If nri can buy propertyt in india

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  • 1. TTHHEE LLEEGGIISSLLAATTIIVVEE FFRRAAMMEEWWOORRKK:: The Foreign Exchange Management Act, 1999 (FEMA), which came into force with effct from June 1, 2000, regulates the acquisition and transfer of immovable properties by non-residents in India. Section 6(3)(i) of the FEMA, the acquisition and transfer of immovable prop- erty by non-residents in India are Capital Account Transactions.TheReserveBankofIndia(RBI)isempow- ered under FEMA to frame Regulations to prohibit, restrict or regulate the acquisition or transfer of immov- able property in India by a person resident outside India. RegulationsofimmovablepropertyinIndiaareprimar- ilybasedontheresidentialstatusofapersonunderFEMA. However, under its predecessor law-the FERA, the con- trols was mainly based on the citizenship. Despite the fun- damentalchangeinthebasisoftheregulations,FEMAtries to regulate such control based on the citizenship also. However, the restrictions u/s 6(3)(i) are not applica- ble to a lease of immovable property for a period not exceeding five years. RBI has framed the Regulations called The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 which have been notified vide Notification No. FEMA 21/2000-RB dated 3rd May, 2000 (“the Regulations”). ◆ Under the predecessor law of FEMA, the FERA, the control of buying and selling of property was mainly based on the citizenship of the individual. However, under FEMA the restrictions involving the acquisition and transfer of immovable property in India are no more linked to citizenship of the person but is now generally governed by the Residential status of a person. This remarkable departure in the policy is explained in the article below. << EE XX EE CC UU TT II VV EE SS UU MM MM AA RR YY >> THE CHARTERED ACCOUNTANT OCTOBER 2003 430 Can NRIs buy and sell immovable prop- erty in India under FEMA?-An overview V.S. Vadivel* LLAAWW Sl.No. Regulations Matters Governed 1. Reg.3 1. It deals with acquisition and transfer of immovable property in India by an Indian cit- izen resident outside India(NRI) 2. It grants general permission to him to acquire and transfer an immovable property in India other than agricultural or plantation property or a farm house. 2. Reg.4 1. It deals with acquisition and transfer of immovable property in India by a Person of Indian Origin (PIO) 2. Itgrantsgeneralpermissiontohimtoacquireandtransfer(incertainsituations)animmov- ablepropertyinIndiaotherthanagriculturalorplantationpropertyorafarmhouse. RBI Regulations At a Glance: *The author is a member of the Institute. The views expressed herein are the personal views of the author and do not necessarily represent the views of the Institute.
  • 2. Thus the Reserve Bank of India has given only three ‘GeneralPermissions’(videregulations3,4and5)incon- nection with immovable property in India to the follow- ing categories of Non Residents: i. a non-resident who is a citizen of India. ii. anon-residentwhoisaPersonofIndianOrigin.(PIO) iii. a non-resident who has established in India a branch officeorotherplaceofbusiness(excludingaliaison) office. Inallothercases,priorpermissionoftheRBIisrequired. AACCQQUUIISSIITTIIOONN OOFF PPRROOPPEERRTTYY BBYY AANN IINNDDIIAANN CCIITTIIZZEENN RREESSIIDDIINNGG OOUUTTSSIIDDEE IINNDDIIAA:: 1. No special permission is required for an Indian citi- zen residing outside India to acquire (by purchase or gift) any immovable property in India other than agriculturalland,plantationpropertyorafarmhouse (Reg. 3(a)). 2. However, the restriction on acquiring agricultural land, plantation or farmhouses is applicable to all nonresidents. The restriction on ‘agricultural prop- erties’ continues from the time of FERA. The RBI does not approve such collectively. 3. Under the old FERA, a declaration had to be filed giving details of the property. Now this process has been dispensed with. However the Bank should be informed about full details of the property and costs incurred. This can, in a way, help at the time of repa- triation of sale proceeds of the property. 4. Itisnotablethatonlynon-residentswhoareIndiancit- izens, or who are of Indian origin (referred to as NRI) havebeenpermittedtoinvestinimmovableproperties inIndia.Inotherwords,foreignersarebyandlargenot allowed to buy immovable properties in India. 5. Further, the non-residents who are Indian citizens or persons of Indian origin can also acquire any property (including agricultural properties, etc.) by way of inheritance. This is because to bequeath a property is a natural right. It cannot be “given” by a law. As a corollary, the heir can acquire a property as inheritance. However once having acquired the property, restrictions on use or holding can be imposed under the law. Thus, even if agricultural property etc. is inherited, the agricultural activities cannot be conducted. A person may have natural plants, trees etc. on the land. However, he cannot grow the same with the intention of earning income. TTRRAANNSSFFEERR OOFF PPRROOPPEERRTTYY BBYY AANN IINNDDIIAANN CCIITTIIZZEENN RREESSIIDDIINNGG OOUUTTSSIIDDEE IINNDDIIAA:: 1. For an Indian citizen residing outside India, there is no permission required to transfer (whether by sale or gift) immovable property in India. 2. However,incaseofagriculturalproperties,etc.,thesame canbesoldonlyiftheacquirerisanIndianresident. 3. If the proposed acquirer is a non-resident (whether THE CHARTERED ACCOUNTANT OCTOBER 2003431 LLAAWW 3. Reg 5 It grants general permission to a person resident outside India who has secured RBI per- mission to establish a branch, office or other place of business in India (excluding a liai- son office) to acquire an immovable property in India which is necessry for or incidental to carrying on the permitted activity. 4. Reg 6 It deals with the repatriation of the sale proceeds by an NRI or a PIO, of an immovable property (other than agricultural land or plantation property or a farm house) in India subject to the satisfaction of certain stipulated conditions. 5. Reg.7 It prohibits the acquistion or transfer of immovable property in India by citizens of cer- tain neighbouring countries, whether such individual is a resident of India or not. 6. Reg.8 It prohibits the transfer of an immovable property in India by a person resident outside India (other than an NRI or a PIO); i.e., a foreigner, without prior permission of RBI.
  • 3. Indian citizen or a person of India Origin), the prop- erty can not be sold. This is a corollary to the restric- tion on acquiring the agricultural land, etc. (Though not specified no property- whether agricultural or otherwise- can be sold to outright foreigners (nonONR) as they are not allowed to buy property in India (Reg. 3(b) and 3(c)). AACCQQUUIISSIITTIIOONN OOFF PPRROOPPEERRTTYY BBYY AA PPIIOO:: 1. A person of Indian origin resident outside India does not require any permission from the RBI to acquire any immovable property. 2. However he cannot acquire the agricultural land or plantation property or a farmhouse in India. 3. It is however necessary that the purchase should be from out of the following funds: a funds received in India by way of inward remit- tance through banking channels from any place outside India, or b. funds held in any Non Resident Account main- tainedinaccordancewiththeprovisionsofFEMA and the regulations made by the RBI (Reg. 4(a)). 4. A PIO resident outside India does not require any permission from The RBI to acquire any property in India other than the agricultural land or plantation property or a farm house by way of gift. a. from a person resident in India, or b. from a person resident outside India who is a cit- izen of India, or c. from a person of Indian Origin resident outside India. (Reg. 4(b)). 5. Further, a PIO resident outside India does not require any permission from the RBI to acquire any immovable property in India by way of inheritance. a. from a person resident outside India who had acquired such property in accordance with the provisions of the Foreign Exchange Law in force atthetimeofacquisitionbyhimortheprovisions of these Regulations or b. from a person resident in India (Reg. 4(c)). 6. Thus,aPIOcaneveninheritagriculturallandorafarm- house or a plantation property, which he cannot nor- mallyacquirebywayofpurchaseoragift.However,no incomecanbeearnedonagriculturalproperties. TTRRAANNSSFFEERR OOFF PPRROOPPEERRTTYY BBYY AA PPIIOO:: 1. A PIO resident outside India does not require any permission from the RBI to transfer any immovable property other than the agricultural land or planta- tion property or a farm house in India by way of sale to a person resident in India (Reg.4(d)). 2. A PIO resident outside India can transfer an immov- able property being agricultural land or plantation property or a farmhouse in India by way of a gift or sale to a person resident in India. without any per- mission from the RBI. Such a transaction is permit- ted by the Regulation 4(e) provided that the pur- chaser is a resident as well as a citizen of India. 3. However, a PIO cannot transfer an immovable prop- erty being agricultural land or plantation property or a farmhouseinIndiabywayofasaletothefollowingcat- egories of persons without permission from the RBI. i. A person resident in India who is not a citizen of India. ii. A citizen of India who is not a resident in India iii. A person of Indian origin (PIO)-whether resi- dent or not. 4. APIOresidentoutsideIndiacantransferaresidential or commercial property in India by way of a gift. He can also give a gift of such property to specified per- sonsi.e.thosewhoareallowedtoacquiresuchaprop- erty) the persons to whom a gift can be given are:- i. to a person resident in India ii. to a person resident outside India who is a citizen of India iii. to another PIO resident outside Inia. 5. However,agiftcannotbegiventoaNon-NRIwhois not allowed to acquire property (Regulation 4(f)). For this purpose, the term “a 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 i. at any time, held an Indian passport, or ii. who or either whose father or whose grand father wasacitizenofIndiabyvirtueofTheConstitution of India or The Citizenship Act, 1955. In other words, an individual who is presently a citi- zen of a foreign country but who at any time held an Indian passport or who or whose father or grandfather was a citizen of India, is a person of Indian origin. However, individuals who are citizens of Pakistan, Bangladesh, Sri Lanka Afghanistan, China, Iran, Nepal, Bhutan are excluded from the definition of PIO and accordingly, they are not entitled to various concessions, exemptions and benefits which are extended to a PIO under the various FEMA Regulations. THE CHARTERED ACCOUNTANT OCTOBER 2003 432 LLAAWW
  • 4. PPEERRSSOONNSS WWHHOO AARREE AABBSSOOLLUUTTEELLYY PPRROOHHIIBBIITTEEDD FFRROOMMAACCQQUUIIRRIINNGGOORRTTRRAANNSSFFEERRRRIINNGGAANNIIMMMMOOVVAABBLLEE PPRROOPPEERRTTYYIINNIINNDDIIAAWWIITTHHOOUUTTPPRRIIOORRPPEERRMMIISSSSIIOONNOOFFRRBBII:: 1. All persons, whether resident in India or outside India, who are citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan are prohibited from acquiring or transferring immovable property in India (other than by way of a lease, not exceeding five years) without the prior permission of The Reserve Bank of India. Under Reg.7.,theyrequirepriorpermissionofTheReserve Bank of India for acquiring or transferring any immovable property in India. 2. The aforesaid regulation is based on whether a per- son is a resident or a non-resident. If say a person, who is a citizen of China, comes and takes up employmentinIndia,hebecomesanIndianresident under FEMA. As a resident there are no restrictions on acquiring immovable property in India. 3. In fact, such a person who has come to India and taken up employment here can legally acquire agri- cultural land, farmhouse, etc. Therefore, Regulation 7, which prohibits citizens of certain countries to acquire immovable property, is ultra vires the Act. However, it is not the intention of the legislature to allow the foreign citizens resident in India, to acquire property in India. AACCQQUUIISSIITTIIOONN OOFF IIMMMMOOVVAABBLLEE PPRROOPPEERRTTYY BBYY AA NNOONN--RREESSIIDDEENNTT FFOORR CCAARRRRYYIINNGG OONN AA PPEERRMMIITTTTEEDD AACCTTIIVVIITTYY:: 1. A person resident outside India who has been per- mitted by The RBI to establish a branch or an office or a place of business in India (excluding a Liaison Office), has a general permission of the RBI to acquire any immovable property in India who is nec- essaryfororincidentaltocarryingonsuchanactivity. 2. However, such an acquisition is subject to the due compliance with all other applicable laws, rules, reg- ulations or directions for the time being in force. 3. Further, in all such cases, a Declaration in the pre- scribed Form IPI is required to be filed with The RBI within 90 days of the acquisition of the immov- able property (Reg.5(a)). 4. The form IPI is a simple form which requires very simple and general information such as name and address of the acquirer, description and full details of the location, of the property, purpose of acquisition, nameandaddressoftheseller/lessor,dateandcostof acquisitionanddetailsaboutthesourcesoffundsetc. 5. Further such a person is also permitted to mortgage such an immovable property to an authorized dealer as a security for any borrowing (Reg 5(b)). 6. However, such a person requires the prior permis- sion of The RBI to transfer such a property by way of a sale or otherwise. Repatriation of the Sale Proceeds 1. In the case of the sale of an immovable property, other than an agricultural land/farm house/ planta- tion property in India by a person resident outside India, who is a citizen of India, or a person of Indian origin, the authorised dealer may allow the repatria- tion of the sale proceeds outside India (including credit to RFC, NRE or FCNR Accounts), provided all the following conditions are satisfied. i. the immovable property was acquired by the seller in accordance with the provisions of the Exchange Control Rules/ Regulations/ Law in force at the time of the acquisition, or the provi- sions of the Regulations framed under the Foreign Exchange Management Act, 1999; ii. the amount to be repatriated does not exceed a. the amount paid for the acquisition of the immovable property in foreign exchange received through normal banking channels or out of the funds held in foreign currency in a non-resident account or b. the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in a non-resident externalaccountforacquisitionoftheproperty;and i. in the case of residential property, the repatria- tion of the sale proceeds is restricted to not more than two such properties. 2. However, the lock-in period of 3 years prescribed in condition No.(ii) of Clause (b) of Regulation 6 has beendeletedbyNotificationno.FEMA65/2002-RB dated29thJune,2002.Accordingly,TheRBIhasalso issued directions to the Authorised Dealers vide AP (DIR series) Circular No. 35 dated 1st November, 2002 to allow the sale proceeds of an immovable property in India acquired by the NRI/PIO irrespec- tive of the period for which the property was held. 3. Further The RBI has also now permitted authorized dealers to allow the facility of repatriation of funds THE CHARTERED ACCOUNTANT OCTOBER 2003433 LLAAWW
  • 5. THE CHARTERED ACCOUNTANT OCTOBER 2003 434 LLAAWW by NRI/PIO in their Non-resident Ordinary Rupee (NRO) Account up to US $ 1,00,000 per year repre- sentingthesaleproceedsoftheimmovableproperty held by them for a period of not less than 10 years subject to payment of the applicable taxes. RREENNTTIINNGG OOUUTT IIMMMMOOVVAABBLLEE PPRROOPPEERRTTYY IINN IINNDDIIAA The NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from The Reserve Bank of India. The rental income being a current account transaction is freely repatriable outside India, subject to the payment of the applicable taxes. AAPPPPLLIICCAABBIILLIITTYY OOFF TTHHEE RREEGGUULLAATTIIOONNSS TTOO NNOONN IINNDDIIVVIIDDUUAALLSS 1. The restrictions under section 6(3) (i) and the RBI Regulations are equally applicable to both individuals and non-individuals. 2. I we see the definition of “Person” given in section 2(u) which covers various classes of non individuals and the definition of “person resident in India” given in section 2(v) and particular reference to clauses (ii) (iii), (iv) thereof, it is clear that the restrictions u/s 6(3)(i) and the Regulations are also applicable to non- individual persons, who are resident outside India. MMAATTTTEERRSS WWHHIICCHH RREEQQUUIIRREE RRBBII’’SS PPRRIIOORR PPEERRMMIISSSSIIOONN:: All transactions involving the acquisition or transfer of immovable property in India by a person residing out- side India (as well as by certain persons who are citizens of certain neighbouring countries) require the prior per- mission of The Reserve Bank of India unless a general permission has been granted for such a transaction in terms of Regulations 3, 4 or 5. Thefollowingcategoriesofpersonsarenowrequiredto obtainthepriorpermissionofTheReserveBankofIndiato Sl.No. Persons who are required to obtain RBIs permision Matters which require RBI’s permission 1. Citizen of India residing Outside India (i.e., NRI) 1. To acquire agricultural or plantation property or a farmhouse in India- Reg.3(a) 2. To transfer agricultural or plantation property or a farm house in India to another NRI or PIO- Reg.3(c) 3. To transfer any immovable property in India to a person resident outsideIndia(otherthantoanotherNRIorPIO)-Reg.3(b)&(c) 2. A person of Indian Origin Resident outside India (PIO) 1. To acquire any immovable property in India (other than agricul- tural or plantation property or a farm house) by way of a purchase from other than foreign exchange funds/Non Resident Accounts. Reg..4(a) 2. To acquire Agricultural or Plantation Property or a Farm House in India by way of purchase or gift (other than by way of inheritance)- Reg. 4(a) & (b) 3. To acquire any immovable property in India (other than the agri- cultural or Plantation property or a farm house) by way of a gift from a foreign national resident outside India (other than another NRI or PIO)- Reg.4(b) 4. To transfer an Agricultural or Plantation property or a Farm House in India by way of a gift or sale to another NRI or PIO (other than a person who is a Citizen of India and Resident of India)- Reg.4(e) 5. To transfer any immovable property in India by way of a sale to a person resident outside India- Reg. 4(d) 6. TotransferanyResidentialorCommercialPropertyinIndiabyway of a Gift to a person Resident outside India (other than another NRI or PIO)- Reg.4(f)
  • 6. THE CHARTERED ACCOUNTANT OCTOBER 2003435 3. A person Resident outside who has been permitted to establish a branch, office or any other place of business in India (excluding a liaison office) To transfer any property in India (other than by way of a mortgage to an Authorised Dealer as a security for any borrowings)- Reg.5(b) 4. A foreign national being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan (Whether resident in India or not ) To acquire or transfer any immovable property in India (other than a lease not exceeding 5 years- Reg.7 5. Any person resident outside India (otherthananNRIoraPIO),i.e.,any foreign national resident outside India TotransferanyimmovablepropertyinIndia Note:Theregulationsdo notgrantanygeneralpermissiontosuchapersontoacquireanimmov- ablepropertyinIndia.Therefore,suchapersonwouldalsorequireThe RBI permission to acquire an immovable property in India)- Reg 8 6. Any non Individual Person (i.e., a company or a firm etc.) resident out- side India To acquire or transfer an immovable property in India (other than a lease not exceeding 5 years.- Reg.6(3)(i) WWHHOOMM TTOO AAPPPPLLYY FFOORR PPEERRMMIISSSSIIOONN 1. All requests for acquisition of agricultural land/plan- tation property/farm houses by any person resident outside India or foreign nationals may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001 (India) 2. However, no application form has been prescribed for this purpose. CCOONNCCLLUUSSIIOONN Thus, unlike the FERA, its successor law- the FEMA has provided for certain considerable relaxations as far as the NRIs and PIOs are concerned. Even though immovable property transactions are considered as Capital Account Transactions, recent Permission by The Reserve Bank of India to repatriate the sale pro- ceeds of an immovable property up to US $ 1,00,000 peryearbyNRI/PIOisawelcomestepinthedirection of the Capital Account Convertibility. Further, the transactions involving the acquisition and transfer of immovable property in India are no more highly restricted under FEMA and these are no more linked to the citizenship of the person seeking to acquire of transfer the immovable property. The Acquisition and Transfer of an immovable property is now generally governed by the residential status of a person. This is another remarkable departure in the policy in this regard under the FEMA Regulations. LLAAWW No. 4216: A CA firm with offices in Delhi, Mumbai- BangaloreandPunerequirearticlesatrespectivelocations. The selected candidates can look forward to intensive training in a wide range of professional work. Mail your resume to 303, Mansarover, 90, Nehru Place, New Delhi- 110019. E-mail: recruit@snbindia.com ◆ ◆ No.4217:APunjabbasedfirmseeksprofessionalworkon Partnership/Assignment/sub-contract/Retainership basis in and around Punjab including the states of Haryana, Himachal Pradesh, Jammu & Kashmir and UT of Chandigarh Mobile 09814323314/09815623314 ◆ ◆ No. 4218: Delhi based firm having experience seeks pro- fessional work on Partnership/Assignment/Sub-con- tract/retainership basis. Ph 23816908/9891438670. ◆ ◆ No. 4219: Noida based FCA (Vol) retired from a PSU is interested in Partnership/Assignment/Sub- Contract/Retainership from CA firm. Please Contact: 9810181157. E-mail: manditri_das@hotmail.com ◆ ◆ The Institute reserves the right to edit advertisements to conform to the ethical requirements of the profession. CC LL AA SS SS II FF II EE DD