Reserve Bank of India to frame regulations in accordance with section 6, Clause 3, which provides for both, (h) for the transfer of immovable property outside India, by a person resident in India and (i) acquisition or transfer of immovable property in India, by a person resident outside India. The Notification issued by FEMA issue the regulations governing acquisition and transfer of immovable property in India at regular intervals.
The FEMA was enacted having regard to the ongoing process of economic liberalization relating to foreign investments and foreign trade and taking into account the certain developments that had taken place since 1993 under the policy of the Government in respect of foreign trade, rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, etc., which considerably reduced the rigor contained in the earlier Act in respect of holding of immovable property by a foreign national.
Section 6 of the FEMA is the relevant provision. The term capital account transaction is incorporated in the marginal heading of the Section 6 which refers to a transaction altering the assets or liabilities, the term liability where is inclusive of contingent liabilities of an individual in India of residing outside India.
Who is an NRI?
Foreign Exchange Management Act 1999, defines NRI as an Indian citizen who resides in India for less than 182 days during the preceding financial year and stays abroad for the purpose of employment or carrying business or vacation outside India.
The definition contemplates three different situations that (i) he should be employed outside India; (ii) or he could be carrying on business outside India or (iii) he settle outside India for any other purpose. The requirement would, therefore, be that an employment or vocation or any other situation has allowed for the person to be outside India. Further, “a person resident in India” under Section 2(v)B is a moot point to be decided in the suit. Above all, as already stated, the property in dispute is acquired and stands in the name of the Indian citizen.
How can a NRI undertake acquisition of property?
- Acquisition by purchase of Immovable Property in India:
- Acquisition of immovable property for carrying on a permitted activity
- Acquisition of immovable property by inheritance
- Acquisition by way of Gift
- Acquisition of immovable Property by Foreign Embassies/ Diplomats/ Consulate Generals
- Acquisition by purchase of Immovable Property in India
Which kind of Immovable property cannot be purchased by NRI?
A NRI is not granted general permission to acquire agricultural land, plantation property, farm house in India, what this essentially means is that if a non residential Indian wants to purchase agricultural land, plantation of farmhouse he shall require specific approval of Reserve Bank and which after due consultation with the Government of India grants such approval, and grant of such approval is mandatory to make the purchase lawful.
Which kinds of property are the NRI allowed to acquire through purchase?
Other than the above mentioned immovable property they NRI have the freedom to purchase any other property including the non agricultural land for residential use, flats or commercial spaces like office premises under general permission and are not required to file any documents with the Reserve Bank.
Even the payment for the same could is facilitated through a number of channels:
- Normal available banking channels
- Foreign Currency Non-resident account(FCNR)
- Non-resident Indian accounts(NRI)
- Non- resident rupee account(NRE)
- Non-resident ordinary rupee account(NRO)
- Acquisition of commercial spaces for carrying on a permitted activity
A Non-Resident Indian who has established a Branch, Office or other place of business, for carrying on any activity in India in accordance with the FEMA (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000 is permitted to acquire any immovable property in India which is necessary and incidental to carrying on such activity, provided that all applicable laws, rules, regulations for the time being in force are duly complied with.
What kind of immovable property can be acquired?
There is no bar as to the kind of Immovable property that is to be purchased provided it is incidental to conducting the business activity. On winding up of the business however, the sale proceeds of such property can be repatriated only with the prior approval of Reserve Bank.
There are legal prerequisites for opening branch or liaison office including application before the Reserve Bank and allotment of Unique Identification Number, for grant of approval letter. But once the permission is obtained the acquisition can be carried out without any hindrance. The person, not later than ninety days from the date of such acquisition, files with the Reserve Bank a declaration containing the name, address and details of the acquirer, description and details of company and business, date of Reserve Bank’s permission to complete the Process.
- Acquisition of immovable property by inheritance
What kind of immovable property can one inherit?
There is no bar or prohibition instituted to prevent an NRI from either inheriting or bequeathing his property in India. NRIs can certainly bequeath property to their legal heir/s. An NRI can inherit any immovable property in India, even if it is agricultural land or a farmhouse which they are otherwise not entitled to purchase from another NRI or resident of India.
A person resident outside India may hold, own, transfer or invest in Indian immovable property situated in India if such property was in his ownership and possession resident in India or was inherited from a person who was resident in India. In the case of a property that was inherited from an Indian resident, evidence related to inheritance should be provided.
Check on sale of property inherited
The repatriation of sale proceeds of such property outside India is in general is regulated by the provisions of the foreign exchange laws or regulations in force; unless a prior permission of the Reserve Bank is obtained (repatriation up to 1 million USD is however allowed).
- Acquisition by way of Gift
In absence of any expressed provision guiding the same, the NRI is presumed capable to acquire any immovable property in India transferred from a person resident outside India as well as by a person resident in India.
However, unlike inheritance while gifting an immovable property an individual residing in India similar to the case of Purchase of land is prohibited from gifting agricultural land, plantation property, farm house to non residents and the same would require the permission of RBI..
- Acquisition of immovable Property by Foreign Embassies/ Diplomats/ Consulate Generals
What kind of property cannot be acquired?
The Foreign Embassy, Diplomat, Consulate General not granted general permission to acquire agricultural land, plantation property, farm house in India.
In terms of Regulation 5A of the FEMA (Acquisition and Transfer of Immovable Property in India) Regulations 2000, Foreign Embassy, Diplomat, Consulate General, may purchase immovable property in India provided but the same requires–
- Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and
- The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.
NRIs have the facility to avail Home Loan against property in India from banks/lenders overseas with prior approval from RBI, since it is beneficial for NRIs to avail of Home Loan from the country of residence where the rate of interest is quite low and mortgage the property in India to bank/lender overseas in lieu of the same.
In case the deal does not go through because of any reason, the amount paid to the seller can be refunded in the same account from which the payment was made i.e. NRO/NRE/FCNR(B) Account.
If the payment is made from inward remittance, then the refunded amount in such case is credited to the NRE Account.
“Article by Ms Damini Srestha under internship of Adv Shankarlal Raheja
The Views herein are personal and while careful attention has been given to ensure that the information is accurate and assume no liability or responsibility for any reliance thereon. This article is merely information and knowledge sharing activity and is not a substitute to legal advice. We shall not be liable for any loss or damage caused due to any reliance thereof”.