NRIs and people of Indian origin are allowed to purchase, receive or transfer by way of gift any immovable property without permission from the Reserve Bank of India
India’s real estate has always been one of the investment opportunities for investors to explore due to the high returns it has offered. More so now, thanks to the implementation of the Real Estate (Regulation and Development) Act, 2016, (RERA), which aims at protecting consumer rights and increasing transparency.The good news is that even non-resident Indians can invest in this sector under the extant foreign exchange regulations. Non-resident Indians include Non-Resident Indian citizens (NRIs) and Persons of Indian Origin (PIOs).
An NRI is an Indian citizen who is not a resident of India as per foreign exchange regulations. The definition of resident under the foreign exchange regulations of India is different from that of Indian income tax laws.PIO is defined to include an individual (who is not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Hong Kong, Macau, Iran, Nepal or Bhutan) who at any time held an Indian passport or whose parents or grandparents were Indian citizens.
Purchase and/or inheritance of immovable property
Typically, both NRIs and PIOs are allowed to purchase or receive by way of gift any immovable property in India without permission from the Reserve Bank of India, except an agricultural land, plantation property and a farm house. Further, both NRIs and PIOs are also allowed to inherit any immovable property (including agricultural land, etc.) in India. There is no restriction on the number of immovable properties both NRIs or PIOs may hold.In case of purchase of an immovable property, payment can be made only out of funds received in India through normal banking channels by way of inward remittance from any place outside India or out of funds held in any Non-Resident External (NRE) account/Foreign Currency Non-Resident (FCNR) account/Non Resident Ordinary (NRO) account maintained in India.Payment cannot be made through travellers’ cheque or foreign currency notes or any other mode.
Transfer of immovable property
NRIs can transfer any immovable property in India by way of sale or gift to residents of India, other NRIs or PIOs without requiring any permission. However, agricultural land, plantation property and a farm house can be transferred only to Indian residents.PIOs can also freely transfer any immovable property other than agricultural land, plantation property and a farm house to Indian residents by way of sale. Agricultural land, plantation property and a farm house can be transferred by way of gift or sale only to a person resident in India who is a citizen of India. PIOs may transfer residential or commercial property in India by way of gift to Indian residents, NRIs and PIOs.In case of sale of immovable property (other than an agricultural land, plantation property and a farm house), the funds can be freely remitted out of India, subject to the following conditions:• The acquisition of immovable property was made in compliance with the foreign exchange regulations existing at the time of acquisition• The sale proceeds being repatriated cannot be more than the amount paid for acquiring immovable property in foreign exchangeIt is pertinent to note that in the case of sale of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.Further, remittances out of balance held in NRO account can be made only up to $1 million per financial year. In case the property was acquired by way of a gift, the sale proceeds may be received in the NRO account for remittance purposes. However, all the remittances should be made only after making payment of applicable taxes (both direct and indirect) in India.Lastly, foreign nationals of non-Indian origin, resident outside India, can only acquire immovable property in India through inheritance from a person resident in India. Further, such individuals can transfer immovable property only with prior permission of RBI.The above information is general information and specific advice should be sought for any foreign investments in India. Also, it is recommendable to check the tax implications that may arise on any transaction before making a decision!
FAQs1. Is there any limit on the number of properties that NRI or PIO can buy or sell? There is no restriction on the number of properties that a person can buy or sell. However, there is a restriction on the number of residential properties whose sales proceeds can be freely repatriated. While the proceeds of two residential properties can be freely repatriated, the proceeds from third property and thereafter can be deposited in an NRO account out of which a total of $1 million per financial year can be freely remitted.
2. Is rental income freely repatriable? Rental income can be repatriated freely from India without taking any specific permission. 3. How do I repatriate profits or capital gains on sale of a property?There is a restriction on the remittance of proceeds beyond the principal amount of investment. However, the profits and/or gains can be deposited in the NRO account of the remitter and, consequently, the same can be remitted outside India, provided it does not exceed the threshold of $1 million per financial year.
Why NRIs should consider investment in immovable property in India
RERA has emerged as a strong force in welcoming participation and confidence of NRIs who have arguably been the most prominent investors in the sector.
Ever since India embarked on the path of economic liberalisation, non-resident Indians (NRIs) have endeavored to optimize returns on their investment avenues. To support this, the government has introduced several new schemes, offered relaxations and incentives for attracting investments especially from NRIs. Real estate has been a key area for attracting such an investment and is considered one of the most prominent and high returns sectors.Acquisition of real estate by NRIs is governed by the Foreign Exchange Management Act, 1999 (FEMA) and has seen control from government and the RBI with the apprehension that uncontrolled investments may fuel speculation in property prices. Typically, NRIs may purchase immovable property (other than agricultural land/ plantation property/ farm house) in India or obtain by inheritance or by way of gift (from Indian resident, Indian citizen residing outside India / PIO) and other permitted modes as per FEMA regulations. NRIs are also permitted to transfer immovable property to a person resident in India, person resident outside India who is a citizen of India or to a person of Indian origin resident outside India. The payment for such an acquisition of real estate can be paid out of the funds received in India through normal banking channels by way of inward remittance from any place outside India or from the proceeds of housing loans which can be availed in rupees from an authorised dealer bank or housing finance institution in India or by use of funds held in any non-resident account such as NRE, FCNR(B), NRO Account maintained in accordance with the provisions of FEMA and other applicable regulations.NRIs may also repatriate sale proceeds of immovable property (other than agricultural land, farm house or plantation property) only after ensuring compliance with FEMA Regulations and further subject to adherence of taxation regulations. The funds to be repatriated should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or the amount paid out of funds held in FCNR (B) account, or NRE account for acquisition of the property in India.However, RBI has permitted NRIs to remit an amount up to USD 1 Million in a financial year, out of balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all bonafide purposes, to the satisfaction of the AD Bank. It should also be noted that in the case of a residential property, repatriation of the sale proceeds is restricted to a maximum of two such properties.Further, 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) may be allowed by the AD Bank by way of credit to NRE/FCNR (B) account, provided the original payment was made out of NRE / FCNR (B) account of the account holder or remittance from outside India through normal banking channels and the AD Bank is satisfied about the bonafides of the transaction. The Real Estate (Regulation and Development) Act, 2016 (RERA) effective from May 1, 2017 is recognized as one of the most consumer-friendly law and having paved the way for sector regulator has enhanced the credibility of real estate sector. RERA has emerged as a strong force in welcoming participation and confidence of NRIs who have arguably been the prominent investors in the sector. For NRIs, the Indian real estate market definitely holds the highest possible investment potential where their aim is to maintain a healthy long-term investment horizon of between 7-10 years and the transparent and well-regulated sector would strengthen the investment regime.RERA governs and covers all existing ongoing and future projects, after which the developers are mandated and directed to disseminate the entire project related information on the web portal for ease of access for investors. Public dissemination of project status would boost transparency and compliance which is critical and essential for investors who are miles away from the project site and may have invested their life savings. NRIs who generally do not have access to the project site can be highly relieved and assured of their investment with implementation of RERA.The government and the RBI have stressed upon to boost the participation of NRIs investor in property in India and further simplify acquisition of immovable property by NRIs and the onus to ensure diligent compliance of FEMA regulations, vests with the investors. It is imperative that every investment in real estate is well thought-out, planned, evaluated and implemented. NRIs have always been opportunistic in terms of their investment and with the revised guidelines and relaxations compared to earlier decades and implementation of RERA investing in immovable properties in India is not a herculean task for NRIs anymore.