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The Foreign Exchange Management Act (FEMA), which is given by the Reserve Bank of India (RBI) is the watchdog for the acquisition of immovable property in India by non-residents Indians. FEMA describes a Non-Resident Indian (NRI) as an Indian citizen who resides outside of India. A non-Indian citizen who was born in India, or whose parents or grandparents were born in India, is considered OCI (Overseas Citizen of India). Because NRIs and OCIs are treated equally, we would refer to both as NRIs for the purposes of real estate investment in our subsequent discussion. This discussion is limited to the provisions that apply to NRIs and OCIs.
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Properties at NRIs Disposal and Payment Mechanism
In order to provide general permission to NRIs for purchasing immovable properties in India without having to apply for authorization from the RBI, the Reserve Bank of India issues instructions from time to time explaining the law. As a result of these instructions, the RBI has granted general permission to NRIs to buy certain immovable properties in India. NRIs may also buy residential or commercial properties in India under these guidelines, but they cannot buy agricultural land, farmhouses, or plantation properties.
Due to the current trend of owning a farmhouse, it is imperative to understand that foreign nationals cannot purchase a farmhouse in India. The RBI need not even be informed of NRI purchases, even after transactions are finalized, as long as both residential and commercial properties are invested in by NRIs in India. Further, an NRI can purchase as many residential or commercial properties as he or she desires in India.
Mode of Payment
When buying permitted immovable properties in India, the NRI has two options: either they use the balance in their NRE/NRO or FCNR accounts or they pay by remittances from abroad. Payments made through traveller’s checks or foreign currency cannot be tendered in India since this money can only come through authorized channels including banking channels. NRIs may even take out home loans in Indian rupees to purchase a residential property. An NRI employee’s employer in India can provide a home loan so the employee can finance the property, or a bank or a housing finance company can lend the money.
NRIs can pay their EMI for servicing their home loans in Indian currency either by direct remittance from abroad or by accessing their NRE, NRO and FCNR accounts to do so. Furthermore, borrowers can even service their loans out of their rent received from rental properties or by transferring money from the accounts of relatives to their own accounts.
Required Documents
As a result, the Reserve Bank of India does not require specific documents to be filed with respect to purchasing residential or commercial property. This also applies to non-resident Indians. Documents required for commercial property are generally as follows:
- Cards for OCI (if applicable)
- For NRIs, a passport is required
- Passport size photographs
- Address proof
- Pan card (Permanent account number)
Can NRIs purchase as many residential or commercial properties as they want?
A residential or commercial property can be purchased by an NRI/PIO without restriction as per statutory rules and regulations. Only two residential properties outside India can be repatriated, which means that the proceeds of the sale can be converted into the currency of the country in which they reside. Upon approval of the Authorized Dealer (AD), Bank and payment of applicable taxes, a maximum of USD 1 million can be repatriated per year.
A foreign national can also repatriate property in this way, provided that they inherit it from someone residing in India. Nepal and Bhutan do not allow the repatriation of foreign exchange proceeds from sales.
Purchase of immovable property by a foreign national residing in India
An Indian resident who resides abroad can acquire immovable property in India if he or she meets the FEMA requirements. Individuals in all countries are not required to receive prior RBI approval except for residents of Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Afghanistan, China, Iran, Macau, and Hong Kong, as well as the Democratic People’s Republic of Korea (DPRK).
Whether it is possible to gift immovable property in India?
Residents of India, NRIs, and PIOs can give gifts to NRI/PIOs who are purchasing residential/commercial property. In India, however, residential or commercial property cannot be gifted to a foreigner or someone of non-Indian origin residing abroad. Those who live outside of India are not eligible to acquire agricultural land/plantations/farmhouses through gifts in India.
Residents of NRIs or OCIs may give properties as gifts to NRIs or OCIs in their families. Companies Act, 2013, Section 2(77) defines these relatives. The RBI needs to be consulted before gifting residential or commercial property to foreign nationals of non-Indian origin.
NRIs and OCIs may give Indian citizens who live outside India agricultural land/plantation property/farmhouses as gifts. In order to qualify as a gift recipient, a foreign national must obtain prior RBI approval. Residential or commercial property can be gifted as a gift by a non-resident.
Conclusion
Over the past decade, the real estate market in India has seen rapid growth, with interest in buying real estate in the country being seen by people both inside and outside the country. The FEMA (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 as amended from time to time through notifications and circulars of the RBI allows non-residents to purchase, gift or inherit immovable properties in India and the FEMA (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 allows them to transfer immovable properties to residents of India through sale, gift or inheritance.
Besides buying property, NRIs are also allowed to receive gifts of residential and commercial properties from relatives living abroad or in the United States. NRIs are not allowed to buy agricultural land or other lands in India, but they are permitted to inherit the property from Indian residents. A person who inherits through a Will even from a non-relative or through a relative can receive an inheritance without a valid Will. An NRI can inherit any immovable property in India from another NRI provided that the latter acquired the property in accordance with the rules in effect at the time.
