FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
And BUYING AND SELLING OF IMMOVABLE PROPERTY IN
INDIA
NRI : Roots
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
And BUYING AND SELLING OF IMMOVABLE PROPERTY
IN INDIA
1. Foreign Exchange Management Act, 1999
has come into force from 1st June, 2000 replacing the earlier Act of
Foreign Exchange Regulation Act, 1973. The Reserve Bank of India had
made regulation under clause (1) of sub section (3) of Section 6, sub
section (2) of Section 47 of FEMA with regard to Foreign Exchange
Management (Acquisition & Transfer of Immovable Property in India)
Regulation 2000. Before we deal with the said Foreign Exchange Management
Acquisition and Transfer of Immovable Property in India) Regulation
2000, it is necessary to know certain definition under FEMA. Section
2 of FEMA gives various definitions of the words used in the said Act
which are also applicable to the said Regulation. Some of them which
are relevant for this Article are as under :-
Section 2(v) Person resident in India means
(i) a person residing in India for more than one hundred and eighty
two days during the course of the preceding financial year but does
not include -
(A) a person who has gone out of India or who stays outside India, in
either case -
(a) for or on taking up employment outside India, or
(b) for carrying on outside India business or vocation outside India,
or
(c) for any other purpose, in such circumstances as would indicate his
intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise
than -
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his
intention to stay in India for an uncertain period;
(i) any person or body corporate registered or incorporated in India;
(ii) an office, branch or agency in India owned or controlled by a person
resident outside India,
(iii) an office, branch or agency outside India owned or controlled
by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by
a person resident in India.
Section 2(w) person resident outside India means a person who
is not resident in India.
Under the said Regulation 2000, Regulation 2(c) defines a person of
Indian origin which reads as under :
a person of Indian origin means an individual (not being
a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China
or Iran or Nepal or Bhutan), who
(i) at any time, held Indian passport;
or
(ii) who or either of whose father or whose grandfather was a citizen
of India by virtue of the Constitution of India or the Citizenship Act,
1955 (57 of 1955).
The aforesaid 3 definitions are vitally important as far as the
application of the said Regulation 2000 is concerned.
2. We shall divide them into following categories :
(a) A person who is a citizen of India and resident of India,
(b) A person who is citizen of India but resides outside India,
(c) A person who is of Indian origin but resides outside India.
(a) A person who is a citizen of India and
also resident of India does not need any permission for the
purpose of acquiring or selling any immovable property. There is no
provision or restriction made with regard to Indian citizens who are
residents of India as far as the transactions of immovable properties
are concerned.
(b) A person who is a citizen of India but
resident outside India
He
(i) may acquire any immovable property in India other than agricultural/plantation/farm
house.
(ii) transfer any immovable property in India to a person resident in
India, and
(iii) transfer any immovable property other than agriculture or plantation
property or farm house to a person resident outside India who is a citizen
of India or a person of Indian origin resident outside India. Such a
person can acquire any immovable property in India except agriculture/plantation/farm
house. He can also sell any immovable property to the residents in India.
This will include agriculture/plantation/farm house, if it belongs to
him. There is no restriction on transfer of agriculture/plantation/farm
house so far as he does so in favour of residents in India. Such a person
can also transfer immovable property other than agricultural/plantation/farm
house to any person who is a citizen of India but resident outside India
or to a person of Indian original resident outside India. In other words
if the purchaser is citizen of India or of Indian origin, even though
he is resident outside India, such a person can transfer immovable property
other than agriculture/plantation/farm house to such an Indian citizen
or person of Indian origin. Such a person cannot transfer any immovable
property to a person who is neither a citizen of India nor of Indian
origin if he resides outside India. A person who reside in India even
though he may not be a citizen or of Indian origin can be transferee
of property from such a person.
(c) A person of Indian origin who is a resident
outside India -
(i) He may acquire immovable property other than agricultural land/farm
house/plantation property in India by purchase from, out of (a) funds
received in India by way of inward remittance in any place outside India
or (b) funds held in any non-resident account maintained in accordance
with the provisions of the Act and the Regulation made by the Reserve
Bank under the Act. In other words, such a person can acquire any immovable
property other than agricultural land, etc. provided funds are inward
remittance from out of India or fund held in non-resident account. Except
the aforesaid two funds, such a person cannot use any other fund for
acquiring immovable property in India.
(ii) He may acquire any immovable property in India other than agricultural
land/farm house/plantation property by way of gift from a person
resident in India or from a person resident outside India who is a citizen
of India or from a person of Indian original resident outside India.
Such a person can receive immovable property as a gift from the following
categories : (i) a person resident in India, (ii) a person resident
outside India but a citizen of India, and (iii) a person resident outside
India but of Indian origin. Therefore, such a gift of immovable property
cannot be accepted by such a person from a person who is neither a citizen
of India nor of Indian origin if he is resident outside India.
(iii) He may acquire any immovable property in India by way of inheritance
from a person resident outside India who has acquired such property
in accordance with the provisions of Foreign Exchange Law in force at
the time of acquisition by him or the provisions of this Regulation
or from a person resident in India. One more way of acquiring such property
by such a person is by way of inheritance. But he can get the property
by inheritence provided the deceased was (i) a person resident in India
(it does not matter whether he is a citizen or not or whether he is
of the Indian origin or not), (ii) the deceased had acquired the property
as per the regulation than prescribed at the time of acquisition by
him or present Regulation 2000. Here there is no exception of agricultural
land/farm house/plantation property. Such property can also be inherited
provided the aforesaid conditions are fulfilled.
(iv) Such a person can transfer any immovable property other than
agricultural land/plantation property/farm house by way of sale
to a person resident in India. Such a person cannot sell agricultural
land, farm house or plantation property to any person. However, in case
of other immovable property, he can only sell the said property to a
person who is resident in India. A person who is not of resident of
India cannot purchase from such a person any immovable property.
(v) He can transfer agricultural land/farm house/plantation property
in India by way of gift or sale to a person resident in India who
is a citizen of India. Such a person can sell or gift even the agricultural
land/farm house/plantation property provided the purchaser or donee
is Indian citizen who is resident in India. A person who is resident
outside India or a person who is not a citizen of India cannot be a
purchaser or donee from such a person. Both the conditions are required
to be complied with, i.e. he has to be a citizen of India and he is
to be resident of India. In short, the purchaser or donee of agricultural
land, etc. from such a person has to be Indian citizen who is resident
of India.
(vi) He can transfer residential or commercial property in India
by way of gift to a person resident in India or to a person resident
outside India who is a citizen of India or to a person of Indian
origin but resident outside India. Such a person can gift immovable
property as well as agricultural land, etc. to a person (i) who is a
resident in India, or (ii) to a person resident outside India but who
is a citizen of India, or (iii) to a person of Indian origin resident
outside India. In short, if one is a citizen of India or of Indian origin
or resident in India, then he can be a donee of a gift of immovable
property from such a person.
3. There is a specific provision meant for acquisition of immovable
property for carrying on a permitted activity. A person resident
outside India who has established in India in accordance with the Foreign
Exchange Management (has established in India of branch or office or
other place of business) Regulation 2000, a branch office or other place
of business for carrying on in India any activity, excluding liaison
office , may, acquire any immovable property in India, if it is necessary
or incidental to carrying on such activity provided all applicable rules,
regulations or directions for the time being in force are duly complied
with and the person/s files with the Reserve Bank a declaration in Form
IPI not later than 90 days from the date of such acquisition. In other
words a person may not be a citizen of India, may not be of Indian origin,
but he has opened a branch or office or other place of business for
carrying on in India any activity (excluding liaison office) even though
he is a person resident outside India, can acquire any immovable property
which is necessary for or incidental to carrying on such activity. It
will be, however, subject to two conditions (i) it must comply with
applicable law, rules, regulations and directions, and (ii) filling
a declaration in prescribed form not later than 90 days from the date
of such acquisition. Such a person can also transfer to an authorised
dealer by way of mortgage as a security for any borrowing the immovable
property acquired which was necessary for or incidental to carrying
on such activity.
4. However, there is complete prohibition on acquisition of immovable
property in India by citizens of Pakistan Bangladesh, Sri Lanka, Afghanistan,
China, Iran, Nepal and Bhutan without prior permission of the Reserve
Bank except in a case of lease not exceeding five years. Citizens of
these countries can neither purchase nor sell immovable property without
permission of the Reserve Bank even though they may be residents of
India. They may take on lease or grand lease of immovable property in
India but not exceeding a period of five years.
5. There is overall restriction on a person who is resident outside
India as to transfer of any immovable property in India except when
the same is as per the provisions of FEMA or as per the Regulation,
2000.
NRI : Roots
Man by nature is nomadic. For if he hadnt been so, he wouldnt
have known new lands. Migrating from one place to another has enhanced
mankind intellectually and financially. Opportunities and a dream to
be a rich has made man go.
But no matter where one goes, the longing to return to ones earlier
habitats, to ones roots is another dream very much cherished. The wishful
thanking to dwell in ones own land is always there.
Non residents of India (NRIs) who had earlier left their motherland
for a brighter future and prosperity long to own a house or a property
in their own motherland. Many speculation regarding buying of property
here in India haunts the NRIs. But the Government has made all this
very easy for them. Acquiring a property here in India is relatively
very simple.
Buying a house : If a NRI wishes to buy a property, he has just
to choose a property anywhere in India. No permission from any Governmental
office is necessary. He doesnt even have to notify the RBI. He
can by residential property or a commercial one it does not make any
difference and restriction is that, a NRI cannot purchase a agricultural
land or a farm house. The Government prohibits an NRI from doing so.
Payment Mode : There no restriction nor condition on payment
on buying a property. Normal banking channels are applicable.
1. FNCR in India
2. HRE in India
3. Remittance from abroad through normal banking channels.
4. NRO accounts in India.
5. Although the payment could be in rupees or any foreign currency,
no reptriation benefits are applicable on these investments.
Lease or sale : If the NRIs property is lying unused, he
can lease it out and earn the proceedings. RBI approval or permission
is not required. There are only two restrictions, (i.e.) the proceeds
out of this lease is taxable and the proceeds cannot be taken out of
India. Also outright selling of NRI property does not require RBI permission
only thing is that the profit on sale is liable to capital gains tax.
If a NRI wishes to sell his property and take away the profits to a
foreign country, he has to follow certain guidelines. If the original
investment is made in foreign exchange, he can take away the proceeds
but subject to only two properties. Also the sale is only liable after
three years of holding the property. If the investment is made in Indian
rupees, then the NRI will have to keep the money in India. If a property
has been bought for commercial purposes (i.e. office or shop, then any
or all the properties can be sold, and the entire proceeds can be transferred
to any foreign country subject to the investment being made in foreign
exchange.
Original Investment : In case of taking back the proceeds from
the sale of original investments, an application to RBI (inform NO.
IPI8) has to be given within 90 days of the sale. The balance sale proceeds
can be used for private purposes or can be again reinvested for permissible
investments.
An NRI however cannot conduct or constitute a direct business activity.
An NRI can invest in land, flats, offices, factories but cannot carry
on a business in real estate. A purchase or sale made once or twice
is allowed but more than that is deemed at business activity.
Gift of Property : An NRI can gift a property to a residence
India, however a 30% gift tax on value of the gift over and above Rs.
30,000.
RBI has been gradually liberalizing and granting wide freedom of movement
in transacting a deal in innumerable property. But in return certain
strict guidelines have be laid down by RBI.
Foreign Exchange Regulation Act (FERA) is a regulatory statute. Three
very important sections of Fera are applicable to NRIs and Residents
outside India.
1) Section 25 which imposes a restrictions on holding of immovable property
outside India.
2) Section 29 which imposes restrictions on establishing of a place
of business in India.
3) Section 31 which imposes restriction on acquisition, holding etc.
of immovable property in India.
When FERA was introduced in 1974, lot of foreign companies had the holdings
in plantation in India for growing tea, coffee, rubber. After the introduction
of FERA, the RBI wanted the branch to be closed down and the company
be incorporated in India.
Earlier, an NRI was not permitted to invest on repatriation (takeaway)
basis. But now availing of repatriation facility is now permissible
to a certain extent.
If proper guidelines laid down by RBI, and subject to FERA are adhered
to an NRI feel free to buy or sell land, or conduct real estate business
in India.