Foreign Investment in Real Estate

Unprecedented investment option are available fro investment in real estate by Non-Resident Indians. Relaxed tax provisions coupled with liberal rules and regulations for repatriation of rental income as well as repatriation of the sale proceeds make NRI interested in the present day booming real estate sector.
All those non=resident Indians who are interested to make investment in real estate must refer to Foreign Exchange Management Act, 1999 as amended up-to date together with FEMA rules, irculars as well as notification issued from time to time. The following is the check list of salient feature relating to investment in real estate by a non-resident Indian.

1. The rules and regulations relating to purchase of immovable property by non-resident Indians is contained in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. as per this Regulation the non-resident Indians are not permitted to make investment in agricultural land, plantation property or a farm house in any part of India.

2. As per regulation no. 3 of the above mentioned regulation, an Indian citizen resident outside India is permitted to acquire any immovable properties are simple and not complex one. Just like a resident Indian they enjoy full freedom to buy any immovable property other than agriculture/plantation property or a farm house.

3. The non-resident Indian in terms of the regulation No. 3 is also permitted to transfer any property (other than agricultural/plantation property and farm house) to any Indian citizen or a person of Indian origin resident outside India. For this purpose “a person of Indian Origin” mans an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who at any point of time, held Indian passport or 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. Transfer of property by way non resident Indian could be by way of sale, gift or relinquishment of right in a property.

4. A person of Indian origins as per the definition mentioned in the above paragraph is permitted to:
(a) acquire any immovable property other than agricultural land/farm house/ plantation property in India by purchase, from out of (i) funds received in India by way of inward remittance from any place outside, India, or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank under the Act.

(b) 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 origin resident outside India;

(c) acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these regulations or from a person resident in India;

(d) transfer any immovable property in India other than agricultural land/farm house/plantation property, by way of sale to a person resident in India;

(e) transfer agricultural land/plantation property in India, by way of gift or sale to a person resident in India who is a citizen of India;

(f) 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 resident outside India.

5. A non-resident Indian who has established a branch, office or any place of business for carrying on in India any activity except the liaison office is permitted to acquire any immovable property in India which is necessary for carrying on such activity provided all relevant applicable laws, rules and regulations are complied and such person also files with the Reserve Bank of India a declaration inform No. IPI. This form has to be submitted in duplicate within a period of ninety days from the date of acquisition of immovable property. The non-resident Indian can also transfer the above property by way of mortgage to an authorised dealer as security for borrowing of the immovable property.

6. The repatriation of sale proceeds of immovable properties situated in India belonging to a non-resident Indian while he was a resident in India or which were inherited by him from a person who was resident in India can be affected only with the prior permission of Reserve Bank of India. Thus, an NRI is required to make an application for repatriating the proceeds of original investment made in commercial as well as resident immovable properties situated in India.

7. In the event he immovable property is acquired by the non-resident Indian or citizen of India or a person of Indian origin, the authorised dealer may allow repatriation of the sale proceeds outside India provided the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law and that the sale of such property takes place only after three years from the date of a acquisition of such immovable property or from the date of payment of final installment of consideration, whichever is later the maximum amount that can be repatriated should not exceed the amount which has been paid for acquisition of immovable property in foreign exchange which was received through normal banking channels or out of funds held by an NRI IN FOREIGN Currency Resident Account or the amount paid from the Non Resident External Account. The repatriation of the sale proceeds specially of residential property is restricted to not more than two properties.

8. The citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan are not permitted to acquire or transfer immovable property without prior permission from the Reserve Bank of India. Similarly, if a person is interested to sell and repatriate the proceeds of a plantation property, he shall make an application to this effect to the Reserve Bank of India.

9. The non-resident Indians as well as persons of Indian origin are now permitted to remit though the authorised dealer an amount upto US$ one million per calendar year out of the balances held in NRO account representing the sale proceeds of immovable property which was acquired, out of rupees/foreign currency funds. The repatriation of proceeds of immovable property which were acquired in India out of rupee/foreign currency funds can be affected only when the property is held by NRI/PIO for a period of not less than ten years. In case such property is sold by holding it less than ten years, the repatriation can be made in case the sale proceeds are held for the balance period in NRO account (Savings/Term Deposits) or any other eligible investment to the satisfaction of the authorised dealer.

10. The remittance of sale proceeds of immovable property which have been acquired by way of inheritance, legacy or settlement would not present any problem at all. There is no lock-in period for repatriation of the sale proceeds of immovable properties arising out of sale of properties consequent to inheritance, legacy or settlement and thus would cause no problem for repatriation of the funds. The remittance would be permitted only after payment of all applicable taxes like income-tax, Surcharge and education cess. For this purpose an undertaking as also a certificate from the chartered accounts in required.

11. The NRIs as well as PIOs are freely permitted remittance of current income by way of rent. Even for persons who do not maintain NRO account is freely allowed repatriation after payment of applicable taxes. They also have the option to credit the rent amount to non-resident (external) Rupee account but only when the authorised dealer is satisfied that the credit represents income of the non-resident account holder and that income-tax thereon has been deducted at source or provided for.