Acquisition And Transfer of Immovable Property In India: FEMA and International Taxation Perspective

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTYA NRI or an OCI may acquire immovable property in India other than an agricultural land or farm house or plantation property. POI as a category is no longer eligible to acquire immovable property as it is merged with OCI.

MODES OF CONSIDERATION: Provided that the consideration, if any, for transfer, shall be made out of :

(i) funds received in India through banking channels by way of inward remittance from any place outside India ; or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations framed thereunder.

Provided further that no payment for any transfer of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by any other mode other than those specifically permitted under.

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 ACQUISITION BY GIFT: An NRI or OCI acquire any immovable property in India other than agricultural land or farm house or plantation property by way of

gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as defined in clause (77) of section 2 of the Companies Act, 2013. However from International Taxation perspective it must be noted that defination of “relative“ as defined in INCOME TAX ACT I DIFFERENT FROM COMPANIES ACT, 2013.

ACQUISITION BY INHERITANCE: An NRI or OCI may acquire any immovable property in India by way of inheritance from a person resident outside India (Here refernce is not made of any particular person such as NRI or OCI, however from logical interpretation it can be construed that it must be any relative as inheritance is made by such person only) who had acquired such property in accordance with Foreign Exchange Laws and Provisions and rules . He may also inherit from a person resident in India.

Another aspect is that in case of inheritance an NRI OR OCI can also acquire agricultural land, farm house, etc. However he cannot repatriate the sale proceeds of such immovable property even if he is an NRI and falling under other regulations.

Joint acquisition by the spouse of a NRI or an OCI : A person resident outside India, not being an NRI or an OCI, who is a spouse of an NRI or an OCI may acquire one immovable property (other than agricultural land or farm house or plantation property), jointly with his or her NRI or OCI spouse :

Provided that

  • consideration for transfer, shall be made out of –

(i) funds received in India through banking channels by way of inward remittance from any place outside India; or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank;

(b) no payment for any transfer of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause :

Provided that the marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property . Indirectly Central Government is allowing only an Eligible OCI to even make joint acquisition of immovable property as spouse have registered for marriage for period of 2 years is eligible for OCI in terms of Central Government( MINISTRY OF FINANCE) as published in Official Gazette.

Provided further that the non-resident spouse is not otherwise prohibited from such acquisition.

REPATRIATION OF SALE PROCEEDS:

A person referred to in sub-section (5) of section 6 of the Act, or his successor

shall not, except with the general or specific permission of the Reserve Bank, repatriate outside India the sale proceeds of any immovable property referred to in that sub- section.

EAXMPLE: Say person P, a son of Prateek Singh (Resident in India) has died and his son wants to sold the immovable property in his father’s name and bring the sale proceeds back. Now as per regulation he has to take permission of RBI in this case.

However if he is an NRI OR OCI, it will be discussed later on.

NOTE THAT:

In the event of sale of immovable property other than agricultural land or farm house or plantation property in India by an NRI or an OCI, the authorised dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:-

(a) Immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of these rules;

(b) the amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held in Non-Resident External Account;

(c) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.( However in case od=f more than one Residential Property he can avail the benefit of “Other Remittence Facilities” Regulations.) 

In the event of failure in repayment of external commercial borrowing availed by a person resident in India under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, as amended from time to time, a bank which is an authorised dealer may permit the overseas lender or the security trustee in whose favour the charge on immovable property has been created to secure the ECB) to sell the immovable property on which the said loan has been secured only to a (by the) person resident in India and to repatriate the sale proceeds towards outstanding dues in respect of the said loan and not any other loan.

INTERNATIONAL TAXATION PERSPECTIVE:

Any transaction involving acquisition or transfer of immovable property under these rules shall be undertaken:-

(a) through banking channels in India;

(b) subject to payment of applicable taxes and other duties or levies in India.

While making transfers to any resident India the NRI shall be subjected to the withholding of the tax on the capital gains. The NRI may if he considers beneficial fall under the CHAPTER XII-A of the income tax act 1961 which provides the concessional rate of tax at the rate of 10%. However the benefit of the indexed cost of acquisition as provided in the second provision to section 48 shall not be available. Accordingly it is now upon the choice of the assesse that whether he wants to fall under the normal provisions of the section 112 or opt for the benefit of the chapter XII-A of the income tax act based upon the facts and circumstances of the case. However one point to note that ion case the assesse opt chapter XII-A of the income tax act he is not required to file the return of income under sub section 1 of section 139 of the income tax act if his gross total income consist of income only from the long term capital gains.

OUR COMMENTS: When a loop hole is allowed to remain on the statute books for twenty years, one can trust people – Indians & foreigners – to take undue advantage of the loop hole. Several foreigners have purchased IP in India.

In Goa, the phenomenon had acquired serious proportions. Both GOI & RBI have issued warnings, taken half-hearted measures but not amended FEMA.

FOR ANY FEMA AND INTERNATIONAL QUERIES PLS FEEL FREE TO REACH AT US:bklegaladvisors@gmail.com

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