Home Sweet Home!
Those who have moved out of their place of birth for various reasons, mostly for better prospects, may have retained their Indian nationality/ citizenship or may have accepted the citizenship of a foreign country. Indians have been settling in various parts of the world and integrated with the local population, having stayed in their adoptive/host country for generations.
The first step adopted by the Government of India in recognising the aspirations of persons staying away from their home country was to liberalise the Foreign Exchange regime. This was brought in by the Foreign Exchange Management Act (“FEMA”) in 1999. Obviously, liberalisation is an ongoing process and there is need to constantly monitor the regulations and notifications issued by the Indian government and the Reserve Bank of India (“RBI”).
The regulatory framework under FEMA is regulated and administered by the R. Unlike other laws where everything is permitted unless specifically prohibited, under FEMA nothing is permitted unless specifically permitted.
Broadly speaking…
The concept of “residency” of a person varies from legislation to legislation e.g. the Indian Income Tax Act, 1961 and the Foreign Exchange regulation Act, 1999. This is because the purpose of each of such laws is different and accordingly different definitions suitable for specific intent and purpose are adopted.
Here, we are only dealing with the “residency” of a person vis-à-vis acquisition, inheritance, transfer and repatriation of immovable properties under FEMA.
Who is a Non-Resident Indian (“NRI”)?
In the present context an NRI is a person resident outside India, who is a citizen of India. A ‘person resident outside India’ is a person who has gone out of India or who stays outside India for the purpose of employment or carrying on business or vocation or any other circumstances which indicate his intention to stay outside India for an uncertain period.
Who is a Person of Indian Origin (“PIO”)?
PIO means an individual who (i) at any time, held Indian passport; or (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. Even if the above-mentioned two conditions are met, citizens of Pakistan, Bangladesh, Nepal, Bhutan, Afghanistan, Iran, Sri Lanka, and China are excluded and cannot be PIOs.
Categories of Immovable Property
There are broadly three categories of immoveable property:
Residential,
Commercial, and
Agricultural.
Of these, the status of residential and commercial property is nearly the same and is substantially liberalised. However, Agricultural property stands on a different footing.
Agricultural Property consists of agricultural land, plantations or farmhouses. To safeguard the interests of poor farmers and agricultural sector in general, strict restrictions regarding transfer and acquisition of Agricultural properties are put in place as a matter of long-standing policy of the Indian government.
Acquisition and Transfer by NRI
An NRI can purchase residential and commercial properties in India. Payment for purchase of property 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
Funds held in any non-resident account maintained in accordance with the provisions of the FEMA and the regulations made by Reserve Bank of India from time to time.
Such payment cannot be made either by traveller's cheque or by foreign currency notes or by other mode other than those specifically mentioned above.
NRI can transfer any residential and commercial properties in India, whether inherited, self acquired or otherwise legally acquired, to:
A person resident outside India who is a citizen of India ,or
A person of Indian origin resident outside India, or
A person resident in India.
Restrictions
An NRI cannot purchase agricultural land / plantation property / farm house without the prior permission of the RBI.
An NRI cannot transfer agricultural or plantation property or farmhouse, (which he may have inherited or purchased before he became NRI), except to Indian citizens permanently residing in India, without the prior permission of the RBI.
Acquisition and Transfer by PIO
Residential and Commercial Property
A PIO can acquire any immovable property in India except agricultural land / farmhouse / plantation property:-
By way of purchase out of funds received by way of inward remittance through normal banking channels or by debit to his NRE / FCNR(B) / NRO account.
By way of gift from a person resident in India or a NRI or a PIO.
By way of inheritance from a person resident in India or a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force or FEMA regulations at the time of acquisition of the property.
A PIO can acquire a residential or commercial property by purchasing it or through inheritance without any restriction. A PIO can acquire such a property through gift only from an India resident, NRI or PIO.
A PIO may transfer any immoveable property other than agricultural land/ Plantation property/ farmhouse in India:
A PIO may transfer agricultural land/ plantation property/ farmhouse in India by way of sale or gift to only person resident in India who is a citizen of India.
Agricultural Property
It may be noted that acquisition of agricultural land/ farmhouse/ plantation property by PIO is prohibited in all the above circumstances.
A PIO can acquire an agricultural property only through inheritance from a person resident in India or a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force or FEMA regulations at the time of acquisition of the property. Further, transfer of agricultural property by an NRI, to another NRI or PIO or foreign citizen is prohibited.
Repatriation of sale proceeds
In the event of sale of immovable property other than agricultural land/farm house /plantation property in India by an NRI or PIO, the authorised dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:
the immovable property was acquired by the seller 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;
the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non-Resident Account or (b) the foreign currency equivalent, as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property; and (c) Loans repaid in for-ex repatriable upon sale·
In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Upto US$ 1 million per year, representing sale proceeds of immovable property, held by them subject to payment of applicable taxes.
All other repatriations shall be only with the prior permission of the RBI.
