PURCHASE OF PROPERTY BY NON RESIDENT INDIANS

Advocate Selvakumar | property advocates in Bangalore | advocates in Bangalore

Many Indians are moving out to other countries in search of jobs and returning back only after retirement. Nevertheless, their desire to own a house in their motherland never dies, which, no doubt, is an asset, but is also source of revenue for the Government.

Acquisition and transfer of immovable property in India by Non-Resident Indians (NRIs) and persons of Indian Origin (PIO) are regulated by certain legislations, which envisages certain terms and conditions, as discussed below:

FERA and FEMA

The earliest law regulating transactions involving acquisition and transfer of the immovableproperties by NRIs and PIO is the Foreign Exchange Regulation Act 1973 (FERA) and the same has been now replaced by Foreign Exchange Management Act, 1999 (Act 42 of 1999) (FEMA), which came into force from 1-6-2000. FEMA has authorized the Reserve Bank of India to form guidelines with regard to acquisition of immovable property by NRIs and PIO.

The following are the explanation given to the frequently used terminologies and certain mandatory pre-requisites before acquiring or transferring the property by NRIs or PIOs, which does not require prior permission of RBI.

Non-Resident Indians:

FEMA defines a NRI as a person not residing in India. This category includes:

1.                     Indian citizens who reside outside for employment, carrying on any business, vocation or any other purpose indicating definite period of stay outside India.

2.                     Indian citizens employed abroad with foreign government, international agencies like UNO, IMF, World Bank etc.

3.                     Employees of Central and State Governments deputed abroad on temporary assignments or posted to their offices. This includes Indian diplomatic missions.

An Indian citizen who goes abroad on a student visa and takes up appointment after the completion of studies will be regarded as a person residing outside India only after taking up a job abroad. Non-Resident Indians are not regarded as residents in India for holidays, business, etc. Persons residing in India means a person residing in India for more than one hundred and eighty two days during the previous financial year, but does not include the persons above.

PIOs

A PIO means a person residing outside India, holding an Indian passport, whose father or grandfather was an Indian citizen by virtue of the Constitution of India or the Citizenship Act, 1955. However, the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan do not fall under this category.

Acquisition / Transfer of Immovable Property by a NRI

 NRIs can acquire or transfer any immovable property in India except an agricultural land, plantation property and farmhouse. However, they can transfer the same to an Indian Citizen residing in India.

Acquisition and Transfer of immovable property by PIO

Following are the permissible norms for a PIO.

PIO may purchase any immovable property except agricultural land, farmhouse and plantation property provided the funds are met out of the funds received in India by inward remittances from outside India or from the funds held in non-resident account, complying with provisions of Act and guidelines of RBI. PIO may accept any immovable property by way of gift from a person resident in India or from NIR or a PIO, except agricultural land, farmhouse and plantation property.

There is no bar on inheritance of any immovable property from person resident outside India, provided that person has acquired the property in conformity with the regulations in force at that time or had acquired such property from a person resident in India. He may also transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian Origin resident outside India.

Repatriation of Sale Proceeds

Prior permission of the RBI is required to repatriate the sale proceeds of immovable property outside India, by a NRI, or his successor. The authorized dealer is permitted to allow repatriation of the sale proceeds of immovable property in India, outside India except agricultural, plantation property or farmhouse to a NRI or to a PIO on following conditions:

1.                  The acquisition of the immovable property by the seller is in compliance          with the law and regulations in force.

2.                  The property is sold after three years from the date of acquisition or from the date of payment of final installment of sale price, whichever is    later.

3.                  The amount to be repatriated does not exceed the amount paid for acquisition in foreign exchange received through normal banking channels or funds held in foreign currency Non-Resident account or equivalent to foreign currency on the date of payment if acquired through      Non-Resident external account.

4.                  If the sale proceeds are from the residential property, repatriation should        not be more than two properties.

5.                  Authorized Dealers may allow to NRIs/PIOs the facility of repatriation of      funds out of balances held in their Non-Resident Rupee (NRO) Accounts,             subject to production of an undertaking by the remitter and a certificate             by a Chartered Accountant in the formats prescribed by the Central Board      of Direct Taxes (CBDT) (enclosed to A.P. (DIR Series) Circular No.56      dated November 26, 2002).

Prohibition on acquisition or transfer of immovable property in India

There is a complete prohibition against acquisition or transfer of immovable property in India by the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Nepal and Bhutan without the prior permission of the RBI. However, they may acquire or transfer immovable property on lease, which should not be beyond five years.

Acquisition of Immovable Property for permitted activities

Reserve Bank of India has accorded permission to the NRIs to acquire immovable property in India, for the purpose of carrying on business or other activities in India on the following conditions:

1.      The purpose is to open a branch or other place of business.

2.      The business or activity is established in India as per the Foreign Exchange Management (Establishment in India of Branch or Offices or other place of business) Regulation, 2000.

3.      The office is not a liaison Office.

4.      There is a need to acquire immovable property to carry on the activity.

5.      There is strict compliance of all applicable laws, rules, regulations and direction in force.

6.      The person files Form No. II within ninety days from the date of such acquisition.

7.      The immovable property acquired can be transferred by way of mortgage to an authorized dealer as security for any amount borrowed.

Housing loan in rupees to a Non-Resident:

NRI or a PIO is eligible for a housing loan to acquire residential accommodation in India subject to the following conditions:

1.                  Loan to be availed from an authorized dealer or a Housing Finance Institution approved by the National Housing Bank.

2.                  Amount of loan, margin to be met and repayment period will be as applicable to a person residing in India.

3.                  The loan proceeds are not allowed to be credited to Non-Residential External (NRE) / Foreign Currency Non-Resident (FCNR) / Non-Resident non-repatriable account of the borrower.

4.                  Loan should be fully secured. The acquired property will; have to be given as security by equitable mortgage. If needed, other assets of the borrower will have to be given by way of lien.

5.                  The repayment of loan, interest and other charges shall be by the borrower out of remittances outside India through normal banking channels. This may be from the funds of the borrower in his Non-Resident External (NRE) / Foreign Currency Non-Resident (FCNR) Non-Resident Non-repatriable (NRNR)/Non-Resident-Ordinary (NRO) / Non-Residential Special Rupee (NRSR) account in India. The rental income of the property acquired may also be used for repayment.

6.                  The interest charged to the loan shall be in conformity with the RBI, National Housing Bank directives.

Investment in Local Funds

Reserve Bank of India grants permission to foreign citizens of Indian origin to invest in local funds in real estate on submission of necessary applications provided such investments are for bonafide use of residence.

If the property is not immediately required for residential purpose, the same may be leased out and the lease amount is repatriable.

Foreign Citizens residing in India are allowed to purchase one property for their bonafide residential purpose out of their Rupee funds.

Investment by non-Indian origin Foreign Citizens

Foreign national of non-Indian origin may purchase immovable properties in India for their residential purpose out of fresh remittance of foreign exchange through normal banking channels, with prior approval of Reserve Bank of India. The income out of investment is not repatriable. If any member of a Partnership Firm, Trust, Association or Club is a Foreign Citizen the prior permission of RBI is necessary for purchase of sale.

Foreign Companies / Banks

Any foreign company other than Banking Companies are permitted to acquire / hold immovableproperties if they are needed for their business. They have to declare such acquisition to the RBI.

Foreign Companies who have only liaison office in India can also invest in acquisition out of fresh remittance.

Foreign Embassies/ Diplomats/ Consulate Generals

Foreign Embassy/ Diplomat/ Consulate General have been allowed to purchase/ Sell immovable property in India other than agricultural land/ Plantation property/ Farm house provided (i) Clearance from Government of India, Ministry of External Affairs is obtained for such purchase/ sale, and (ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channel.

In compliance with the mandatory conditions envisaged in the act discussed above, it is also important and advisable to invest in the property free from any legal hassles, which could validly and legally convey the ownership over the immovableproperty.