Non-Residential Indian Investment In Immoveable Property In India
Author: LawSphereX
Category: Property & Real Estate
Published:
Updated:
NON-RESIDENTIAL INDIAN INVESTMENT IN
IMMOVEABLE PROPERTY IN INDIA
Om Tirankar, Maharashtra National Law University, Mumbai
ABSTRACT
This article gives an overview on the regulatory framework which governs Non-Resident Indian (NRI) making investment in the immoveable property in India, which are primarily guided by the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI). The law talks about the NRIs as Indian citizens which are residing outside India and talks about the types of properties the NRIs can invest in which also exclude agricultural land, farmhouse, and plantation. The law and regulation allow NRIs to sell, purchase, own, and rent properties. The transaction is funded through approves banking channels. The article talks about several drawbacks in the regulation. There are restrictions on transferring properties which may cause delays, The restriction on funds from greater than two residential properties may restrict liquidity.
Moreover, the limits apply to the people from specific countries, which makes the process of investment more difficult for the people. However, NRI investment in the real estate of India provides chances for capital valuation and income through rent. The regulatory framework brings the issues that the investor must take into consideration.
INTRODUCTION
Asset acquisition potential for the Non-Residential Indians (NRIs) in the state of India which are made by considering the framework made under the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI). NRI means a person who resides outside India but is citizen of India. 1 INVESTMENTS IN IMMOVEABLE PROPERTY BY NRI IN INDIA NRI investment regarding non-debt instrument is regarding by the “Foreign Exchange Management (Non debt Instruments) rules, 2019”. The rules provide extensive description of purchasing or transferring of real estate property but not including an agricultural land, farmhouse or plantation. These laws allow NRI to buy, own, sell, and rent out property when they are outside of India. In the case an Individual possessed the property while residing in India or received the property as a gift from an Indian resident, the restriction is lifted.
From the understanding according to section 6(5) of FEMA, “NRIs have the right to own, hold, handover, or invest in immovable property which is situated in India. 2” “When the immovable land of such is acquired, held, or owned by him/ her when he/ she was the resident in India or inherited from a person resident in India. 3” Regulations are:
1. Regulation 24(a), states that NRIs are allowed to acquire immoveable property in
India but it also has provided that, it should not be agricultural land, farmhouse, or plantation property.4 The thought for the property must be financed transferred via financial institution via inward remittance from abroad or capital held in nonresident account like “NRE”, “NRO”, OR “FCNR” accounts.5
2. Regulation 24(b), this regulation allows NRIs to acquire property as a present by
the person who is resident in India or by the form of “NRI” or “OCI”, provided the gift other than.6
3. Regulation 24(c), it allows NRIs to come into possession of real property from any
1 Regulation 2(aj), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
2 Reserve Bank of India - Master Directions
3 Section 6(5), Foreign Exchange Management Act, 1999
4 Regulation 24(a), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
5 https://www.rbi.org.in/commonman/English/scripts/FAQs.aspx?Id=1855#Q1
6 Regulation 24(b), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
people residing outside India, also it provides that the possession of the estate is possessed via the “Foreign Exchange” regulation at the time of acquisition or from a person resident in India.7
4. Regulation 24(d), NRIs may Transfer property located in Inda to any resident in
India.8
5. Regulation 24(e), it allows immoveable property to get transferred by the NRIs to
another NRIs or OCI.9 6. Regulation 29, states that sale proceeds from the sale of real property by a nonresident Indian is allowed to be repatriated, as long as such property was purchased in accordance to the existing foreign exchange regulation, however, such repatriation is limited to the sale proceeds of two residential properties.10
7. Regulation 26, an NRI is permitted for taking over a immoveable property in India
for purpose of conducting business activities, provided the property is essential for or incidental to the business, additionally, a declaration of such acquisition must be submitted to the RBI within 90 days.11
8. Regulation 25, any individual residing out of India, who is not an resident of India,
is permitted to acquire in partnership with NRI spouse on immovable property, provided the property is not agricultural land, a farmhouse, or plantation property. The acquisition must be funded through authorized banking channels, such as inwards remittance from abroad or funded through authorized banking channels, such as inward remittances from abroad or funds held in non-resident accounts (NRE OR NRO), payment cannot be made using traveler’s cheques, currency of foreign, or any other mode except those explicitly specified.12 Marriage should been legally registered and subsisted for a minimum of two years before the acquisition, ensuring the transaction is rooted in a genuine marital relationship, additionally,
7 Regulation 24(c), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
8 Regulation 24(d), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
9 Regulation 24(e), Foreign Exchange Management (Non-debt Instruments) Rules, 2019
10 Regulation 29, Foreign Exchange Management (Non-debt Instruments) Rules, 2019
11Regulation 26, Foreign Exchange Management (Non-debt Instruments) Rules, 2019
12 Supra 2
non-resident partner is not allowed for acquiring property if this kind of acquisition is restricted under the Indian law or regulation issued by Reserve Bank.13 DRAWBACKS IN THE REGULATION
1. Regulation 30, imposes restriction on the transfer of immoveable property by NRIs,
requiring a previous acceptance form the reserve bank of India for few transfer, which may result in delays in completing transaction.14
2. Regulation 29, restricts the return of sell proceeds to an utmost of two residential
estate, potentially limiting liquidity for NRIs seeking to sell more than two properties, additionally, it prohibits the repatriation of proceeds from agricultural land, farmhouses, and plantation properties.15
3. Regulation 31, imposes restrictions on citizens of specific countries, including
Pakistan, Bangladesh, and China, mandating previous acceptance by reserve bank of India for acquiring or transferring immovable property in India, the additional regulatory layer makes it more challenging for individuals from these countries to invest without prior authorization. Such provision introduces complexity and limitations that may deter potential investor, impacting the overall ease of doing business for NRI in India.16 SUPPORTING INFORMATION
1. It is possible to transfer agricultural land, plantation properties, or even a farmhouse
to an NRI citizen permanently living in India, but only if it was acquired through inheritance.17
2. An NRI may transfer his or her residential and commercial property to an person of
India resident outside India or to another NRI, but without prior permission from the reserve bank, a foreign citizen of non-Indian citizen must acquire permission 13Regulation 25, Foreign Exchange Management (Non-debt Instruments) Rules, 2019 14Regulation 30, Foreign Exchange Management (Non-debt Instruments) Rules, 2019
15 Regulation 29, Foreign Exchange Management (Non-debt Instruments) Rules, 2019
16 Regulation 31, Foreign Exchange Management (Non-debt Instruments) Rules, 2019
17 https://www.mea.gov.in/images/pdf/acquisition-and-transfer-of-immovable-property-in-india.pdf
from the reserve bank.18
3. A NRI may, on the other hand, without the permission of the Reserve Bank,
mortgage property to an authorized dealer or a housing finance corporation of India. To mortgage a foreign national of non-Indian origin, one must first get permission from the Reserve Bank. Moreover, A foreign company having a branch office or other place of business in India in compliance with FERA/FEMA regulation has specific permission to mortgage properties with an authorized dealer in India.19
4. NRIs possessing certificate from a Chartered Accountant can repatriate the proceeds
from selling an inherited immovable property from India, provided the annual limit does not exceed USD one million. This process is subject to the production of sufficient documentation that validates the acquisition or inheritance of the asset, and an undertaking from the remitter. Moreover, NRIs must also include a certificate of a Chartered Accountant as prescribed by the Central Board of Direct Taxes in Circular No. 10/2002 dated October 09, 2002. However, foreigners are subject to additional scrutiny as one needs to seek prior permission from the Reserve Bank in order to repatriate proceeds from a property that was gifted by an Indian Living Abroad. Foreigners are also required to submit sufficient documentation proving the inheritance alongside the necessary undertaking and Chartered Accountant certificate.
It is also important to note that foreign citizen from Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, and Iran are required to obtain permission directly from Reserve Bank in order to repatriate proceeds. Citizens of Nepal and Bhutan are also restricted from this provision under FEMA and therefore cannot repatriate in foreign currency. 20
CONCLUSION
The investment regulations associated with Non-Resident Indians (NRIs) purchasing Indian land and properties, is mainly within the confines of the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) allows NRIs to buy, sell, possess and lease immovable properties except for agricultural lands, farmhouses and plantations. Although there
18 Id
19 Id
20 Id
are some capital appreciation and rental yield opportunities, there are considerable obstacles in the way. Some of these obstacles include, restrictions on ownership transfers, limits on the repatriation of proceeds from the sale of more than two dwelling houses, and other capricious restrictions or barriers for foreigners from some nations like Pakistan, Bangladesh, and China. However, the real estate market in India remains attractive for NRIs because of the high return on investment and the mix of capital and considerable regulatory investment which needs to be constantly monitored.