BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Acquisition and Transfer of Immovable Property in India by NRIs and FEMA

1. NRIs Can Hold, Own Or Transfer Immovable Property In India Without Any Condition

Under Section 6(5) of FEMA, a person resident outside India can hold, own or transfer immovable property in India if such property is acquired by him when he was a resident in India or inherited from a person resident in India. Thus, this provision facilitates the ownership and transfer of immovable property in India by former residents and there is no impediment to their continuing to hold such property or transfer such property even when they become NRI. However, an NRI should be very cautious in dealing with reputed builders or agents only. If there is a proposal for joint investment, he should make sure that the money reaches the right person only. He should also ascertain the exact contribution and the extent of ownership in joint investments.

2. Acquisition And Transfer Of Immovable Property By An NRI

In terms of Regulation No.3 of the aforesaid Regulations, an Indian citizen resident outside India is permitted to —

acquire any immovable property in India other than agricultural/plantation property or a farm house;
transfer any property in India to a person resident in India;
transfer any property other than agricultural or plantation property or a farm house to an Indian citizen or a person of Indian origin as defined in Regulation 2(c), resident outside India.

NRIs who are Indian citizens enjoy great privileges in the matter of acquisition and transfer of an immovable property in India as mentioned above. This privilege is not enjoyed by a Non-resident person of Indian origin, namely, a Non-resident who is not a citizen of India.

3. Acquisition And Transfer Of An Immovable Property By A Person Of Indian Origin

Regulation No.4 of the aforesaid Regulations permits a person of Indian origin to:

acquire immovable property other than agricultural land/plantation property or a farm house by way of purchase subject to the conditions regarding RBI rules mentioned in clause (a) of the Regulation;
acquire any immovable property other than agricultural land/plantation property/farm house by way of gift from an Indian citizen resident outside India or from a PIO;
acquire property by inheritance subject to the conditions stipulated in clause (c) of the Regulation;
transfer by way of sale any ‘immovable property other than agricultural/plantation property or a farm house by way of sale to a person resident in India;
transfer agricultural land/farm house or plantation property way of gift or sale to an Indian citizen resident in India.
transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

4. Acquisition Of Immovable Property For Permitted Activity

A person resident outside India who has established in India in accordance with the Foreign Exchange Management (Establishment in India of a Branch or Office or Other Place of Business) Regulations, 2000, a branch office or other place of business for carrying on in India any activity, excluding a liaison office has been permitted to acquire immovable property in India which is necessary for or incidental to the activity carried on in India by such branch or office subject to the terms and conditions mentioned in Regulation No.5, reproduced in topic 8 below. Such property can also be mortgaged to an authorised dealer as a security for any borrowing by a branch or office. However, a declaration in Form No.IPI has to be filed in duplicate and submitted directly to the Chief General Manager, Exchange Control Department, (Foreign Investment Division-lI), Reserve Bank of India, Central Office, Bombay-40000 I within 90 days from the date of acquisition of the said immovable property.

5. Repatriation of Sale Proceeds

Authorised dealers have been permitted to allow remittance of sales proceeds of property other than agricultural/plantation property or a farm house to an Indian citizen resident outside India or a PlO as defined in clause (c) of Regulation No.2, who has sold the property in India subject to terms and conditions stipulated in Regulation No.6. The important condition in this regard is that the sale should take place after three years from the date of acquisition of such immovable property or from the date of the payment of final instalment of consideration for its acquisition, whichever is later. In the case of residential property, repatriation of sale proceeds is restricted to not more than two such properties. Another condition about the repatriation of the amount is that such amount should not exceed

the amount paid for the acquisition of the immovable property in foreign exchange received through normal banking channels, or out of fund held in Foreign Currency Non-resident Account, or
the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in Non-resident External Account for acquisition of the property.

All NRIs would be happy to note that repatriation is possible in respect of refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat / plot / cancellation of bookings / deals for purchase of residential / commercial property, together with interest, if any (net of income tax payable thereon), provided the original payment was made out of NRE / FCNR account of the account-holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transaction.
While dealing with the aspects of acquisition of immovable property in India other than an agricultural property, plantation or a farm-house the payment of purchase price, if any, shall be made out of

funds received in India through normal banking channels by way of inward remittance from any place outside India or
funds held in any nonresident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank. It is also provided that no payment of purchase price for acquisition of immovable property shall be made either by traveler’s cheque or by foreign currency notes or by other mode other than those specifically permitted by the RBI.

The Non-Resident Indians would be happy to note that they are allowed to repatriate an amount up to US$ one million, per financial year (April-March), out of the balances held in the NRO account subject to tax compliance. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.

Sometimes a question also arises as to whether any documents need to be filed with the Reserve Bank of India after purchase of immovable property in India. Well, to this common question the Government has clarified through FAQ’s that an NRI / IPO who has purchased residential / commercial property under general permission is not required to file any documents with the Reserve Bank of India.

A common question which is asked again and again by Non-Resident Indians relates to the number of residential / commercial properties which they can purchase under the general permission. Well, to this question the Government through its FAQs has clearly stated that there is no restriction on the number of residential / commercial properties that can be purchased by an NRI. This is a happy news which would inspire the RNIs to invest more and more in the real estate sector in India.
NRI can also save on Capital gains specially if the property is sold after three years.

Prohibition On Acquisition Or Transfer Of Immovable Property In India By Citizens Of Certain Countries

A person who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan requires approval of Reserve Bank for acquisition of transfer of property in India other than lease not exceeding 5 years, in terms of Regulation No.7.

6. Latest Amendments Regarding Acquisition Of Immovable Properties

Vide Circular No. 43 dated 8-12-2003 the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000 has been amended. The summary with regard to the provisions relating to liberalisation of acquisition and transfer of immovable property by foreign companies and persons resident outside India is as under:—

FOREIGN INVESTMENTS TN INDIA — A SUMMARY OF UPDATED INSTRUCTIONS REGARDING ACQUISITION OF IMMOVABLE PROPERTY

1. Acquisition and Transfer of Immovable Property in India

Acquisition by a person resident outside India - A person resident outside India who is a citizen of India can acquire any immovable property in India other than agricultural/plantation/farm house.
Acquisition by way of transfer - A person resident outside India may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin (PIO) resident outside India or a person resident in India. He may however transfer agricultural land/plantation property/farm house in India other than agricultural permanently residing in India. A PIO can transfer any immovable property in India other than agricultural land/farm house/plantation property by way of sale to a person resident in India and agricultural land/plantation/farm house by way of gift or sale to only an Indian citizen permanently residing in India. He may also transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.
Acquisition by way of Gift - - A PIO resident outside India can acquire any immovable property other than agricultural land/farm house! plantation property in India by purchase or by way of gift and any immovable property by way of inheritance. For acquiring the property, the funds should come from abroad or by debit to any nonresident account, viz., NRE/FCNRINRO account of the investor. The gift can be received from a person resident in India or from a person resident outside India who is a citizen of India or from a PIO resident outside India.
Acquisition by way of inheritance - The immovable property can be acquired by PIO by way of inheritance from a person resident in India or a person resident outside India provided he has in turn acquired such property in accordance with Foreign Exchange Law/Regulations in force at the time of acquisition.

Purchase/Sale of Immovable Property by Foreign Embassies/Diplomats/Consulate Generals
2. Foreign Embassy/Diplomat/Consulate General has been allowed to purchase/sell immovable property in India other than agricultural land/plantation property/farm house provided (i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase/sale, and (ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channel.

Acquisition of Immovable Property for carrying on a permitted activity

3. A person resident outside India who has a branch, office or other place of business (excluding a liaison office) for carrying on his business activity with requisite approvals in India may acquire an immovable property in India which is necessary for or incidental to carrying on such activity provided that all applicable laws, rules, regulations or directions for the time being in force are duly complied with. The entity/concerned person would have to file a declaration in form IPI with the Reserve Bank, within ninety days from the date of such acquisition. The non-resident is eligible to transfer by way of mortgage the said immovable property to an Authorised Dealer as a security for any borrowing.

Repatriation of sale proceeds

4. In the event of sale of immovable property other than agricultural land/farm house/plantation property in India, Authorised Dealer may allow repatriation of sale proceeds outside India provided;

The immovable property was acquired by the seller in accordance with the provisions of he Foreign Exchange Law in force at the time of acquisition by him or the provisions of FEMA Regulations;
The amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency 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 Non-Resident External Account for acquisition of the property.
In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Authorised Dealers may allow to NRIs/PIOs the facility of repatriation of funds out of balances held in their Non-resident Rupee (NRO) Accounts upto USD one million per calendar year, including sale proceeds of immovable property, subject to production of an undertaking by the remitter and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes (CBDT) (enclosed to A.P. (DIR Series) Circular No. 56 dated November 26, 2002).

Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries
5. No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan shall acquire or transfer immovable property in India, other than on lease, not exceeding five years, without prior permission of the Reserve Bank.

Amendment of the Regulations (Vide Notification No. FEMA. 93/2003-RB dated June 9, 2003)
In the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000, after Regulation 5, the following Regulation shall be inserted namely:
“5A. Purchase/sale of Immovable Property by Foreign Embassies/Diplomats/Consulate Generals
A Foreign Embassy/Diplomat/Consulate General may purchase/sell immovable property in India other than agricultural land/plantation property/farm house provided (i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase/sale, and (ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channel”.

These have been amended by RB! Master Circular No. 5/2005-06 dt. 1.7.2005. A PlO may transfer agricultural land / plantation property/ farmhouse in India by way of sale or gift to person resident in India who is a citizen of India.