By Nitin J Shetty, Chartered Accountant, Mangaluru
Mangaluru, Apr 23: NRIs (Non Resident Indians), PIOs (Persons of Indian Origin), OCI holders (Overseas Citizens of India) or even Indian citizens with hard cash may be tempted to invest in lush farmlands or plantation properties in Karnataka, India.
Reason - the produce from agricultural land, or the rental income by leasing out such land to a farmer or income from house constructed on such a land, is totally tax free.
Such verdant lands are also exempted from wealth tax; a tax that is, by and large, levied on benefits that accrue from any owned property.
But purchasing agricultural lands anywhere in India can be risky despite the tantalizing tax breaks and wealth tax exemption.
There are some stringent restrictions imposed upon by the central and the state governments on buyers locally and abroad, even on those of Indian origin.
Despite the caution, if foreign nationals, NRIs, PIOs and OCI holders would still prefer to invest in agricultural lands/plantation properties/farm houses in Karnataka specifically, take note of these crucial points:
Under RBI’s Section 6 (3) (i) of the Foreign Exchange Management Act (FEMA), 1999 and other regulations amended from time to time:
1. No agricultural land can be legally purchased by foreigners in Karnataka. In fact this rule is uniformly applicable all over India. No Indian state permits foreign nationals to buy farmlands.
2. NRIs and PIOs also cannot buy agricultural land in Karnataka. Same rule applies all over India. RBI’s approval is mandatory and it will surely not be easily attainable.
Even if the apex Indian bank allows the same, it would largely depend on individual circumstances.
3. OCI holders too cannot buy agricultural land in Karnataka. For all intents and purposes they are foreign citizens despite their OCI status.
While the OCI status grants them visa for life to stay in India, they have not been granted the Indian citizenship. They still hold foreign passports and hence are not eligible.
4. NRIs, PIOs, OCI holders and foreign citizens of Indian origin also cannot acquire agricultural land in Karnataka or the whole of India, by way of gift.
They can, however, acquire agricultural land by way of inheritance in Karnataka.
NRIs/PIOs who have acquired foreign citizenship can continue to hold agricultural land or any other property they owned in India before change of their residential status.
The caveat here is that they should have inherited or acquired the same legally (as per FEMA regulations of the time) before accepting foreign citizenship.
Also NRIs/PIOs owning / holding agricultural lands/plantation properties or farm houses in India may sell or give as gift the aforesaid property only to a person resident in India who is a citizen of India.
All foreign nationals of non-Indian origin resident outside India would need prior approval of the RBI to sell or gift agricultural lands/plantation properties/farm houses in India.
Now coming to the Indian citizens, those who wish to buy agricultural land in Karnataka, they too must be aware of the State laws before making any concrete decision on the matter.
Some of the critical legal riders as per Section 79A onwards of the Karnataka Land Reforms Act 1961 and the amended Act 1995 of the same are as follows:
1. Plantation crop under the said Act has been defined as cardamom, coffee, pepper, rubber and tea. Such a plantation land does not come under the definition of agricultural land.
2. The buyer’s income including that of his family from sources other than agricultural lands should not exceed Rs. 2 lakhs per annum.
3. The buyer must be originally an agriculturist or an agricultural worker with agricultural land in his name before the year 1974.
4. He cannot purchase land granted to members of scheduled caste and tribe. Besides he should remember land granted by the government cannot be sold for a period of 15 years.
5. After purchasing agricultural land the buyer must use the land for agricultural purpose only. It is legally forbidden to utilize agricultural land for any other purpose.
6. However, agricultural land that does not fall under the Green Belt can be converted for non-agricultural purposes. For instance, it can be converted into residential, commercial, industrial purposes etc.
But this can be done only after approval of the statutory authorities on payment of the prescribed fees and fulfilling certain other conditions.
7. Agricultural land cannot be leased for any period whatsoever, except in the districts of Uttara Kannada and Dakshina Kannada for the purpose of utilizing the land for aquaculture for a period not exceeding 20 years.