IMMOVABLE PROPERTY AND INVESTMENT RIGHTS BY NON-RESIDENTS IN INDIA

Foreign Exchange Management Act or FEMA

The act which deals with acquisition and transfer of immovable properties in India, FEMA, has been introduced by RBI in the year 1999 to substitute the earlier Foreign Exchange Regulation Act or FERA which was enforced in the year 1973. FEMA came into being in the year 2000. The key idea behind the enactment of the Act was to encourage the country's foreign payment and trade and also to bring together all the regulations and laws related to foreign exchange. Government has taken tremendous measures for effective implementation of the Act in India.

The applicability of the Act is not only limited to all parts of India but also includes all agencies, branches and offices outside India which is owned or controlled by any person who is an Indian resident. In India the acquisition and transfer of immovable property by an NRI or non-resident Indian, PIO or Person of Indian origin Resident outside India comes under FEMA.  The act authorizes an NRI or PIO for the following activities:

1. To hold and transfer an immovable property other than an agricultural property situated in India. Agricultural property includes any plantation or farmhouse.

2. To acquire and transfer immovable property in India other than Agricultural or plantation property.

3. It allows a person resident outside India with an RBI permission to establish a branch, office or other place of business in India (excluding a liaison Office) to acquire an immovable property in India which is necessary for or incidental to carrying on the permitted activity.

4. The act administer the repatriation of the sale proceeds by an NRI or a PIO, of an immovable Property (other than agricultural land or plantation property or a farm house) in India subject to the fulfillment of certain specific conditions.

5. It precludes some activities such as the acquisition or transfer of immovable property in India by citizens of certain neighboring countries, whether such individual is a resident of India or not.

6. It precludes the transfer of an immovable property in India by a person resident outside India without prior permission of RBI.  (other than an NRI or a PIO i.e., a foreigner.)[1]

In this context it is pertinent to explain the prerequisites of an NRI or a Non-resident Indian. An individual who fall in the category of a "resident" should posses any of the following prerequisites:

1. Such persons should have been in India for a period of at least 182 days in the preceding year. Their presence shall not be for a continuous 182 days.
2. Such persons should have been present in India in the previous 4 years and should have stayed here for not less than 60 days during the last year in consideration.  

All other persons who do not posses any of these prerequisites are called 'Non ­Residents'.

A Person of Indian Origin is another important category of people with regard to transfer of immovable property under this Act. Those persons shall fulfill any of the following conditions described below:

1. The person who is not a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan.
2. The person has held an Indian passport or;
3. A person whose either parents or any of his grand-parents was a citizen of India under the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
4. The person who is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

Reserve Bank of India vide Notification No.FERA.152/93-RB dated 26th May 1993 grants general permission for acquisition and transfer of properties for foreign citizens of Indian origin.

RBI grants general permission for acquisition of property for carrying on permitted activities

Companies other than banking companies that are not incorporated under any of the law in force in India is granted general permission by RBI to acquire and hold any immovable property that is essential for any activity permitted by Reserve Bank under section 28 or section 29 of FERA 1973.

RBI has granted general permission to acquire or hold any immovable property by those companies, other than banking companies that are not incorporated under any of the law in India which is essential for any activity permitted by Reserve Bank under Section 28 or Section 29 of FERA 1973. Those companies are required to submit to Reserve Bank a declaration in form IPI 5 not later than 90 days from the date of acquisition of the immovable property. Foreign companies permitted under section 29 of the Act to open liaison offices or to post representatives in India are exempted from the above general permission.  

General Permission for Acquisition/Disposal of Residential/Commercial Properties by Foreign Citizens of Indian origin

Foreign citizens of Indian origin, whether residing in India or not, are granted general permission to purchase and dispose  immovable properties situated in India other than agricultural land, farm house or plantation property respect to the following conditions:

Acquisition or Disposal of Residential Properties in India other than Gift

1. Property acquired by purchase or inheritance for an individual's bona fide residential use that is transferred by way of sale. There is no restriction on the number of residential properties acquired or disposed of under the general permission. Exception to this is mentioned below.

2. Sale consideration for the purchase of property shall be from a foreign exchange remitted from outside India through ordinary banking channels or funds that are drawn from the purchaser's NRE (non resident external) FCNR (Foreign Currency Non Resident) account with a bank in India.

3. The acquired property is not let out except under a circumstance where there is an immediate requirement for the buyer's own residential use.

4. By submitting a declaration to the Central office of Reserve Bank on the acquisition within a period of 90 days from such acquisition in form IPI 7 along with a certified copy of the document as an evidence of transaction and bank certificate evidencing the consideration.

5. If the property is held by a non-resident foreign citizen of Indian origin then the income acquired by way of sale proceeds or rent of the property or income accrued out of investment of such proceeds is credited to his NRO account or to the Resident Rupee Account with a bank in India.

6. The Reserve Bank would consider applications for the repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the purchase of the property with respect to residential properties acquired on or after 26th May 1993, i.e., only up to two such properties provided the sale takes place after three years from the final purchase date of the deed or from the date of payment of final installment of consideration amount, whichever is later. Such applications should be made to Reserve Bank within 90 days of the sale of the property in form IPI 8.

Acquisition or Disposal of Residential property by Gift

1.      Properties can be acquired, transferred or disposed of by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not. i.e., up to two houses.

2.      No gift tax is payable by a person in India with the abolition of gift tax.

Acquisition or Disposal by way of inheritance or sale of commercial property in India

1. Properties, other than agricultural land/ farm house/plantation land, in India can be acquired by way of inheritance or purchase. Properties are transferred and disposed of by way of sale. There is no restriction placed on the number of properties acquired or disposed of under general permission subject to some specific exceptions.

2. Sale considerations can be done through foreign exchange remitted from outside India through usual banking channels or money withdrawn from the purchaser's NRE/FCNR account maintained with a bank in India.

3. It is required to submit a declaration to Reserve Bank within 90 days in form IPI 7 about the acquisition of the commercial property or final final payment of sale consideration together with a certified copy of documents evidencing transaction and consideration paid.

4. With respect to commercial properties purchased on or after 26th May 1993, the Reserve Bank would consider applications for repatriation of original investment up to the consideration remitted in foreign exchange for the properties acquisition provided the sale of the property is after a period of three years from the date of final purchase deed or from the date of remittance of final installment of consideration amount, whichever is later. The balance sale proceeds of the properties should be credited to the seller's NRO account or Resident Rupee Account with regard to foreign citizens maintained with a bank in India. Those applications for repatriation should be made within 90 days of the sale of the properties to the Reserve Bank in form IPI 8.

General permission for letting out of Residential property in India by Non-resident Indians and persons of Indian origin

Permission is granted by the Reserve Bank to let out any immovable property in India held by a non-resident Indian or a person of Indian origin with an exception that the rental income or any investment of such income shall not be repatriable outside India at any time and such income should be credited to the owner's ordinary Non-Resident Rupee account within a bank in India.

Submitted by:

Vinitha Prasannan

Sources:

http://www.delhilaw.firm.in/articlenews/nriinvestment_property.htm

http://www.rbi.org.in/SCRIPTS/ECMUserChapterDetail.aspx?Id=354&CatID=13