IMMOVABLE PROPERTIES

Prohibition on citizens of certain countries

Citizens of eight countries, (namely, Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal. or Bhutan (whether resident in India or not) are prohibited from acquiring or transferring any Immovable Property (IP) in India without prior approval of the RBI. However, such a prohibition is not applicable to IP acquired on lease for a period not exceeding five years.

Policy Shift

There is a major policy shift as far as regulation concerning IP situated in India is concerned. Under FERA acquisition of IP in India was governed by >citizenship criteria, whereas under FEMA the same is governed by "residential status" criteria. It means a foreign citizen who is resident in India (not being a citizen of any of the eight countries listed above) can purchase IP in India without any approval from RBI. He is also not required to file any declaration at the time of purchase of such IP.

General Prohibition

Investment in agricultural property, plantation and farmhouse is prohibited for all classes of persons resident outside India, be it NRIs/OCBs/ foreign citizens or other foreign entities.

Table: Transaction of Immovable Property 

If these provisions are examined carefully it will be noticed that the right to repatriate is acquired by a person who was an NRI/PIO at the time of acquisition and who is an NRI/PIO at the time of the sale. The residential status between these two transactions is inconsequential and immaterial.

All situations not falling in the category of the general permissions, including requests for acquisition of agricultural land by any ROI may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001(India). No application form has been prescribed.

Acquisition and Transfer of IP in India by Foreign Embassies/Diplomats/Consulate Generals

Foreign Embassies/Diplomats/Consulate Generals have been permitted to purchase/sale of IP in India other than agricultural land/plantation property/farm house subject to the following conditions: -

(i) Clearance is required from Government of India, Ministry of Affairs for purchase/sale of IP;

(ii) IP is acquired out of inward remittance from funds outside India through banking channels.

Repatriation of Sale Proceeds

The provisions for repatriation discussed herein below are applicable only in respect of immovable property IP other than agricultural land/plantation/farm house.

Repatriation of IP in India belonging to NRI/PIO before the change of the residential status or acquired through inheritance

Ordinarily, NRI/PIO were required to obtain prior approval of RBI for remittance of sale proceeds of any immovable property owned by him when he was a resident in India or inherited from a person who was resident in India.

NRIs/PIOs are now allowed to repatriate funds held in their Non-Resident Ordinary Rupee (NRO) account up to US $ One Million per year representing sale proceeds of immovable property subject to payment of applicable taxes and on production of an undertaking by the remitter and a certificate by a Chartered Accountant in the formats prescribed by the CBDT and also documentary evidence in support of the acquisition of the asset.

There is no lock-in-period in respect of immovable property acquired by way of­

(a) Inheritance/legacy.

(b) Under a deed of settlement made by his parents or close relatives. The remittance is permitted on the demise of settler.

General Rules for Repatriation

(i) Acquisition of IP by the seller must be in accordance with the provisions of the foreign exchange laws in force at the time of acquisition of such property.

(ii) NRIs/PIOs can effect remittance of sale proceeds of immovable property in India irrespective of the period for which the property was held. The sale proceeds allowed to be repatriated should, however, not exceed the foreign exchange brought in to acquire the said property.

(iii) In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties, if the property was purchased from funds held in NRE Account.

(iv) The amount sought to be repatriated abroad should not exceed the amount paid for acquisition of the immovable property in the foreign exchange received through normal banking channels or out of funds held in FCNR or NRE Account. In case of investment out of NRE Account the amount to be calculated as foreign currency is equivalent value as on the date of payment for acquisition of the said property.

Repatriation of Sale Proceeds of Residential Accommodation in India purchased by NRIs/PIOs acquired by way of loans

RBI has permitted Authorised dealers or Housing Finance Institutions in India approved by National Housing Bank to provide housing loan to NRIs/PIOs for acquisition of residential accommodation in India subject to conditions stipulated in Regulation 8 of Notification No. 4/2000-RB dated 3rd May 2000.

Vide Circular No.1 01 dated May 5, 2003, RBI has decided that the loan amount raised for purchase of residential accommodation which is subsequently repaid by NRIs/ PIOs by remitting funds from abroad or by debit to their NRE/FCNR accounts such repayments in foreign exchange of rupee loans obtained for acquiring residential accommodation may be treated as equivalent to foreign exchange as stated in clause (iv). Authorised dealers have been permitted to allow repatriation of sale proceeds of residential accommodation purchased by NRIs/PIOs out of funds raised by them by way of loans from the authorised dealers/housing finance institutions to the extent of such loan/s repaid by them out of foreign inward remittances received through normal banking channel or by debit to their NRE/FCNR accounts.

Refund of Purchase consideration on account of non­-allotment of flats/plots/cancellation of booking/deals in respect of immovable property purchased by NRIs/PIOs in India

Authorised Dealers are permitted to credit refund of application/earnest money/purchase consideration made by the housing building agencies/seller on account of non-allotment of flat/plot cancellation of bookings/deals for purchases of residential, commercial property, together with interest, if any (net of income tax payable thereon), to NRE/FCNR account, of Non-­Resident Indian/Persons of Indian Origin provided, the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transactions.

Remittance of Rent

NRI/PIOs can freely rent out their immovable property, whether purchase through application of forex or otherwise, without seeking any permission from the RBI. The rental income being a current account transaction is repatriable outside India, only if proper tax is paid or provided for.

Where the house is purchased through housing finance and if the house is rented out, the entire rental income, even if it more than the prescribed installment, should be adjusted towards repayment of the loan. If the rental income is less then the prescribed installment, the borrower should remit the amount of the extent of the shortfall from abroad or pay it out of his NRE, FCNR or NRO account in India. 

Questions and Answers

Q. 1 Can an NRI/a PIO rent out his immovable property in India?

Ans. Yes, the NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from RBI. The rental income being a current account transaction is freely repatriable outside India, subject to payment of applicable taxes.

In this connection, it may be noted that even a person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan can acquire or transfer property in India on lease not exceeding 5 years, without prior permission from RBI.

Q.2 Can an NRI rent his property in India? Can he repatriate the rentals if the concerned property is held on non-repatriation basis?

Ans. NRI may give his property on rent. Rental income, being current account transaction, can be repatriated abroad or be credited to repatriable non-resident accounts after payments of applicable taxes.

Q.3 Whether any interest or share in a Co-operative Housing Society or Apartment Owners Association (also known as Condominium abroad) is an immovable property for the purposes of these Regulations?

Ans. FEMA does not define the expression "immovable property" though the same has been used in various Sections of the Act and the Regulations framed thereunder. Further, even the definition of "immovable property" given in the Transfer of Property Act, 1982, the General Clauses Act, the Sale of Goods Act and the Indian Registration Act, taken together, do not clarify what "immovable property" IP. They only suggest what is either included or not included in "immovable property". Indeed, in the said definitions, shares in the co-operative society are not so included that is to say expressly.

However, the situation appears to be clear in view of the Supreme Court's decision in Hanuman Vitamin Foods Pvt. Ltd. v/s State of Maharashtra (2000) 6 see 345, confirming the Bombay High Court decision in Hanuman Vitamin Foods Pvt. Ltd. & Ors v/s. State of Maharashtra & Superintendent of Stamps, Bombay (Writ Petition Number 1820 of 1986, dated 17th February, 1989), wherein the question posed before the Court was whether the instrument of transfer of shares in a co-operative society was an instrument for transfer of an immovable property, for purposes of levy of stamp duty thereon. The Supreme Court held, by referring to another decision in Veena Hasmukh Jain v/s. State of Maharashtra (1999) 5 SCC 725, that the agreement to sell shares in a Co-operative Society is, in effect, the agreement to sell immovable property.

Accordingly, any interest or share in a Co-operative Housing Society or Apartment Owners Association (also known as Condominium abroad) is an immovable property for the purposes of these Regulations.

Q. 4 Whether Section 6(3)(i) of FEMA read with the aforesaid Regulations is applicable to Companies, firms etc.?

Ans. In view of the definition of "person" given in Section 2(u) which covers various classes of non-individuals and the definition of "person resident in India" given in Section 2(v) and particular reference to clauses (ii), (iii), (iv) thereof, it is clear that the restrictions u/s. 6(3)(i) and the Regulations are also applicable to non-individual persons who are resident outside India.

Q. 5 Who is required to obtain prior permission of RBI to acquire or transfer immovable property in India and under what circumstances such permission is required?

Ans. The following categories of persons are required to obtain prior permission of RBI to acquire or transfer immovable property in India:

It will be thus apparent from the above that all transactions involving acquisition or transfer of immovable property in India by a person residing outside India (as well as by certain persons who are citizens of certain neighbouring countries) require prior permission from RBI unless general permission had already been secured granted for such a transaction in terms of regulations 3, 4 or 5 of the said Regulations.

Whom to apply for permission

Q. 6 If any permission from RBI is required to acquire or transfer agricultural land/plantation property/farm house by a person resident outside India or a foreign national, to whom should the application be made? Is there any prescribed form for the application?

Ans. All requests for acquisition or transfer of agricultural land/plantation property/farm house by any person resident outside India or foreign national may be made to the Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai - 400 001 (India). No application form has been prescribed.

Q. 7 Whether NRIs needs any permission for purchase or sale of an immovable property in India?

Ans. General permission has been granted to NRIs (Non-resident Indian Citizens or Persons of Indian Origin) for purchase and sale of immovable property in India other than agricultural land/farm house/ plantation property.

Q. 8 Can NRIs purchase immovable properties out of NRO accounts?

Ans. Yes. NRIs can purchase immovable properties out of NRO accounts. However, they cannot repatriate the sale proceeds of such properties. However, NRIs can repatriate sale proceeds upto USD 1 million out of NRO account for property held for more than 10 years.

Q. 9 Is there any restriction on number of residential properties that may be purchased by an NRI? Is there any restriction on period of holding for such properties?

Ans. There are no restrictions on the number of residential properties that may be bought by an NRI. However, repatriation is allowed only in respect of two such properties.

Q. 10 Can NRI repatriate the full consideration upon the sale of his property?

Ans. India is fully convertible on current account and partial on capital account. Remittance of sale proceed is limited to the cost of the property only, and the amount of gain on sale of property, cannot be repatriated.

Q.11 Can an NRI take loan against the security of immovable property in India? Are there any restrictions on the use of loan amount?

Ans. An NRI can borrow against the security of immovable property from Authorised Dealer subject to following conditions:

i) the loan should be used for meeting the personal requirements or for borrower's own business purposes; and

ii) loan should not be used for prohibited activities, namely;

(a) business of chit fund, or

(b) Nidhi Company, or

(c) agriculture or plantation activities or in real estate business, or construction of farm houses, or

 (d) trading in Transferable Development Rights (TDRs),

iii) the loan amount cannot be remitted outside India,

iv) repayment of loan shall be made from out of remittances from abroad or by debit to NRE/FCNR/NRO account or out of the sale proceeds of shares or securities or immovable property against which such loan was granted.