The real estate sector has experienced a slowdown in the recent past, however, it is an undeniable truth that there was a great demand and supply in the real estate sector earlier which attracted millions of Non-resident Indians (“NRI”) to invest in purchasing the properties. It is crucial to note that the purchase of property by NRI has always been a difficult task due to restrictions imposed by the Foreign Exchange Management Act, 1999 (“FEMA”) and the Reserve Bank of India (“RBI”). It is very important for an NRI investor to know the legalities and limitations involved in the purchase of a property.
To understand the requirements that are necessary for an NRI and Overseas citizen of India Cardholder (“OCC”) for purchasing a property in India, it is crucial to understand the terms NRI and OCC.
NON-RESIDENT INDIANS: The word NRI has not been explicitly defined in any act or legislation, however, by the definition of the term “Person resident in India” as defined in two Acts namely, Income Tax Act 1961 and Foreign Exchange Management Act 1999, we can understand that NRI is an Indian citizen who resides in India for less than 182 days during the preceding financial year and stays abroad for the purpose of employment or carrying business or vacation outside India.
OVERSEAS CITIZEN OF INDIA CARDHOLDER: As defined under section 7A of the Citizenship Act, 1955, a person registered as an OCC under the Citizenship Act shall acquire the citizenship of India on basis of Overseas Citizen of India subject to conditions.
Purchasing property in India for an NRI’s has always been a debatable issue. The dilemma of whether to purchase or not, if willing to purchase what may be the consequences has always been there. Few guidelines to help avoid such a dilemma are as follows:
Purchase or sale of immovable property by NRI or OCC
As per the Foreign Exchange Management (Permissible Capital account transactions) Regulations, 2000 read with Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations 2000, any immovable property other than agricultural land, plantation or farmhouse can be purchased by a person resident outside India or Overseas Citizen of India. Further, an NRI or OCC may transfer any immovable property to a person resident in India, or transfer any immovable property to other NRI or OCC except agricultural land, plantation or a farmhouse.
Purchase of property by the person who is an Indian holding foreign passport
The same rule, as mentioned above, is applicable to a person of Indian origin which provide an opportunity to hold dual citizenship which in fact was considered as unconstitutional and subsequently there was an amendment to the Citizenship Act in Citizenship Amendment Act, 2015, and it was made mandatory for a person holding foreign passport to acquire Indian citizenship vide overseas citizen of India card. Further, the amendment also linked the Overseas Citizenship card with a person of Indian origin. As per the amendment, an Indian holding a foreign passport can acquire property only after obtaining an Overseas Citizen of India (OCI) card.
Inheritance of property or acquire by way of gift
As noticed, there is no restriction in FEMA 1999 nor in the Foreign Exchange Management (Transfer and acquisition of immovable property) Regulations, 2000 for acquiring the property by way of gift from the person resident in India. The NRI or OCC can acquire any immovable property in India from a person resident outside India who had acquired the same in accordance with the FEMA laws or any immovable property either agricultural or plantation or farmland from a person resident in India.
Property acquired by NRI through Indian spouse
As per Foreign Exchange Management Regulation (Transfer and Acquisition of immovable property) 2000, spouse of NRI who is not an NRI himself, is allowed to acquire property in India, however, they have limitations on the kind of properties and the number of properties that can be purchased by them. They can acquire any immovable property (but not more than one) except agricultural land and plantation farms provided the marriage between Indian resident and the NRI spouse is registered and subsisted for a continuous period of not less than two years preceding the acquisition of such property and that NRI spouse should not be prohibited from such acquisition.
Property purchased through a company
Foreign companies established in accordance with FEMA can purchase immovable properties for their business purposes only. If the foreign companies have established a liaison office in India then they can only acquire the property on the basis of a lease for the term of not exceeding five years. Therefore, an NRI cannot acquire property through the company.
Mode payment for the purchase of immovable property by an NRI
The payment can be made by a Non-resident investor through the following modes:
- Normal banking channels
- Foreign Currency Non-resident account(FCNR)
- Non-resident Indian accounts(NRI)
- Non- resident rupee account(NRE)
- Non-resident ordinary rupee account(NRO)
Repatriation of sale proceeds of immovable property in India
If a person resident outside India acquired the immovable property situated in India from the following modes then he cannot repatriate the sale proceeds from such property without the prior permission from the RBI:
- If the property is acquired by him by way of inheritance
- If the property was acquired by him when he was resident of India
However, repatriation up to 1 million USD is allowed for a person of Indian Origin/Non-resident Indians if the property is acquired by him through the following persons:
- Immovable property situated in India acquired from a person resident in India by way of inheritance
- From a person who has retired from employment in India
- From a person who has inherited immovable property from the spouse who is resident in India
But if the sale proceeds of immovable property should be repatriated then it is subject to the following conditions:
- The immovable property should be acquired in accordance with the provisions of FEMA.
- The amount paid for acquisition should be any one of the permissible modes of payment.
- If the immovable property is a residential property then an NRI can repatriate sale proceeds of two properties.
Transfer of property vide power of attorney
NRIs can execute duly stamped special power of attorney for the execution of sale of the property held by NRI, whereas general power of attorney can be executed for the purpose of management of day to day affairs. The execution of the sale by the General power of attorney (GPA) holder is considered invalid as the rule implemented after the landmark judgement of the Supreme Court in the case of Suraj Lamp and Industries Pvt. Ltd v State of Haryana wherein it was held that sale transactions cannot be made through agreement to sell or general power of attorney. The intention of the Supreme Court behind this order was to protect the interest of the NRI in the property.
Limitations regarding the remittance of money
NRIs, as per the Liberalised Remittance Scheme, can remit only up to 2,50,000 $ per year through rental income or sale proceeds from India.
Remedies available to a non-resident India in case dispute relating to the property
An NRI can avail of any remedies as is availed by the Indian citizen. If there is any dispute regarding the property, he can approach any court of law and forums for the relief. He can also approach the Real Estate Regulatory and Development Authority for remedies.
On the analysis of the above, we observe that restrictions have been imposed upon an NRI regarding not only the sale or purchase of the immovable property but also upon repatriation of the sale proceeds. The reason behind these restrictions are:
- To keep control over the capital account transactions
- To prevent imbalance in the Indian economy which may occur due to excessive foreign currency transactions.