Acquisition and Transfer of Property in India under FEMA

Ankita Tiwari

01 Apr, 2023

Any acquisition or transfer of immovable property in India by a Non-resident Indians (NRIs), persons of Indian origin, or foreign nationals of non-Indian origin takes place under the Foreign Exchange Management Act, 1999 (“FEMA^[1]”) along with Notification No. FEMA 21(R) /2018-RB/GSR 280(E) dated 26.03.2018. The Reserve Bank of India (RBI) is empowered to frame regulations on the acquisition or transfer of immovable property in India by persons who reside outside India.

Acquisition and Transfer of Property in India by an NRI or an Overseas Citizen of India (OCI)

• An NRI or OCI can acquire or transfer any immovable property in India apart from agricultural land, farmhouse, or plantation property. For the transfer or acquisition of immovable property in India, the NRI or OCI shall pay consideration from:-
  • the funds received in India by way of inward remittance through banking channels from any place outside India; or
  • from the funds held by a non-resident account maintained under the provisions of the Act, rules or regulations framed thereunder;
  • no payment regarding the transfer of immovable property shall be made either by traveler’s cheque or by foreign currency notes, or by any other mode except those specifically prescribed.
• Any immovable property in India can also be acquired by way of gift from a person resident in India or from any relative who is also an NRI or an OCI.
• A relative of an NRI or OCI for the acquisition or transfer of property shall be a person as defined under section 2(77) of the Companies Act, 2013.
• An NRI or OCI may also inherit immovable property in India from a person resident outside India who acquired such property either under the provisions of the foreign exchange law in force at the time of acquisition or from a person resident in India.
• The NRI or the OCI is also entitled to transfer any immovable property in India to a resident in India however when an NRI or OCI has to transfer any immovable property to an NRI or an OCI then immovable property such as agricultural land, farm house or plantation property cannot be transferred.

Acquisition of Immovable Property for carrying out a permitted activity 

• Where a person resident outside India has established in India a branch, office, or any other place of business in India as per the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016, such office may acquire any immovable property in India which is necessary or incidental for carrying on the business.
• A liaison office is however not permitted to acquire any immovable property.
• Acquisition of immovable property is possible only when all the applicable laws, rules, regulations, or directions for the time being in force are duly complied with and such a person has to file a declaration with the RBI under Form IPI within 90 (ninety) days from the date of such acquisition and in such a manner as may be prescribed by the RBI from time to time.
• Such non-residents can also transfer the immovable property so acquired by way of mortgage. However, no person from Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Hong Kong, Macau, Nepal, Bhutan, or South Korea shall acquire any immovable property for carrying out any activity other than on a lease for a maximum of 5 (five) years with the prior approval of the RBI.

Purchase of Immovable Property by Foreign Embassies, Diplomats, or Consulate Generals

Foreign Embassies, Diplomats, or Consulate Generals are also permitted to purchase or sell any immovable property in India except that of agricultural land, plantation property, and farmhouse. However, such purchases and sales are subject to clearance obtained from the Ministry of External Affairs, Government of India and the consideration for the acquisition of Immovable property in India should be paid out of inward remittance through banking channels.

Joint Acquisition by the spouse of an NRI or an OCI

• A person resident outside India apart from an NRI or an OCI, but who is a spouse of an NRI or OCI may acquire one immovable property jointly with his or her NRI or OCI spouse. However, the acquisition of immovable property shall not include agricultural land, farmhouse or plantation property. For the Joint acquisition of immovable property, the following conditions have to be satisfied:
  • The consideration for such transfer or acquisition shall be made out either from the funds received in India by way of inward remittance through a banking channel from any place outside India or funds held in any non-resident account maintained as per the provisions of the Act and the regulations made by the RBI.
  • Payment for any transfer of immovable property by traveler’s cheque or by foreign currency notes or by any other mode apart from what has been specifically permitted, shall not be allowed.
  • The marriage should be registered and subsisted for a continuous period of two years or more, immediately preceding the acquisition of such property.
  • The non-resident spouse should not be prohibited from such acquisition.

Acquisition by a Long term visa holder

• Any person who is a citizen of Pakistan, Bangladesh, and Afghanistan and belongs to a minority community in those countries such as Hindus, Sikhs, Buddhists, Jains, Parsis, and Christians but resides in India and has been granted a Long Term Visa by the Central Government is permitted to purchase only 1 (one) residential immovable property in India which is to be used as a dwelling unit and 1(one) immovable property for carrying out the self-employment. For acquiring such immovable property, the following conditions are to be satisfied:
  • The property should not be located near restricted or protected areas notified by the Government and cantonment areas;
  • The person acquiring such property should give a declaration to the Revenue Authority of the district in which the property is located, specifying the source of funds and stating that he/she is residing in India on a long-term visa;
  • The registration documents of such property should state the nationality and fact that such person is residing in India on a long-term visa;
  • If the person indulges in any anti-India activity then his/her property shall be attached or confiscated;
  • A copy of the document of the purchased property shall be submitted to the DCP or the Foreign Registration Office (FRO) or Foreigners Regional Registration Office (FRRO) concerned and also to the Ministry of Home Affairs (Foreign Division);
  • Property acquired by such a person can be sold only after the person has acquired Indian citizenship. In case the person wants to sell the property before acquiring Indian citizenship then prior approval from DCP or FRP or FRRO concerned is required.

Repatriation of Sale Proceeds

• A non-resident or his successor may hold, own or invest in Indian currency, security, or immovable property situated in India if such currency, security, or property was acquired, held, or owned by such person when he was resident in India or it was inherited from a person resident in India, then such persons are allowed to repatriate the sales proceeds of such immovable property outside India without the general and specific permission from RBI.
• In case of the sale of immovable property other than agricultural land, farm house or plantation property  in India, the authorized dealer may allow repatriation of the sale proceeds outside India if the following conditions are satisfied:
  • The immovable property must be acquired by the seller as per the provisions of the foreign exchange law in force at the time of acquisition;
  • The consideration amount for the acquisition of the immovable property was paid in foreign exchange received through banking channels or out of the funds held in a Foreign Currency Non-Resident Account or from the funds held in a Non-Resident External account;
  • The repatriation of sale proceeds is restricted to not more than two properties in the case of residential property.
• If the person resident in India as per the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 fails to repay the external commercial borrowings, then the AD Bank may permit the overseas lender or the security trustee to sell the immovable property on which the said loan was secured only to a person resident in India and repatriate the sale proceeds towards outstanding dues in respect of the said loan and not any other loan.

Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries

A person whether natural or legal, who is a citizen of or incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong, Macau, or Korea cannot acquire or transfer any immovable property in India other than on lease for a term not exceeding 5 (five) years and with the prior permission of the RBI. However, this prohibition does not apply to OCIs.

Prohibition of transfer of immovable property in India

Unless otherwise provided in the Act or Regulations, a non-resident is not permitted to acquire or transfer any immovable property in India. The exceptions to this are:

• When RBI has for sufficient reasons permitted the transfer under conditions considered necessary.
• An AD Bank may on behalf of RBI and subject to the directions issued by the RBI, permit a person resident in India or on behalf of such person, to create a charge on immovable property in India in favor of an overseas lender or security trustees, to secure an external commercial borrowings availed under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.
• An AD Bank in India is the Indian correspondent of an overseas lender which may permit the creation of a mortgage on an immovable property in India owned by an NRI or OCI who is a director of a company abroad, for a loan availed by the company from the said overseas lender, as per the directions issued by the RBI. Subject to the condition that the funds shall be used by the borrowing company only for core business purposes overseas. In addition to this, if there is a case of invocation of the charge, the Indian Bank shall sell the immovable property to an eligible acquirer and remit the sale proceeds to the overseas lender.
• Any non-resident person who has acquired immovable property in India as per the foreign exchange laws in force at the time of acquisition or with the permission of the RBI may transfer such property to an Indian Resident subject to the condition that the transaction takes place through banking channel in India and that the resident is not prohibited from such acquisition.

Payment of Taxes

Any transaction relating to the acquisition or transfer of immovable property shall be undertaken through banking channels after the payment of applicable taxes and other duties or levies in India.

Conclusion

There has been a rapid increase in the interest of non-residents in the acquisition or transfer of immovable property across the globe. India has seen noticeable growth in the interest in non-resident acquisition or transfer of immovable property in India. Even the Indian government is making attempts to ease the process for the acquisition or transfer of immovable property in India by non-residents by making frequent amendments to laws. Therefore, in order to have a hassle-free acquisition or transfer of immovable property in India, the non-resident Indian should be up to date with the laws and regulations applicable at the time of the acquisition or transfer.

Also Read: Procedure for Transmission and Transfer of shares as per Companies Act, 2013