FEMA

NRIs & OCIs don’t need RBI approval to buy/sell Immovable Property in India: RBI

The Reserve Bank recently clarified that NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India) don’t require prior RBI approval to buy or sell immoveable properties in India. The RBI in a press release stated that its prior approval is not needed by NRIs & OCIs for acquisition and transfer of immovable property in India other than agricultural land, plantation property or farm house according to the terms laid down under Chapter IX of Foreign Exchange Management (non-debt instruments) Rules 2019. This article examines the clarification issued by the RBI in this regard. Let’s first understand the meaning of the term NRIs and OCIs.

Who are NRIs & OCIs?

Individuals living abroad are segmented into two sections, namely- NRIs and OCIs.

NRIs

NRIs or a Non-Resident Indian is a person who is not a resident of India. Now, who is a resident of India? A person is considered a resident of India if the person has been residing in India for a minimum of 182 days during the previous financial year; or a person living in India for 365 days during previous 4 financial years and minimum 60 days in the last financial year is termed as a resident of India.

OCI

On the other hand, an Overseas Citizen of India is not a citizen of India but the government of India has given the OCI cardholder permission to reside and work within the boundaries of India. A non-Indian citizen who, or whose parents or grandparents were born in India etc. are termed as OCI (Overseas Citizen of India) This card extends immigration status to foreigners without any limited tenure.

Both NRIs and OCI are treated at par, for the purpose of investment in real estate.

Clarification by RBI on buying/selling of Immoveable property in India by NRIs & OCIs: Background of the Matter

The Reserve Bank had received various queries at its offices about the acquisition of immoveable properties by OCIs after a Supreme Court judgement related to FEMA. As per the judgement any sale or gift of property by a foreigner without the prior permission of RBI will be unenforceable in law.

The order had cited Section 31 of Foreign Exchange Regulation Act (which is now repealed). The Supreme Court had dealt with a property transferred by the widow of a foreigner and owner without obtaining the prior permission from RBI. The SC had set aside a Karnataka high court’s order in the said case.

As per RBI’s press release, Non Resident Indians and Overseas Citizen of India are presently governed under the Foreign Exchange Management Act (FEMA) 1999 provisions and they do not need RBI’s prior approval to acquire and transfer immovable property in India, except in the case of acquisition of farm houses or agricultural land.

As per section 2(ze) of the FEMA, Transfer means- the sale, purchase, exchange, pledge, mortgage, gift, loan or any other form of transfer of the right, title, possession or lien.

Buying of Immoveable Property by NRIs

The buying and acquisition of immovable properties in India, by NRIs, are governed by the Foreign Exchange Management Act^[1] and it is administered by Reserve bank of India (RBI).

RBI issues directions from time to time relating to the purchase of immoveable property in India by NRIs. Through these directions, RBI gives permission to NRIs to purchase immoveable property in India. The NRIs can purchase residential or commercial property in India but they are not permitted to buy any agricultural land, farm house or plantation property in India.

Under the present dispensation, as long as the investment made by NRIs is in residential property or commercial property, they are not required to intimate RBI about the purchase. Moreover, there is no cap on the number of residential or commercial property that an NRI can buy in India.

In order to buy permitted immovable properties in India, an NRI needs to either make the payment through banking channel by remittance from abroad or the NRI may use balance in his NRE/NRO or FCNR account. The money for this purpose must come only through permitted channels including through banking channels and the payment can’t be tendered in the form of traveler’s cheques or foreign currency in India.

Additionally, also note that, a resident who has become an NRI afterwards is permitted to continue to hold the immovable property including agricultural land, farm house etc. that was acquired by him while he was a resident in India.

Conclusion

The RBI clarified to clear any doubts related to the acquisition and transfer of immoveable property in India by NRIs & OCIs. It categorically stated that NRIs, PIOs and OCIs are governed under the provisions of FEMA and not under erstwhile FERA. These individuals can invest freely in India in the real estate sector and acquire immoveable property, whether residential or commercial, and don’t require prior approval from RBI. The guidelines remains the same but the RBI had to issue a clarification because of the large number of queries it had received from NRIs. Such clarifications help in enhancing overall investment confidence and eliminate every rumours flying around.

Read our article:Tax Implications of Sale of Immovable Property by Non-Resident Seller