Acquisition and Transfer of Immovable Property in India by NRI/OCI Others AKA Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018
Summary: The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, define how Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) can acquire and transfer immovable property in India. These regulations permit NRIs and OCIs to buy property, excluding agricultural land, farmhouses, and plantations, using funds remitted through banking channels or from non-resident accounts. Property can also be acquired as a gift or inheritance under specific conditions. The regulations prohibit citizens from certain countries from acquiring or transferring property in India without prior Reserve Bank approval, though OCIs are exempt. NRIs and OCIs can transfer property to residents or other NRIs/OCIs, but repatriation of sale proceeds is subject to conditions. Special provisions apply for spouses of NRIs/OCIs and long-term visa holders. The regulations ensure compliance with India’s foreign exchange laws, aiming to facilitate smooth property transactions while maintaining regulatory oversight. Understanding these rules is essential for NRIs and OCIs to navigate property investments and inheritances in India effectively.
Introduction:
The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, set out the rules governing the acquisition and transfer of immovable property in India by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). These regulations provide a framework for how NRIs and OCIs can engage in property transactions, specifying conditions related to permissible types of property, acceptable payment methods, and legal avenues for inheritance and gifting. Understanding these provisions is crucial for ensuring compliant and informed property dealings. This article delves into the key aspects of these regulations, offering a comprehensive overview of the criteria that NRIs, OCIs, and their spouses must meet to acquire or transfer immovable property in India. Additionally, it examines special circumstances, such as repatriation of sale proceeds and prohibitions on property transactions by citizens of specific countries, to provide a holistic view of the regulatory landscape.
Acquisition and Transfer of Immovable Property in India :
Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018:
1) Acquisition and Transfer of Property in India by a Non-Resident Indian or an Overseas Citizen of India:-
“An NRI or an OCI may
(a) acquire immovable property in India other than agricultural land/ farm house/ plantation property:
Provided that the consideration, if any, for transfer, shall be made out of
- Funds received in India through banking channels by way of inward remittance from any place outside India or
- 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 travelers cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause.
(b) acquire any immovable property in India other than agricultural land/ farm house/ 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 section 2(77) of the Companies Act, 2013;
(c) acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property (a) in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or (b) from a person resident in India;
(d) Transfer any immovable property in India to a person resident in India;
(e) Transfer any immovable property other than agricultural land/ farm house/ plantation property to an NRI or an OCI.
2) Joint acquisition by the spouse of an NRI or an OCI:-
A person resident outside India, not being a Non-Resident Indian or an Overseas Citizen of India, who is a spouse of a Non-Resident Indian or an Overseas Citizen of India may acquire one immovable property (other than agricultural land/ farm house/ plantation property), jointly with his/ her NRI/ OCI spouse.
Provided that
(i) The 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;
(iii) No payment for any transfer of immovable property shall be made either by traveler’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;
Provided further that the non-resident spouse is not otherwise prohibited from such acquisition.”
Analysis:
Paragraphs 1 and 2 outlined above discuss the provisions related to the acquisition and transfer of immovable property in India by NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India). Let’s explore what these provisions entail:
Provisions for the Acquisition of Immovable Property by NRIs or OCIs:
1. Types of Immovable Property:-
NRIs and OCIs can acquire immovable property in India, provided it is not agricultural land, a farmhouse, or plantation property.
2. Mode of Payment:-
– Payments must be made through funds received in India via banking channels as inward remittance from abroad.
– Funds can also be drawn from a non-resident account maintained according to the Act, rules, or regulations.
– No payments for the transfer of immovable property may be made using traveler’s cheques or foreign currency notes, or any mode not specified under this provision.
Non-Resident Accounts for Payment: Qualified accounts include NRE/FCNR(B)/NRO accounts, maintained in accordance with FEMA provisions.
Inward Remittance: This is a secure bank-to-bank transaction for receiving money in a domestic account from an international account. In India, inward remittances are regulated by the RBI under the Foreign Exchange Management Act (FEMA), which provides guidance on transfer limits and tax implications.
3. Acquisition by Gift:-
NRIs and OCIs may acquire immovable property as a gift from a person resident in India, or from another NRI or OCI, provided the latter is a relative as defined under Section 2(77) of the Companies Act, 2013.
Definition of Relative: A relative includes:
– Father (including step-father)
– Mother (including step-mother)
– Son (including step-son)
– Son’s wife
– Daughter
– Daughter’s husband
– Brother (including step-brother)
– Sister (including step-sister)
– Members of a Hindu Undivided Family
– Husband and wife
4. Acquisition by Inheritance:-
NRIs and OCIs can inherit immovable property from a person residing outside India who acquired the property in compliance with the then-prevailing foreign exchange laws or from a person residing in India. The restriction on agricultural land, farmhouses, or plantation property does not apply to inheritance.
Restrictions on Transfer of Immovable Property in the Case of NRIs/OCIs:
1. To Residents in India:- There is no restriction on transferring immovable property to a person resident in India, including agricultural land, farmhouses, or plantation property.
2. To Other NRIs/OCIs:- NRIs or OCIs may transfer any immovable property, except for agricultural land, a farmhouse, or plantation property, to another NRI or OCI.
Acquisition of Immovable Property by the Spouse of an NRI/OCI:
A non-resident spouse of an NRI or OCI may acquire one immovable property, other than agricultural land, a farmhouse, or plantation property, jointly with the NRI or OCI, subject to the following conditions:
– Payments and other conditions applicable to NRIs/OCIs are also applicable here.
– The marriage must be registered and have existed for at least two years at the time of acquisition.
– The non-resident spouse is not otherwise prohibited from such acquisition.
3) Repatriation of sale proceeds:-
(a) 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;
(b) In the event of sale of immovable property other than agricultural land/ farm house/ 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:
(i) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of his acquisition or the provisions of these Regulations;
(ii) 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;
(iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
(c) 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.
Analysis:
Persons referred to in Section 6(5) of the Act are those who owned such property when they were residents in India or who inherited it from someone who was a resident in India.
4) Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries:-
No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People’s Republic of Korea (DPRK) without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years.
Provided this prohibition shall not apply to an OCI.
Explanation: For the purpose of this regulation the term “citizen” shall include natural persons and legal entities.
5) Prohibition on transfer of immovable property in India:-
Save as otherwise provided in the Act or Regulations, no person resident outside India shall transfer any immovable property in India:-
Provided that
(i) The Reserve Bank may, for sufficient reasons, permit the transfer, subject to such conditions as may be considered necessary.
(ii) A bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this behalf, permit a person resident in India or on behalf of such person to create charge on his immovable property in India in favour an overseas lender or security trustee, to secure an external commercial borrowing availed under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, as amended from time to time.
(iii) An Authorized Dealer in India being the Indian correspondent of an overseas lender may, subject to the directions issued by the Reserve Bank in this regard, create a mortgage on an immovable property in India owned by an NRI or an OCI, being a director of a company outside India, for a loan to be availed by the company from the said overseas lender.
Provided
(a) the funds shall be used by the borrowing company only for its core business purposes overseas;
(b) in case of invocation of charge, the Indian bank shall sell the immovable property to an eligible acquirer and remit the sale proceeds to the overseas lender.
(iv) A person resident outside India who has acquired any immovable property in India in accordance with foreign exchange laws in force at the time of such acquisition or with the general or specific permission of the Reserve Bank may transfer such property to a person resident in India provided the transaction takes place through banking channels in India and provided that the resident is not otherwise prohibited from such acquisition.
6) Acquisition of Immovable Property for carrying on a permitted activity:-
A person resident outside India who has established in India in accordance with 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, as amended from time to time, a branch, office or other place of business for carrying on in India any activity, excluding a liaison office, may –
(a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity;
Provided that
(i) all applicable laws, rules, regulations or directions for the time being in force are duly complied with; and
(ii) the person files with the Reserve Bank a declaration in the form IPI as prescribed by Reserve Bank from time to time, not later than ninety days from the date of such acquisition.
(b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property acquired in pursuance of clause (a).
Provided no person of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong or Macau or Nepal or Bhutan or Democratic People’s Republic of Korea (DPRK) shall acquire immovable property, other than on lease not exceeding five years, without prior approval of the Reserve Bank.
Analysis:
‘Liaison Office’ means a place of business to act as a channel of communication between the principal place of business or Head Office or by whatever name called and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.
(7) Acquisition by a Long-Term Visa holder:-
A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians who is residing in India and has been granted a Long Term Visa (LTV) by the Central Government may purchase only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for carrying out self-employment subject to the following conditions:
(a) the property should not be located in and around restricted/ protected areas so notified by the Central Government and cantonment areas;
(b) the person submits a declaration to the Revenue Authority of the district where the property is located, specifying the source of funds and that he/ she is residing in India on LTV;
(c) the registration documents of the property should mention the nationality and the fact that such person is on LTV;
(d) the property of such person may be attached/ confiscated in the event of his/ her indulgence in anti-India activities;
(e) a copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of Police (DCP)/ Foreigners Registration Office (FRO)/ Foreigners Regional Registration Office (FRRO) concerned and to the Ministry of Home Affairs (Foreigners Division);
(f) such person shall be eligible to sell the property only after acquiring Indian citizenship. However, transfer of the property before acquiring Indian citizenship shall require prior approval of DCP/FRO/FRRO concerned.
In conclusion, the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, play a pivotal role in shaping the property rights and transactions available to Non-Resident Indians and Overseas Citizens of India. By establishing clear guidelines on permissible property types, funding sources, and transactional processes, these regulations seek to balance the interests of foreign and domestic stakeholders while safeguarding India’s economic and regulatory environment. Adhering to these rules ensures that NRIs and OCIs can engage in property transactions in a compliant manner, facilitating smoother cross-border investments and inheritance processes. Furthermore, the specific nuances related to joint acquisitions by spouses, restrictions for certain nationalities, and provisions for long-term visa holders reflect the complexity and diversity of scenarios covered under these regulations. As global mobility and international ties continue to strengthen, understanding and navigating these rules becomes increasingly critical for individuals seeking to engage with India’s real estate market. This framework not only ensures legal compliance but also contributes to the broader economic and real estate landscape in India.
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