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
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;
(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 had’nt been so, he would’nt 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 doesn’t 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 NRI’s 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.