In order to address various issues relating to acquisition and transfer of immovable property in India by a person resident outside India under the provisions of the Foreign Exchange Management Act, 1999, a set of FAQs has been prepared for the information of all concerned. These FAQs seek to cover the broad spectrum of issues relating to acquisition and transfer of immovable property in India by a Non- Resident Indian (NRI) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin as also by a person resident in India who is not a citizen of India.
Under FEMA, a person resident in India is defined as a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period. In other words, to be treated as `a person resident in India' under FEMA, a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose / intention of stay.
The Act defines a 'a person resident outside India' as a person who is not a person resident in India' (As defined in the question above)
Who is ‘Person of Indian Origin’ (PIO) for purposes of FEMA?‘Persons of Indian Origin (PIO)’ are those individuals residing abroad who;
at any time held Indian passport
Or
who or whose father or grandfather were citizen of India by virtue of the constitution of India or the Citizenship Act. Under Article 5 of the constitution, a person is citizen of India If he was born in territory of India
OR
If either of his parents were born in territory of India
OR
Who has been ordinarily residing in the territory of India for not less than 5 years before the commencement of the constitution Persons who are citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan are not treated as PIO even if they satisfy any of the two aforesaid conditions.
Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority.
A foreign national resident in India does not require approval from Reserve Bank under FEMA guidelines, but approvals if any required in terms of regulations prescribed by other authorities such as the concerned State Government etc. will have to be obtained by him / her. However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan requires specific prior approval of Reserve Bank.
Q. Under the extant foreign exchange regulations to whom is general permission available for purchase of immovable property in India ?
A. General permission is available to purchase only a residential / commercial property in India to a person resident outside India who is a citizen of India (NRI) or who is a person of Indian origin (PIO).
Q. Is NRI / PIO who has purchased residential / commercial property under general permission required to file any documents with Reserve Bank of India?
A. NRI / PIO who has purchased residential / commercial property under general permission is not required to file any documents with the Reserve Bank.
Q. Is there any restriction on the number of residential / commercial properties that NRI / PIO can purchase under the general permission available ?
A. There is no restriction on the number of residential / commercial properties that NRI / PIO can purchase under the general permission available.
Q. Can a name of a foreign national of non-Indian origin be added as a second holder to a residential / commercial property purchased by NRI / PIO ?
A. No.
Q. Can a foreign national of non-Indian origin resident outside India acquire any immovable property in India by way of purchase ?
A. No. Under section 2(ze) of the Foreign Exchange Management Act, 1999 'transfer' includes among others, 'purchase'. Therefore, a foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of purchase.
Q. Can a foreign national of non-Indian origin acquire residential property on a lease in India ?
A. Yes. A Foreign National of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan may acquire only residential accommodation on lease, not exceeding five years for which he / she does not require prior permission of Reserve Bank of India.
Q. Can a person resident outside India (i.e., a NRI or a PIO or a foreign national of non-Indian origin) acquire agricultural land / plantation property / farm house in India by way of purchase ?
A. No. A person resident outside India cannot acquire by way of purchase agricultural land / plantation property / farm house in India.
Q. Can NRI / PIO acquire residential / commercial property by way of gift under the general permission available?
A. Yes. Under the general permission available NRI / PIO may acquire residential / commercial property by way of gift from a person resident in India or a NRI or a PIO.
Q. Can a foreign national of non-Indian origin resident outside India acquire residential / commercial property in India by way of gift?
A. No. Under section 2(ze) of the Foreign Exchange Management Act, 1999 `transfer' includes among others, `gift'. Therefore, a foreign national of non-Indian origin resident outside India cannot acquire residential / commercial property in India by way of gift.
Q. Can a person resident outside India (i.e. a NRI or a PIO , or a foreign national of non-Indian origin) acquire agricultural land / plantation property / farm house in India by way of gift ?
A. No. A person resident outside India cannot acquire agricultural land / plantation property / farm house in India by way of gift.
Q. Can a person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) hold any immovable property in India acquired by way of inheritance from a person resident in India?
A. Yes. A person resident outside India can hold immovable property acquired by way of inheritance from a person resident in India as per the provisions of Section 6(5) of the Foreign Exchange Management Act, 1999.
Q. Can a person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) hold any immovable property in India acquired by way of inheritance from a person resident outside India?
A. With the specific approval of Reserve Bank a person resident outside India may hold any immovable property in India acquired by way of inheritance from a person resident outside India, provided the bequeathed had acquired such property in accordance with the provisions of foreign exchange law in force at the time of acquisition or under FEMA regulations.
Q. Under general permission available to whom can NRI transfer by way of sale his residential / commercial property ?
A. NRI can transfer by way of sale residential / commercial property in India to a person resident in India or to a NRI or a PIO.
Q. Under the general permission available to whom can a PIO transfer his residential / commercial property by way of sale ?
A. PIO can transfer by way of sale residential / commercial property in India only to a person resident in India.
Q. Can a PIO transfer by way of sale his residential / commercial property to a NRI or a PIO ?
A. No. He would need to seek Reserve Bank’s prior approval for transfer by way of sale residential / commercial property in India to a NRI or a PIO.
Q. Can a foreign national of Non-Indian origin whether resident in India or outside India transfer by way of sale residential property in India acquired with the specific permission of Reserve Bank to a person resident in India or outside India ?
A. No. A foreign national of non-Indian origin whether resident in India or outside India would need to seek prior approval of Reserve Bank for transfer by way of sale residential property in India acquire with the specific permission of Reserve Bank to a person resident in India or outside India.
Q. Under the general permission available to whom can NRI / PIO transfer by way of sale his agricultural land / plantation property / farm house in India?
A. Under the general permission available NRI / PIO may transfer by way of sale his agricultural land / plantation / farm house in India to a person resident in India who is a citizen of India.
Q. Can a foreign national of non-Indian origin resident outside India transfer by way of sale agricultural land / plantation property / farm house acquired by him in India ?
A. A foreign national of non-Indian origin resident outside India would need to seek prior approval of Reserve Bank for transfer share, by way of sale, agricultural land / plantation property / farm house acquired in India.
Q. Under general permission available can NRI / PIO transfer his residential / commercial property way of gift ?
A. Yes. NRI / PIO may transfer by way of gift residential / commercial property in India to a person resident in India or to a NRI or a PIO.
Q. Under the general permission available to whom can NRI / PIO transfer by way of gift agricultural land / plantation property / farm house in India ?
A. Under the general permission available NRI / PIO may transfer by way of gift agricultural land / plantation property / farm house in India to a person resident in India who is a citizen of India.
Q. Can a foreign national of non-Indian origin resident outside India transfer by way of gift agricultural land / plantation property / farm house acquired by him in India ?
A. No. A foreign national of non-Indian origin resident outside India would need to seek prior approval of Reserve Bank for transfer by way of gift agricultural land / plantation property / farm house acquired by him in India.
Q. Can NRI / PIO transfer by way of mortgage his residential / commercial property to an authorised dealer / housing finance institution in India ?
A. Yes.
Q. Can NRI / PIO transfer by way of mortgage his residential / commercial property in India to a party abroad ?
A. No. He should seek prior approval of RBI.
Q. Can a foreign national of non-Indian origin resident in India or outside India transfer by way of mortgage his residential / commercial property in India acquired with the specific approval of Reserve Bank to a party in India or abroad ?
A. No. He should seek prior approval of RBI. However, immovable property purchased by a person resident outside India who has established a Branch Office or other place of business for carrying on in India any activity in accordance with FERA / FEMA regulations, may under general permission available, mortgage such a property with an authorised dealer as a security for any borrowing.
Q. Under the general permission available what is the mode of payment for purchase of residential / commercial property in India by NRI / PIO ?
A. Under the general permission available NRI / PIO may purchase residential / commercial property in India out of funds remitted to India through normal banking channel or funds held in his NRE / FCNR (B) / NRO account. No consideration shall be paid outside India.
Q. Can refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat / plot / cancellation of bookings / deals for purchase of residential / commercial property together with interest, if any (net of income tax payable thereon) be credited to NRE account ?
A. Yes, provided original payment was made by way of inward remittance or by debit to NRE / FCNR (B) account. For this purpose no permission of Reserve Bank is required and they may approach the authorised dealer directly in the matter. (Please refer to A.P. (DIR Series) Circular No.46 dated November 12, 2002.
Q. Can NRI take loan for buying the property?
A. Yes, Authorised dealers and Housing Finance Institutions approved by National Housing Bank (e.g. HDFC, LIC Housing Finance, etc.) have been permitted to grant housing loans to NRIs for acquisition of residential accommodation subject to the condition that the quantum of loan and other terms are at par with those applicable to residents, the amount of loan is not credited to NRE or FCNR account, loan is fully secured and the instalments are paid either out of foreign inward remittances or out of non-resident accounts i.e. NRE,FCNR or NRO accounts or out of rental income.
In case loan is repaid out of foreign remittance or out of NRE/FCNR account, the investment in property to that extent is considered as having been made in foreign exchange and hence repatriable.
Q. Can NRI / PIO, avail of housing loan in rupees from an authorised dealer or housing finance institution in India approved by the National Housing Bank for purchase of residential accommodation or for the purpose of repairs / renovation / improvement of residential accommodation ?
A. Yes, subject to certain terms and conditions. Such loans can be repaid by the borrower by way of inward remittance through normal banking channel or by debit to his NRE / FCNR (B) / NRO account or out of rental income derived from renting out such property. Such loan can also be repaid by the borrower's close relatives through their account in India by crediting the borrower's loan account (Please refer to Regulation 8 of Notification No.FEMA 4/2000-RB dated May 3, 2000 and A.P. (DIR. Series) Circular No.95 dated April 20, 2003 and A.P. (DIR Series) Circular No.94 dated May 25, 2003).
Q. Can the sale proceed of the property be repatriated?
A. Yes. In case the property was acquired by the seller in accordance with the provision of foreign exchange law in force at the time of acquisition, the proceed of sale can be repatriated. The repatriation shall, however, not exceed the amount paid in foreign exchange received through inward remittance from abroad or out of funds in FCNR account or foreign exchange equivalent of amount paid out of NRE Account. The excess sale consideration over the amount paid in foreign exchange (profit) can be remitted out of NRO account subject to USD 1 million per financial year per person. In case of repatriation of sale proceed of residential property, it is limited to sale proceed of two such properties.
Q. What are other sums paid in connection with investment in immovable properties which are permitted to be repatriated?
A. Following amounts are also repatriable.
- Amount paid in foreign exchange returned by the builder as a result of non-allotment.
- Amount paid in foreign exchange for allotment, which is returned by the builder on cancellation of allotment.
- In case property was purchased out of housing loan and the loan was repaid out of inward foreign remittance or out of funds held in NRE or FCNR account, the sale proceed of property to the extent of loan so repaid is allowed to be repatriated.
Q. Can the sale proceed of any immovable property i.e. property not acquired out of foreign exchange be repatriated?
A. Yes. Sale proceed of properties held by an NRI in India which are not acquired out of foreign exchange funds can also be repatriated out of NRO account subject to the overall limit of repatriation of money equivalent to USD One million in a financial year.
Q. Is there any time limit of holding of property for the purpose of repatriations?
A. No, there is no time limit for holding the property. Such time limits earlier existing have been removed.
Q. Can the rental income be repatriated?
A. Yes, rental income being a current account transaction is repatriable after payment of applicable taxes.
Q. What are the formalities to be completed for repatriation?
A. Repatriation is permitted subject to payment of applicable taxes in India. Only net amount is repatriable. The person repatriating should submit a declaration addressed to the Assessing Officer having jurisdiction over the case. It should be certified by a Chartered Accountant and submitted to the authorized dealer(AD). In case NRI does not maintain NRO Account and has no taxable income in India ADs may allow remittances after obtaining a simple declaration, in duplicate, to the effect that he/she is not a tax payer in India.
In case remittance is to be made in more than one installment, the same should be remitted through the same Authorised Dealer.
Q. What are capital gains tax implications when NRIs sell the property?
A. NRIs selling the property are subject to capital gain taxation. The gain is computed by taking the difference between the sale price and the indexed cost of acquisition as well as cost of improvement incurred after acquisition.
Q. What is indexed cost of acquisition?
A. Indexed cost is the original cost as adjusted for inflation as per the cost inflation index notified by the Central Government from year to year with 1981-82 as the base year. The index for the Financial Year 2006-07 as notified is 519.
Q. At what rate is capital gain taxable?
A. All capital gains are either short term or long-term gains. Gains arising from immovable property held for a period of more than 36 months are termed as long-term gains. Those from property held for 36 months or less are short-term gains.
While short-term gains are subjected to tax at the normal rate applicable to the person, long term gains are taxed at the flat rate of 20%.
Q. How is the sale value determined for computing capital gains?
A. The sale value is not always the actual sale consideration as appearing in the instrument of transfer. In case the value determined by the Stamp Valuation Authority for the purpose of Stamp Duty is higher than the actual disclosed consideration, it is the value determined by Stamp Valuation Authority that is taken for computation of capital gain. The provision is aimed at taking care of the practice of understatement of consideration resulting in tax-evasion. Provision also exists for asking for a reference to the Departmental Value if the seller considers the value determined by Stamp Valuation Authority as excessive.
Q. Are there any provisions to avoid tax on capital gains from immovable properties?
A. Provisions exist for exemption of tax liability arising from Long-term capital gains if the amount of such gains is utilized for investment in specified assets. Such specified investments are –
| (i) |
Gains from a residential house |
Investment in another residential house one year before or two years after the transfer. In case the residential property is proposed to be constructed, it can be done within 3 years of the transfer. |
| (ii) |
Gains from assets other than residential house e.g. commercial property or land etc. |
Investment in residential house within one year before or two years after (if purchased) and 3 years after (if constructed) provided the assessee does not have more than one residential house already. |
| (iii) |
Gains from any immovable property |
In Bonds issued by Rural Electrification Corporation or National Highway Authority of India within 6 months of the transfer. |
On investment in the manner aforesaid the gains are not subjected to tax but if the new asset is transferred without holding it for 3 years, the exemption granted is withdrawn and taxed as short-term gain.
Q. Is there a withholding provision?
A. Yes, the purchaser is under an obligation to deduct tax at the rates prescribed in the Finance Act out of the purchase considerations. In case the seller feels that the tax will not be payable by him as he is going to invest the gains in specified assets, he should make an application u/s. 197(1) to the A.O. in Form 13 for issue of certificate to the purchaser to make payment without deduction of tax.
In case tax has been deducted, it is considered as tax paid on behalf of the seller and credit is allowed to him in his assessment.
Q. Is there any lock in period for sale of residential / commercial property purchased out of inward remittance / debit to NRE / FCNR (B) account ?
A. No lock in period is applicable for sale of such property.
Q. Is there any restriction on number of residential properties in respect of which sale proceeds can be repatriated by NRI / PIO ?
A. Yes. Repatriation of sale proceeds is restricted to not more than two residential properties.
Q. Into which account the sale proceeds of residential / commercial property received by way of gift by NRI / PIO can be credited ?
A. The sale proceeds of residential / commercial property received by way of gift by NRI / PIO should be credited to NRO account only.
Q. Can sale proceeds of any immovable property inherited by NRI / PIO from a person resident in India be remitted abroad ?
A. Yes. Amount not exceeding USD one million, per calendar year subject to production of documentary evidence in support of inheritance and Tax clearance certificate / no objection certificate from the Income Tax authority to the authorised dealer for remittances. However, if a PIO is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran he should seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance / no objection certificate from the Income Tax authority. This remittance facility is not available to a citizen of Nepal or Bhutan. (Please refer to Regulation 4(3) to Notification No.FEMA 13/RB-2000 dated May 3, 2000).
Q. Can sale proceeds of any immovable property in India inherited, by a foreign national of non-Indian origin resident outside India, from a person resident in India be repatriated by him ?
A. Yes. Amount not exceeding USD one million, per calendar year subject to production of documentary evidence in support of inheritance and Tax clearance certificate / no objection certificate from the Income Tax authority to the authorised dealer for remittances. However, if a PIO is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran he should seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance / no objection certificate from the Income Tax authority. This remittance facility is not available to a citizen of Nepal or Bhutan. (Please refer to Regulation 4(2) (ii) of Notification No.FEMA 13/RB-2000 dated May 3, 2000).
Q. Can sale proceeds of any immovable property in India inherited, by a person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin resident outside India), from a person resident outside India be repatriated by him or his successor ?
A. No. He needs to seek prior approval of Reserve Bank with documentary evidence in support of inheritance and tax clearance / no objection certificate from the Income Tax authority.
Q. Can a person resident outside India who has established a Liaison Office in India in accordance with FERA / FEMA regulations purchase immovable property ?
A. No
Q. Can a person resident outside India who has established a Branch Office or other place of Business in India in accordance with FERA / FEMA regulations purchase immovable property ?
A. Yes, provided it is necessary for or incidental to carrying on such activity and all applicable laws, rules, regulations or directions are duly complied with. The purchase price should be paid by way of inward remittance through proper banking channel. A declaration in form IPI should be filled with Reserve Bank within ninety days from the date of acquisition of commercial / residential property.
Q. Can such a property referred to the above question be mortgaged with an Authorised dealer as a security for any borrowing ?
A. Yes. RBI has granted general permission for such a mortgage.
Q. On winding up of the business can the sale proceeds of such property be repatriated ?
A. Yes. With prior approval of Reserve Bank.
Q. Can Foreign Embassies / Diplomats / Consulate General purchase / sell immovable property in India ?
A. Yes. Under general permission available Foreign Embassies / Diplomats / Consulate Generals may acquire any immovable property other than agricultural land / plantation property / farm house in India. Such property may be purchased / sold provided prior clearance from the Government of India, Ministry of External Affairs has been obtained for such purchase / sale. The consideration for purchase of such property should be paid by way of inward remittance through normal banking channel.
Q. Can NRI / PIO rent out the residential / commercial property purchased out of foreign exchange / rupee funds, if not required for immediate use ?
A. Yes. Rent received, being current income may be credited to NRO / NRE account or remitted abroad.
Q. Can NRI who had acquired immovable property viz., residential / commercial property / agricultural land / plantation property / farm house in India while he was a person resident in India continue to hold or transfer such immovable property ? In which account the sale proceeds may be credited ?
A. Yes, under the provisions of Section 6 (5) of the Foreign Exchange Management Act, 1999 NRI who had acquired immovable property in India while he was a person resident in India may continue to hold such property. Under the general permission available he may transfer by way of sale or gift agricultural land / plantation property / farm house in India to a person resident in India who is a citizen of India and may transfer by way of sale or gift residential / commercial property in India to a person resident in India or to a NRI / PIO. The sale proceeds may be credited to NRO account.
Q. Can PIO who had acquired immovable property viz., residential / commercial property / agricultural land / plantation property / farm house in India while he was a person resident in India continue to hold or transfer such immovable property ? In which account the sale proceeds may be credited ?
A. Yes, under the provisions of Section 6 (5) of the Foreign Exchange Management Act, 1999 PIO who had acquired immovable property in India while he was a person resident in India may continue to hold such property. Under the general permission available he may transfer by way of sale or gift agricultural land / plantation property / farm house in India to a person resident in India who is a citizen of India and may transfer by way of sale or gift residential / commercial property in India to a person resident in India or to a NRI / PIO. The sale proceeds may be credited to NRO account.
Q. Can the sale proceeds of the immovable property referred to in Q.Nos.46 and 47 credited to NRO account of NRI / PIO, be remitted abroad ?
A. Yes, provided the immovable property was held for a period not less than ten years.
Q. What if such an immovable property was held for less than ten years ?
A. If such a property acquired out of rupee funds is sold after being held for less than ten years, remittance can be made, if the sale proceeds were held for the balance period in NRO account (Savings / Term Deposit) or in any other eligible investment, provided such investment is traced to the sale proceeds of the immovable property.
Q. Under erstwhile FERA, foreign nationals of non-Indian origin resident in India or outside India had with the specific approval of Reserve Bank acquired residential property in India. While they can continue to hold the same under the provisions of Section 6(5) of FEMA, 1999 can they transfer such property ?
A. Yes, only with the prior approval of Reserve Bank.
Q. Is a person resident in India governed by the provisions of Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000 ?
A. A person resident in India who is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan is governed by the provisions of Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000.
