Property is a first choice for NRIs when they consider investing back in India, given the fact that real estate as an asset class has given handsome returns. Also, given that NRIs have a soft corner towards their family back in India, they plan to come back to India in future and hence, own home is a priority item for many. However, rules for buying a property by non-residents require them to comply with the Foreign Exchange Management Act (FEMA) and regulations & let us today decode the same.
Rules and regulations for acquiring property in India
The rules for acquiring property in India are governed by the Foreign Exchange Management Act (FEMA) and its associated regulations and master circulars. I have classified the rules according to the residential and citizenship status for better and easier understanding below as well in a table:
A. Non- Resident Indian (NRI)
Purchase: Allowed, other than agricultural land/ plantation property / farm house.
Transfer: Allowed, but cannot transfer to a foreign non-Indian national.
How to fund the property purchase:
NRIs can make payment out of funds received in India through normal banking channels by way of inward remittance from any place outside India or by debit to his NRE / FCNR (B) / NRO account.
Whether NRI has to inform RBI? No.
B. Person of Indian Origin (PIO)
Purchase: Yes, except agricultural land/ plantation property / farm house.
Acquisition via Gift: Yes, but it should not be agricultural land/ plantation property / farm house.
Acquisition via Inheritance:
Yes, provided the seller had followed the foreign exchange laws at the time of purchasing the property. Here, there is no restriction on agricultural land/ plantation property / farm house.
Transfer via gift/sale: Yes, other than agricultural/plantation/farm house. As regards agricultural property, it can be transferred only to a resident Indian.
C. Foreign National of Non-Indian Origin
- Resident outside India: Purchase of property in India isnot permitted unless it is acquired via inheritance from a person resident in India. Purchase or transfer is allowed on lease, not exceeding five years as follows:
- Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong: RBI permission is required.
- Other countries: No permission needed.
- Resident in India:
Citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong: Not allowed.
Citizens of other countries: Allowed, provided person has become a resident in India as per FEMA and visa indicates the intention to stay in India for an uncertain period.
Note: Foreign nationals of non-Indian origin who have acquired immovable property in India with the specific approval of the Reserve Bank cannot transfer such property without the prior permission of the Reserve Bank.
Repatriation of sale proceeds of immovable property
Repatriation of the sale proceeds outside India by NRI/PIO is subject to following conditions:
- In case property was acquired by foreign exchange/ other than inheritance or legacy:
- The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;
- Repatriated amount should not exceed a) amount paid for acquisition in foreign exchange through normal banking channels, or funds held in Foreign Currency Non-Resident (FCNR) Account , or foreign currency equivalent (as on the date of payment) of amount paid from the Non-Resident External (NRE) account
- In case of residential property, the repatriation is restricted to maximum two such properties.
- In case property was acquired by way of inheritance/ legacy/ Rupee funds:
- Maximum limit of remittance is US $ 1,000,000 (US Dollar One million only) per financial year out of the balances held in NRO accounts / sale proceeds of assets by way of purchase / the assets in India acquired by him by way of inheritance / legacy / out of Rupee funds, subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter, and payment of applicable taxes in India. Remittances exceeding this limit will require prior permission of the RBI.
- Where the remittance as above is made in more than one instalment, the remittance of all such instalments shall be made through the same Authorised Dealer.
- In cases of property transferred by deed of settlement, the original deed of settlement should be produced for the remittance.
Points NRIs should keep in mind while buying/selling property
- Stay away from proposals/brokers asking you to invest in agricultural property. While buying property, make sure it is not an agricultural property. When in doubt, consult a tax advisor.
- Do not overexpose yourself to real estate in the portfolio. Apart from the biggest limitation of real estate of being an illiquid asset and market for reverse mortgage at a very nascent stage in India, there are restrictions on repatriation for residential properties (as explained above, funds for not more than 2 residential properties can be repatriated). So, if you don’t have plans to return to India, it does not make sense to invest in too many properties back in India, in view of repatriation constraints.
Other points to consider (will be taken up as separate posts on this blog):
- NRI/PIO selling property in India should also be mindful of the tax laws of their country of residence and in case of double taxation, should opt for a relief under DTAA wherever possible.
- As per Section 194IA of Income Tax Act, seller of property is required to deduct 1% of sale value as TDS and deposit in government account.
- NRI buying or selling property in India should apply for a PAN as it is required during registration and tax payments.
- In case NRI is not able to come to India, he can give a power of attorney to a resident of India to complete the sale or purchase on his behalf.
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