There is overall restriction on a person, who is resident outside India as to transfer of any immovable property in India except when the same is as per the provisions of Foreign Exchange Management Act, 1999 (FEMA), or as per the “Foreign Exchange Management (Acquisition & Transfer of Immovable Property in India) Regulation 2000” (Regulation 2000). Regulation 2000 is governed by regulation contained in notification issued by RBI viz, Notification No. FEMA. 21/2000-RB (Notification), dated May 3, 2000, as amended from time to time.
Definitions of the words used in FEMA are also applicable to Regulation 2000. FEMA categorises persons into person resident in India and persons resident outside India. Person includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not in India, an office, branch or agency in India, owned or controlled by a person resident outside India, an office, branch or agency outside India, owned or controlled by a person resident in India, branch or agency outside India, owned or controlled by a person resident outside India.
“For an NRI, who wants to purchase a property in India via bank loan, it is relatively easier to get a loan, if the person is in service than business. The disbursal of loan is always in rupees. If one sells a property, the proceeds are also in rupees. However, one has to pay capital gains tax on the profit recorded in the account books. After having the proceeds sent to one’s bank account in India, he or she can transfer the money to the overseas bank account via telegraphic transfer, draft etc.”
Inder Preet Singh Josh Advocate, Supreme Court
The law relating to acquisition and transfer of immovable property in India by NRIs and PIOs is very ambiguous and requires proper legislation and not merely regulations. Considering the qualitative and quantitative strengths (nearly 2.5 million) of PIOs and NRIs, the Government of India has established an independent Ministry of Overseas Affairs to look into the affairs of PIOs and NRIs. However, it is highly unfortunate that no law has been legislated by the parliament keeping in view the interests of PIOs and NRIs and making it consonant with national economic and security interests.
There is ambiguity in FEMA regulations wherein persons, though having Indian roots and otherwise being persons of Indian origin, have been deprived of this status because of being citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan. There seems no logic or rationale behind it.
The general permission to allow NRIs or PIOs to purchase commercial and residential properties in India has worked as a double-edged sword. On one side it has helped in the growth of real estate sector and development of infrastructure facilities in vast areas, on the other hand, due to lack of adequate laws and proper monitoring; it has lead to speculation and sky rocketing prices of residential and commercial property across the country.
Though the agricultural land or plantation property has been protected to an extent, but discouraging the PIOs or NRIs in holding agricultural land seems unjustified. There could be a reasonable time limit for holding this kind of property by NRIs and PIOs obtained by inheritance and thereafter, the NRI or PIO must transfer his ownership of inherited agricultural or plantation property to an Indian resident .
The mortgage of residential or commercial property, situated in India to foreign institution or citizen by an NRI or PIO, is another area for consideration. This provision seems to permit acquisition of property, situated in India by a foreign institution or citizen indirectly by avoiding the statutory regulations.
Person Resident in India means a person residing in India for more than one hundred and eighty two days during the course of the preceding financial year but does not include:
We have never bought a property or invested in India. I personally do not feel confident in investing in India, as there are restrictions on what I can and cannot invest in and then I cannot sell for ten years after making the purchase. At my age of 70 years, I am not sure if I should be planning on such a long term. Moreover, operational practices are such that no one appears to give complete information, every body on the way wants to benefit from the process. Then, there are foreign currency issues as well. Probably, a one stop shop to give clear guidelines and assistance to NRIs would not go amiss.
I live in China and the interest by the government and therefore the builders continues to amaze me. They expect more than one third of their population to be living in cities over the next five years and cities occupy a small fraction of their huge land mass. Despite that the focus on gardens, road width, and land per occupant ratio is leading to an infrastructure for the future. In contrast in India the infrastructure is invariably inadequate the moment it is on the ground. Delhi metro is a case in point although it is a great project and without taking the credit away from the implementers and planners it is already a step behind what the city needs now to decongest roads leave alone the future.
Person Resident outside India means a person, who is not resident in India. Such persons are categorised into a person resident outside India, who is a citizen of India, that is, Non- Resident Indians (NRI – A foreign national of Indian origin and a foreign national of non-Indian origin). A person resident in India, who is not a citizen of India is also covered by the relevant notifications.
Regulation 2000 defines a person of Indian origin to mean 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 whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.
There is complete prohibition on acquisition of immovable property in India by citizens of Pakistan Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan without prior permission of the Reserve Bank, except in a case of lease not exceeding five years. Citizens of these countries can neither purchase nor sell immovable property without permission of the Reserve Bank, even though they may be residents of India. However, they may take on lease or grant lease of immovable property in India but that too, not for a period exceeding five years.
Regulation 2000 permits an NRI or a PIO to acquire immovable property in India other than agricultural land, or plantation property, or farm house. General Permission is available to purchase only a residential or commercial property in India to a person resident outside India, who is a citizen of India (NRI) and a person of Indian Origin (PIO).
Since general permission is not available to NRI or PIO to acquire agricultural land or plantation property or farm house in India, such proposals require specific approval of Reserve Bank. The proposals are considered in consultation with the Government of India.
A person, who bought property when he was a resident, can continue to hold residential or commercial property or agricultural land or plantation property or farm house in India without the approval of the Reserve Bank, even after becoming an NRI or PIO.
A person resident outside India can hold, own, transfer or invest in immovable property situated in India, it was acquired, held or owned by such person when he was a resident in India or inherited from a person, who was a resident in India.
An NRI or a PIO cannot acquire agricultural land or plantation property or farm house in India by way of purchase.
General permission of RBI is available to purchase a residential or commercial property in India to a person resident outside India, who is a citizen of India (NRI) and who is a Person of Indian Origin (PIO). There is no restriction on number of residential or commercial property that NRI or PIO can purchase under the general permission. However, name of a foreign national of non-Indian origin cannot be added as a second holder to a residential/commercial property, purchased by NRI or PIO.
Regulations under the notification permit an NRI or a PIO to acquire as well as sell immovable property in India other than agricultural land, or plantation property, or farm house without any requirement to file any documents with the RBI.
Under general permission available, NRI/PIO may acquire residential/commercial property by way of gift from a person resident in India or an NRI or a PIO. An NRI or a PIO origin cannot acquire agricultural land/plantation property/farm house in India, even by way of gift. Thus, such a gift cannot be accepted if given by a person, who is neither a citizen of India nor of Indian origin, if he is resident outside India.
An NRI or PIO can hold any immovable property in India acquired by way of inheritance from a person resident in India. An NRI or PIO may also acquire any immovable property in India by way of inheritance from a person resident outside India, who has acquired such property in accordance with the provisions of Foreign Exchange Law in force at the time ofacquisition by him, or the provisions of this regulation, or from a person resident in India.
If he gets the property by inheritance from the deceased, who was a person resident in India, it does not matter whether deceased was a citizen or not, or whether he was of the Indian origin or not. There is no exception of agricultural land/farm house/plantation property. Even such property can be inherited provided the aforesaid conditions are fulfilled.
An NRI can transfer any immovable property other than agricultural land/plantation property/farm house by way of sale to a person resident in India. He cannot sell agricultural land, farm house or plantation property to any person, whereas he can sell the other immovable property to a person, who is resident in India. Thus, a person who is not a resident of India, cannot purchase from such a person any immovable property.
Under the general permission available, NRI/PIO may transfer by way of sale of his agricultural land/plantation property/farm house in India to a person resident in India, who is a citizen of India. However, an NRI or PIO can transfer agricultural land/farm house/plantation property in India by way of gift or sale to a person resident in India, who is a citizen of India.
As per RBI directives, the home loan amount to NRIs should not exceed 85% of the cost of the dwelling unit. The 15% margin money can be met from direct remittances from abroad through normal banking channels, the NR (E) or NR (O) account in India. To avail the facility of loan from ICICI Bank, an individual must be of minimum 21 years of age. One must hold a valid Indian passport and should have a steady source of income. Besides, one should have been abroad for at least a period of one year in case of salaried applicant and three years in case of self employment. The loan amount varies between INR 5 lakh and INR 1 crore, based on the repayment capacity of the individual and the cost of the property. One is eligible for a maximum of 80% of the cost of the property or the cost of construction as applicable and 65% of the cost of land in case of purchase of land. To determine the repayment capacity, we take into account factors such as- age, income, qualifications, number of dependants, assets, liabilities, stability (continuity of the employment or business), income of co-applicant and the like. The term of loan may extend up to 15 years, subject to fulfillment of certain conditions. NRIs will need to provide security of the property and/or any other additional collateral security as may be mutually agreed upon. A guarantor guarantees the loan one takes. Only an NRI can guarantee an India Home Loan taken by another NRI. Once the loan goes through, repayment is done in equated monthly installments (EMIs), and includes interest and principal amount calculated on monthly rests. One can pay EMIs by issuing post-dated cheques from NRE / NRO account, or any other account approved by the Reserve Bank of India (RBI).
The importance of foreign investment in real estate cannot be disputed. Ever since the year 2001, when the gates of real estate were thrown open to FDI, this sector has seen a scorching growth close to 30 per cent, witnessing a mammoth revolution. This has greatly contributed to Gross National Product (GNP), direct and indirect employment, ancillary and down stream industries, satisfying the need for housing for middle class and urban poor etc. In 2005- 06, real estate commanded 16 per cent of the total FDI raised in India. Now, it is estimated that the share of real estate is about 20 to 22 per cent.
Yes, uniform practice is followed and in corporate sector, the penalties are charged according to Apartment Buyers Agreement, which is executed by NRIs or PIOs. There is no discrimination between local residents and NRIs in this regard.
Agricultural land is governed by Land Ceiling Acts in various states, limiting the land holdings by the developer. This leads to purchase of land by the developer through a number of entities, which in turn, complicate the procedure of foreign investment. The developer needs to invest and also have all the approvals in place before foreign investment. Otherwise, even if one approval is not received, it would tantamount to investment in agricultural land.
An NRI can sell property in India to a person resident in India or an NRI or a person of Indian origin (PIO). A PIO can sell property to a person resident in India and NRI or PIO with prior approval from RBI and a foreign national of non-Indian original can obtain prior approval from RBI to sell to a person resident in India, NRI or PIO
It has been observed that generally a person resident outside India prefers to sell or transfer their properties through realtors. Direct market transactions are rarely noticed.
With the change in the government policy on Foreign Direct Investment (FDI), all real estate sectors like residential, commercial and retail are currently witnessing huge growth in demand. The government of India has set up certain guidelines for investors willing to invest under FDI in real estate, which has conditions like area, investment options and target for completion of project. However, these guidelines create confusion in the minds of the foreign investor such as ambiguity in the definition of built-up area, whether the value of investment is to comprise only the face value of the security; or also the premium charged on the issuance of the same, commencement of the business of the company; what would constitute the original investment for the purpose of no repatriation before the period of three years etc.
Recognising the importance of foreign investment in real estate development, all Indian government authorities have amended
the applicable regulations from time to time to pave the way for foreign entry in the sector. It may, however, be clearly understood that inch by inch amendments in the regulatory measures may not bring the desired result. Therefore, a more proactive approach is required, which may encourage the foreign investors for higher investments in India. However, it may be stated that the government should amend the regulations from time to time to make FDI investments more investment-friendly.
India has attracted huge foreign investment in real estate making it amongst the ‘dominant host countries’ for FDI in Asia and the Pacific. In next five year period, India is estimated to require investments worth US $ 25 billion with the urban housing sector. This again has opened up opportunities for foreign investments in the realty sector. The Central Government has allowed up to 100 per cent FDI for setting up townships.
A landmark decision taken by the union government in 2005, where the minimum land area for development by foreign investors was lowered from the earlier floor of 100 acres to 25 acres, has thrown open the lucrative parts of the Indian realty market to global investors. Another perceptible spin-off of the easing of FDI policies will be the impact on quality of construction and inevitable acceleration in construction activities through adoption of modern methods and technologies.
A person of Indian origin resident outside India may transfer any residential or commercial property in India other than Agricultural land/Farm House/Plantation property by way of sale to a person resident in India or a person resident outside India who is a citizen of India and repatriate the amount subject to the following conditions:
Regarding repatriation of rental income, the same will be subjected to Income Tax Act in India and a Certificate of a Chartered Accountant approved by CBDT will have to be submitted to Reserve Bank of India for repatriation.
An NRI or PIO can sell or gift even the agricultural land/farm house/plantation property provided the purchaser or donee is Indian citizen and who is resident in India. A person, who is resident outside India or a person, who is not a citizen of India cannot be a purchaser or donee from such a person.
Thus, he has to be a citizen of India and he is to be resident of India. In short, the purchaser or donee of agricultural land, etc. from such a person has to be Indian citizen, who is resident of India.
An NRI or PIO can transfer residential or commercial property in India by way of gift to a person resident in India or to an NRI or to a PIO but resident outside India. Thus, if a person is a citizen of India or of Indian origin or resident in India, then he can be a donee of a gift of immovable property from such a person.
An NRI can transfer by way of sale residential or commercial property in India to a person resident in India or to an NRI or a PIO, whereas a PIO can transfer by way of sale residential or commercial property in India only to a person resident in India or NRI. A PIO would need to seek RBI prior approval for transferring by way of sale residential or commercial property in India to a PIO. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts. NRI Gaurav Sagar shares his experience, “For an NRI, who wants to purchase a property in India via bank loan, it is relatively easier to get a loan, if the person is in service than business. The disbursal of loan is always in rupees. If one sells a property, the proceeds are also in rupees. However, one has to pay capital gains tax on the profit recorded in the account books. After having the proceeds sent to one’s bank account in India, he or she can transfer the money to the overseas bank account via telegraphic transfer, draft etc.”
NRI or PIO can mortgage residential or commercial property to an authorised dealer or housing finance institution in India without the approval of RBI, or to a party abroad with prior approval of RBI. NRI or PIO can rent out the residential or commercial property purchased out of foreign exchange or rupee funds, without the approval of RBI.
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