By CA Nitin J Shetty

Jun 27: The procedure, regulation and rules for acquisition and transfer of immovable property in India by Person Resident outside India is governed by the Foreign Exchange Management Act, 1999 (FEMA).

The Foreign Exchange Management Act, 1999 (FEMA) empowers the Central Government to frame regulations/rules to prohibit, restrict or regulate the acquisition or transfer of immovable property in India by persons resident outside India.

Let us understand key terms used in the rules, before understanding the rules governing this.

• Person resident in India as per FEMA means the following:

A person residing in India for more than 182 days during the course of the preceding financial year. However, it does not include a person

a) who has gone out of India or who stays outside India

i) For employment outside India, or
ii) Carrying on business or vocation outside India or
ii) For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.

b) who has come to or stays in India, in either case, otherwise than

(i) For or taking employment in India, or
(ii) For carrying on business or vocation in India, or
(iii) For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

In other words, a person who leaves India for any of the purpose mentioned above will be considered as Person Resident outside India irrespective of the fact that whether he has been in India for more than 182 days in the preceding financial year or not (clause a).

Person who comes to India for any of the purposes mentioned above will be considered as Person Resident in India irrespective of the fact that whether he has been in India for less than 182 days in the preceding financial year (clause b). Person who comes to India for any purpose other than those mentioned above, will be considered as Person resident outside India even if he resides in India for more than 182 days in the preceding financial year.

• A ‘Non Resident Indian’ (NRI) is a person resident outside India as per Foreign Exchange Management Act who is a citizen of India.
• An ‘Overseas Citizen of India (OCI)’ is a person resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

ACQUIRING IMMOVABLE PROPERTY BY WAY OF ANY MODE OTHER THAN GIFT/INHERITANCE:

• NRI/OCI can acquire any immovable property in India except agricultural property / plantation property / farm house.
• No approval from RBI is required. No declarations have to be filed.
• Payment for the acquisition of immovable property should be made out of funds received in India through banking channels by way of inward remittance from any place outside India or by debit to their NRE/ FCNR (B)/ NRO account.
• Acquisition can be from a person resident in India, NRI or OCI (Not from anyone else).

ACQUIRING IMMOVABLE PROPERTY BY WAY OF GIFT:

An NRI or an OCI can acquire by way of gift any immovable property (other than agricultural land/ plantation property/ farm house) in India from person resident in India or from an NRI or an OCI, who in any case is a relative as defined in section 2(77) of the Companies Act, 2013 i.e spouse, parents, son, son’s wife, daughter, daughter’s husband, brother & sister.

ACQUIRING IMMOVABLE PROPERTY BY WAY OF INHERITANCE:

An NRI or an OCI can acquire any immovable property (including agricultural land/ plantation property/ farm house) in India by way of inheritance from a

• Person resident in India.
• Person resident outside India who had acquired the property in accordance with the provisions of the foreign exchange law in force at the time of acquisition.

TRANSFER OF IMMOVABLE PROPERTY:

NRI/OCI can transfer immovable property without any approval as under:

      • Non-Agricultural property can be sold or gifted to person resident in India, NRI & OCI.
      • Agricultural Property can be sold or gifted, only to person resident in India.
      • An NRI can bequeath property in his will to another Person resident outside India or to a person resident in India.

REPATRIATION OF SALE PROCEEDS:

Subject to guidelines, funds can be repatriated (net of tax) abroad without any approval.

Repatriable Investment:

NRI/OCI can repatriate the sales proceeds if the following conditions are satisfied

• Property was acquired in Foreign exchange received through banking channel or out of funds held in FCNR Account or NRE Account in accordance with provisions of Foreign Exchange law in force at the time of acquisition. (Earlier restriction of repatriation upto cost of the property has been removed)
• Property should not be agricultural property/farm house/plantation property.
• In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

Non-Repatriable Investment:

In the case of non-repatriable investment (i.e sale proceeds of any assets including agricultural property, plantation property and farm house acquired out of Rupee funds or sale proceeds of any assets acquired by way inheritance/ legacy/ deed of settlement made by either of his parents or a relative as defined in Companies Act, 2013 to be effected on the death of the settler etc), Authorised Dealers may allow the facility of repatriation of funds upto US$ 1 million per financial year subject to production of relevant documents, undertaking by remitter and a certificate from the Chartered Accountant. (However this limit is all inclusive limits – not specifically for immovable property).

JOINT ACQUISITION BY THE SPOUSE OF AN NRI OR OCI:

A person resident outside India, not being a Non-Resident Indian or an Overseas Citizen of India, who is a spouse of a Non-Resident Indian or an Overseas Citizen of India may acquire one immovable property (other than agricultural land/farm house/plantation property), jointly with his/her NRI/OCI spouse, subject to following conditions

• Payment should be in Foreign Exchange through banking channels by way of inward remittance from any place outside India or from a permitted account held in India.
• Marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property.
• The Non-resident spouse (Non NRI/OCI) should not be a citizen of 11 countries - Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong or Democratic People’s Republic of Korea).

Approval from RBI is not required for transfer of such property to a person Resident in India. However, such person who is Resident in India should not be a Citizen of above mentioned 11 Countries. Repatriation of funds will require prior approval of Reserve Bank of India.

CHANGE OF RESIDENTIAL STATUS/CITIZENSHIP:

A person who was resident in India at the time of acquisition of immovable property, subsequently becomes “Resident outside India” – can continue to hold property in India. Agricultural activities cannot be conducted in case of agricultural properties [Section. 6(5) of FEMA].

A person who was resident outside India at the time of acquisition of immovable property, subsequently becomes resident in India– can continue to hold property.

PENALTY:

As per Section 13 of FEMA, If any person contravenes any provision of this Act or any rule, regulation, notification, direction or order issued under the provisions of Foreign Exchange Management Act 1999, he shall be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. In addition to penalty, such property in respect of which contravention takes place can be confiscated.

CONCLUSION:

Owing to the above restrictions under FEMA regulations, it is critical that prior to entering into a transaction for acquisition/transfer of any immovable property, one must assess the residential status under FEMA to be able to comply with FEMA regulations. Any transaction involving acquisition or transfer of immovable property under these rules shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties or levies in India.

On a reading of this article, please bear in mind that there is a difference in the definition of Resident as per FEMA 1999 and as per Income Tax Act 1961.