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NRIs Guide
An estimated 25 million NRIs living in 125 countries are investing in
real estate property across Rajasthan. The rules relating to real
estate investment and repatriation have been considerably liberalized
and powers have been vested with authorized foreign exchange dealers
to deal with the matter of remittance now.
The Reserve Bank has granted general permission to persons resident
outside India holding Indian passports and persons of Indian origin to
buy residential and commercial properties in India. For the purpose of
acquisition and transfer of immovable property, 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 at any time held Indian passport or who or either of whose
father or grandfather was a citizen of India by virtue of the
constitution of India or the Citizenship Act, 1955.
There is no restriction on the number of residential or commercial
property units to be purchased in India. They may even acquire them by
way of gift or inheritance or transfer by way of sale. However,
specific approval of the Reserve Bank may be necessary when a person
resident outside India may hold any immovable property in India
acquired by way of inheritance from a person resident outside India.
The restriction with regard to certain categories of immovable
properties continues and NRIs/PIOs cannot acquire by way of purchase
agricultural land, plantation property and farmhouse in India.
A foreign national of non-Indian origin can acquire only residential
accommodation on lease for a period not exceeding five years for which
no prior permission of the Reserve Bank is necessary. Those acquiring
the property need prior approval of the apex bank by submitting IPI 1
and mentioning the details of property and mode of remittance.
NRIs can avail home loan but repayment should be made by way of inward
remittance through normal banking channel or by debit to his NRE/FCNR(B)/NRO
account or out of rental income derived from renting out such
property. The borrower’s close relatives through their account in
India can also repay such loan by crediting the borrower’s loan
account. Repayment of loan in foreign exchange is treated as
equivalent to the foreign exchange received for purchase of
residential property.
Similarly, NRIs may transfer by way of gift residential/commercial
property in India to a person resident in India or to an NRI or PIO.
The sale proceeds of residential/commercial property received by way
of gift should be credited to NRO account only. As regards
repatriation, an amount not exceeding US$1 million per calendar year
is allowed subject to production of documentary evidence in support of
inheritance and tax clearance certificate/no objection certificate
from the income-tax authority to authorised dealer for remittances.
NRIs who had acquired immovable property while they were resident in
India can continue to hold or transfer such immovable property. They
may also transfer by way of sale or gift to a person resident in India
or to an NRI/PIO. The sale proceeds may be credited to NRO account.
As regards general repatriation rules, while repatriation of
residential property is restricted to two units, there is no such
limit for repatriation of commercial property. There is no lock-in
period for sale of residential/commercial property now.
NRI investment in Real Estate
Under the FERA, the regulations concerning buying and selling of
real estate property was mainly based on the citizenship of the
individuals. Under FEMA, the restrictions involving the acquisition,
transfer of immovable property in India are no longer linked to
citizenship of a person but are now generally governed by the
residential status of a person.
In general, the acquisition and transfer of immovable property by
non-resident in India are capital account transactions. The RBI is
empowered under the FEMA to frame regulations to prohibit, restrict or
regulate the acquisition or transfer of immovable property in India by
a person resident outside India.
Regulations of immovable property in India are primarily based on the
residential status of a person under FEMA. However, under the FERA,
the controls were mainly based on the citizenship.
The restrictions are not applicable to a lease of immovable property
for a period not exceeding five years. The RBI has framed the
regulations the Foreign Exchange Management (Acquisition and Transfer
of Immovable Property in India) Regulations, 2000, which have been
notified, vide notification no. FEMA 21-2000 RBI dated May 3, 2000
In a nutshell, the RBI has given only three general permissions to
the following categories in connection with immovable property in
India.
1. A non-resident who is a citizen of India.
2. A non-resident who is a Person of Indian origin.
3. A non-resident who has established in India a branch or other place
of business.
Acquisition of a real estate property by an Indian citizen residing
outside India:
1. No special permission is required for an Indian citizen residing
outside India to acquire by way of purchase or gift any immovable
property in India other than agricultural land, plantation property or
a farmhouse.
2. However, the restriction on acquiring agricultural land, plantation
or farmhouse is applicable to all non-residents. The restriction on
agricultural properties continues from the time of FERA. The Reserve
Bank of India normally does not approve such proposals if applied for
the permission.
3. Under FERA, a declaration needs 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 cost
incurred in acquiring the property. This can in a way, help at the
time of repatriation of the property.
4. It is notable that only non-residents who are Indian citizens, or
who are of Indian origin have been permitted to invest in immovable
properties in India. In other words foreigners are not allowed to buy
immovable property in India.
5. Further, non-residents who are Indian citizens or a person of
Indian origin can also acquire any property (including agricultural
property etc.) by way of inheritance. This is because to bequeath a
property is a natural right. A law cannot give it. 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 is inherited, the
agricultural activities cannot be conducted. A person may have natural
plants, trees, on the lands. However, he can not grow the same with
the intention of earning income.
Transfer of real estate property by an Indian citizen residing
outside India
1. For Indian citizen residing outside India, there is no permission
required to transfer immovable property in India.
2. However, in case of agricultural properties the same can be sold
only if the acquirer is an Indian resident.
3. If the proposed acquirer is a non-resident (whether Indian citizen
or a person of Indian origin), the property cannot be sold. This is
corollary to the restriction on acquiring the agricultural land.
Acquisition of real estate property by a PIO
1. A person of Indian origin resident outside India does not require
any permission from the Reserve Bank of India to acquire any immovable
property.
2. However, he cannot acquire the agricultural or plantation property
or a farmhouse in India.
3. It is, however, necessary that the purchase should be from out of
the following funds:
:: Funds received in India by way of inward remittance through the
banking channels from any place outside India or
:: Funds held in any NR accounts maintained in accordance with the
provisions of FEMA and the regulations made by the Reserve Bank.
4. A PIO resident outside India does not require any permission from
the Reserve Bank of India to acquire any property in India other than
the agricultural land or plantation property or a farmhouse by way of
gift from a person resident in India or from a person resident outside
India who is a citizen of India or from a person of Indian origin
resident outside India.
5. Further a PIO resident outside India does not require any
permission from the Reserve Bank of India to acquire any immovable
property in India by way of inheritance;
:: From a person resident outside India who had acquired such property
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 or from a person resident in India.
6. Thus a PIO can even inherit agricultural land or a farmhouse or a
plantation property which he cannot normally acquire by way of
purchase or gift.
Transfer of real estate property by PIO:
1. A PIO resident outside India does not require any permission from
the Reserve Bank of India to transfer any immovable property other
than the agricultural land or plantation property or a farmhouse in
India by way of sale to a person resident in India.
2. A PIO resident outside India can transfer an immovable 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
permission from the Reserve Bank of India. Such a transaction is
permitted by the regulation 4(e) provided that the purchaser is a
resident as well as a citizen of India.
3. However, a PIO cannot transfer an immovable property being
agricultural land or plantation property or a farmhouse in India by
way of a sale to the following categories of persons without
permission from the Reserve Bank of India.
:: A person resident in India who is not a citizen of India.
:: A citizen of India who is not a resident in India.
:: A person of Indian origin (PIO) whether resident or not.
4. A PIO resident outside India can transfer a residential or
commercial property in India by way of a gift. He can also give a gift
of such property to specified persons for examples to those who are
allowed to acquire such a property the persons to whom a gift can be
given are:
:: To a person resident in India
:: To a person resident outside India who is a citizen of India.
:: To another PIO resident outside India.
5. However, a gift cannot be given to a non-NRI who is 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
:: at any time, held an Indian passport or
:: Who or either whose father or whose grandfather was a citizen of
India virtue of the Constitution of India or the Citizenship Act,
1955.
In other words, an individual who is presently is a citizen 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 or Bhutan are
excluded from the definition of a PIO and accordingly they are not
entitled to various concessions/exemptions and benefits, which are
extended to a PIO under the various FEMA regulations.
Renting out Real Estate Property
The NRIs/PIOs can freely rent out their immovable property in India
without seeking any permission from the RBI. The rental income being a
current account transaction is freely repatriable outside India
subject to payment of applicable taxes.
The Reserve Bank has recently permitted to repatriate the sale
proceeds of an immovable property upto US$100,000 per year by NRI/PIO
is a welcome move. Further transactions involving the acquisition and
transfer of immovable property in India are no longer highly
restricted under FEMA. These are no more linked to the citizenship of
the person seeking to acquire or transfer immovable property. The
acquisition and transfer of an immovable property is now generally
governed by the residential status of a person.
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