Property Acquisition and Transfers in India: A Guide to FEMA Regulations for NRI/OCI and Foreign Nationals

Investing in India’s real estate market holds a strong appeal for Non-Resident. However, navigating the acquisition and transfer of immovable property in India can be a complex endeavour, given the regulatory framework of the Foreign Exchange Management Act (FEMA). FEMA does not define the term ‘immovable property. In general, the term will include all types of immovable property residential, commercial, industrial or agricultural property.

It is essential for individuals falling under the purview of FEMA, such as NRIs, OCIs, and foreign citizens, to exercise caution and adhere to the legal provisions before proceeding with the acquisition of immovable property in India. In this article, I address frequently asked questions (FAQs) regarding the rules and restrictions governing purchase of immovable property in India by Non-residents. These FAQs are divided into two distinct sections:

I. Acquisition and Transfer of Immovable Property by NRI/OCI.

II. Acquisition and Transfer of Immovable Property by Foreign Nationals of Non-Indian Origin.

These sections are designed to address the specific inquiries and concerns that arise when non-residents consider property transactions in India, whether they are Non-Resident Indians/Overseas Citizens of India (NRI/OCI) or foreign nationals of non-Indian origin

I. ACQUISITION AND TRANSFER BY NRI/OCI

1. Which law governs the purchase of immovable property in India by NRI/OCI?

The acquisition and transfer of immovable properties in India by individuals residing outside the country, including NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India), are subject to specific regulations governed by the Foreign Exchange Management (Non-Debt Instrument) Rules 2019.

2. How can a Non-resident Indian (NRI) and an Overseas Citizen of India (OCI) acquire immovable property in India?

There are three modes of acquisition of immovable property

Particulars

From

Purchase (other than agricultural land/ farmhouse/ plantation etc) from

From Resident/ NRI/ OCI

Acquire as gift (other than agricultural land/ farmhouse/ plantation etc) from

From Resident/ NRI/ OCI who is a relative (Relative as defined under Section 2(77) of Companies Act, 2013)

Acquire (any IP) as inheritance from

a. Any person who has acquired it as per the laws in force; b. Resident

Relatives as per Section 2(77) of Companies Act, 2013 – Spouse, Father , Mother, Son, Son’s wife, Daughter, Daughter’s husband, Brother, Sister.

3. Is there any restrictions on number of properties that can be purchased by an NRI or OCI in India?

No, there are no restrictions on the number of residential or commercial properties that can be purchased by NRIs or OCIs in India.

4. What are the accepted modes of payment for property acquired in India?

Payment for purchase of immovable property shall be made out of funds received in India through banking channel by way of inward remittance from any place outside India. The payment can also be made out of funds held in NRE/ FCNR(B)/ NRO accounts of the NRIs/ OCIs. Payments should not be made through travellers’ cheque and foreign currency notes. Also, you cannot settle the transaction outside India or in cash.

5. Is it possible for an individual who initially purchased immovable property while being a resident to retain ownership of the property after becoming an NRI or OCI?

Yes, it is indeed possible for an individual to retain ownership of residential, commercial, agricultural land, plantation property, or a farmhouse in India even after transitioning to NRI or OCI status, and this can be done without the need for prior approval from the Reserve Bank of India (RBI).

6. What are the permitted ways for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to sell or gift immovable property in India?

* Sell or gift (other than agricultural land/ farmhouse/ plantation property) to

To Resident/ NRI/ OCI

* Sell or gift (agricultural land/ farmhouse/ plantation property) to

To Resident

* Agricultural land/ farmhouse/ plantation property acquired when he was resident in India or acquired by way of inheritance.

* Gift – the transferee should be a relative as defined in section 2(77) of the Companies Act, 2013.

7. Can a non-resident repatriate the sale proceeds of immovable property in India?

Yes, non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) have the option to repatriate the sale proceeds of immovable property in India, with the following conditions:

1. The immovable property was acquired in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of Foreign Exchange Management.
2. The amount for acquisition of the property was paid in foreign exchange received through banking channels or out of the funds held in foreign currency non-resident account or out of the funds held in non-resident external account.
3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. However, remittance for more than 2 properties possible under USD 1 Million Dollar Scheme as per Foreign Exchange (Remittance of Assets) Regulation 2016.
4. Discharge all the applicable income tax in India.

II. ACQUISITION AND TRANSFER BY FOREIGN NATIONAL OF NON-INDIAN ORIGIN

8. Can foreign nationals on non-Indian origin (non NRI/OCI) acquire property in India?

The ability of foreign nationals of non-Indian origin to acquire property in India depends on their citizenship and residential status. Here are the key considerations:

• Citizens of 11 Countries: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong, or the Democratic People’s Republic of Korea (DPRK), regardless of their residential status in India, cannot acquire or transfer immovable property in India without prior permission from the Reserve Bank of India. However, they can lease property for a term not exceeding five years. This restriction does not apply to Overseas Citizens of India (OCIs).
• Other Foreign Nationals (Citizens of Other Countries): Foreign nationals of non-Indian origin who are not residents in India, are not allowed to acquire or transfer immovable property in India without prior permission from the Reserve Bank of India. They can, however, lease property for a term not exceeding five years.
• Inheritance: Foreign nationals of non-Indian origin can acquire immovable property in India through inheritance with the prior permission from the Reserve Bank of India.

9. Can a foreign national who comes to India for employment/business/for uncertain period purchase immovable property in India?

Yes, Foreign nationals (except 11 countries listed at (1) above) who came to India for undertaking employment or business or for uncertain period and who has stayed in India for more than 182 days in the preceding financial year can acquire immovable property in India. But the person concerned would have to obtain the approvals, and fulfil the requirements if any, prescribed by other authorities, such as the concerned State Government, etc. (GOI Press Release of February, 1, 2009)

10. Can a foreign national of non-Indian origin be a co-owner of immovable property purchased by NRI/PIO?

No, foreign nationals of non-Indian origin cannot be co-owners or second holders of immovable property purchased by NRIs or PIOs.

11. Can a spouse of an NRI/ OCI who is not a NRI/ OCI acquire property in India jointly with NRI/OCI spouse?

Answer: 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 agricultural land/ farmhouse/ plantation property), jointly with his/ her NRI/ OCI spouse subject to the conditions

• Payment for immovable property has to be received in India through banking channels and The payment can also be made out of funds held in NRE/ FCNR(B)/ NRO accounts of the NRIs/ OCIs. Payments should not be made through travellers’ cheque and foreign currency notes.
• the marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property
• The non-resident spouse (non NRI or OCI) is not otherwise prohibited from such acquisition.

12. How can foreign national of non-Indian origin who has acquired the property when they were resident, transfer and repatriate the sale proceeds subsequently when they become resident outside India?

• Transfer to Resident in India: Foreign nationals (excluding OCI’s) who initially acquired property while residing in India and later became non-residents or who acquired property by way of inheritance, can only transfer the property to a person who is a resident in India. However, they must obtain prior approval from the Reserve Bank of India (RBI) to repatriate the sale proceeds.
• Transfer to Non-Resident: Foreign nationals (excluding OCI’s) who acquired property while residing in India and subsequently became non-residents or who acquired property by way of inheritance, need RBI’s prior approval to transfer the property to another non-resident and repatriate the sale proceeds.

However, there are exceptions:

A foreign citizen (excluding Nepal, Bhutan, and PIOs) who has inherited property from a person resident in India u/s 6(5) of FEMA or retired from employment in India or is a non-resident widow/widower inheriting assets from a deceased Indian national spouse residing in India can repatriate the sale proceeds of the property up to US$ 1 million without requiring RBI approval.

In all other cases, individuals are required to obtain RBI approval for the transfer and repatriation of sale proceeds. While they are residents in India, they can remit funds under the Liberalized Remittance Scheme (LRS) as per the regulations in force.

CONCLUSION

In summary, for NRIs looking to invest in India’s real estate, understanding the rules under FEMA’s Non-Debt Instrument is crucial. Non-compliance with these regulations could result in penalties of up to three times the amount involved in the violation. This knowledge empowers NRIs to make informed decisions and stay compliant with Indian regulations. As the real estate market in India continues to grow, being well-informed is key to making the most of opportunities in the country.