FEMA Perspective
Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and certain foreign nationals can acquire and transfer immovable property in India under specific guidelines as below:
A. Acquisition of Immovable Property by NRIs and OCIs
1. Acquisition of Property:
- NRIs or OCIs are permitted to acquire immovable property in India, except agricultural land, farmhouses, or plantation properties.
- Funding for acquisition must come from: a. Inward remittance through banking channels from outside India, or
b. Funds held in non-resident accounts (e.g., NRE or NRO accounts). - Payments cannot be made using traveller’s cheques, foreign currency notes, or any other mode not explicitly allowed.
2. Acquisition by Gift:
An NRI or OCI can acquire property as a gift from another NRI, OCI, or a person resident in India, as long as the donor is a relative.
3. Acquisition through Inheritance:
NRIs and OCIs can inherit immovable property in India from a person living outside India, provided the property was acquired in accordance with Indian foreign exchange laws or inherited from a person living in India.
B. Joint Acquisition with Spouse
A Foreign National spouse of an NRI or OCI can acquire property jointly with the NRI or OCI spouse (excluding agricultural land, farmhouses, or plantation properties).
Provided that the marriage must have been registered and existed for at least two years before acquisition.
C. Prohibition on Transfer of Property
- 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 that this prohibition shall not apply to an OCI.
D. Case Base Examples:
| Example | Condition of Law | Allowed or Not |
|---|---|---|
| John, an NRI from the USA, wants to buy a flat in Mumbai. | NRIs can purchase residential properties in India, excluding agricultural land, farmhouses, or plantations. | Allowed – John can buy the flat in Mumbai as it’s a residential property. |
| Sarah, an OCI in the UK, is gifted a flat in Delhi by her Indian resident Father. | Property can be gifted to an NRI or OCI by a relative. | Allowed – Sarah can accept the flat as a gift from her relative, as it meets the legal conditions. |
| David, an NRI in the USA, inherits a flat in Mumbai from his deceased Indian-resident Mother. | NRIs can inherit property in India, provided the property was acquired in compliance with foreign exchange laws. | Allowed – David can inherit the property in Mumbai as it follows the regulations for inheritance. |
| Priya, an OCI in Canada, and her foreign national spouse want to jointly purchase a flat in Bangalore. | The marriage must have been registered for at least 2 years for the foreign national spouse to jointly acquire property in India. | Allowed – Priya and her spouse can jointly acquire the flat, as their marriage is over two years old. |
| Ali, a citizen of Pakistan, wishes to buy agricultural land in India. | Citizens of certain countries like Pakistan must seek prior approval from the Reserve Bank of India to acquire property in India. | Not Allowed – Ali cannot buy agricultural land without prior RBI approval. |
Tax Perspective
1. Acquisition by Purchase
There are no direct tax implications on the purchase of land in India, such as purchase tax or acquisition tax. However, it is required to pay stamp duty, ranging from 4% to 7% (depending on the state) and registration fees when acquiring the property.
2. Acquisition by Inheritance
Inheriting immovable property is not taxable for NRIs, as India does not have an inheritance tax or estate duty. This may be subject to tax in the host country of the receiver depending on the local tax laws.
3. Acquisition by Gift
If an NRI receives immovable property as a gift, it is exempt from tax if it is transferred by a relative. However, an immovable property received as a gift from a non-relative exceeding a stamp duty value of Rs. 50,000 will be taxable under Section 56(2)(x). This may be subject to tax in the host country of the receiver depending on the local tax laws.
4. Acquisition from Resident
If an NRI purchases a property from a resident Indian, then TDS must be deducted @ 1% if the sale consideration exceeds ₹50 lakh. The TDS amount is paid to the government by filing Form 26QB within 30 days from the end of the month in which the TDS deduction was initiated.
5. Acquisition from Non-Resident
If an NRI purchases a property in India from another NRI, then TDS must be deducted @ 20% (plus applicable surcharge and education cess) and the buyer needs to file Form 27Q.
6. Case Base Example
Kuldeep and Mehra are NRIs living in the U.S. Kuldeep is selling his property in India to Mehra and both wish to complete the transaction using their U.S. bank accounts. However, under FEMA guidelines, payments for Indian property must be made through:
- Inward remittance via a recognized banking channel from outside India.
- NRE or NRO accounts held by NRIs.
- No payments via traveler’s cheques or foreign currency notes.
Since their U.S. accounts don’t meet these criteria, the transaction can’t proceed. Therefore, funds need to be received in the Indian account of the seller.
This is the first article in a series covering various aspects of investments, acquisitions, transfers, gifts, and sales of immovable properties by Non-Resident Indians (NRIs). We will also explore transactions between NRIs and Resident Indians concerning both Indian and overseas properties.
Over the next few weeks, we will cover the following topics:
- Acquisition of immovable properties by NRIs in India
- Sale of immovable properties by NRIs in India
- Gift of Indian immovable properties between NRIs and Resident Indians
- Acquisition of overseas properties by Resident Indians
- Gift of overseas properties between NRIs and Resident Indians
- Tax and other regulatory issues around immovable properties in India
- Remittance of sale proceeds of immovable properties by NRIs out of India
Stay tuned as we delve deeper into these crucial aspects of NRI property transactions.