Can NRIs acquire property in India?

Non-Resident Indians or Expats always show an increasing interest in buying property in India, driven by emotional connections, investment prospects, and the desire for a second home. However, the process of purchasing property in India as an NRI involves understanding various legal and regulatory compliances.
It is always advisable to consult a lawyer who can guide you through the whole process of acquiring a property according to your requirements. Some important legislations governing property acquisition by the NRIs in India is as below
- Foreign Exchange Management or the FEMA Act 1999
The primary legislation regulating property acquisitions by Non-Resident Indians (NRIs) in India is the Foreign Exchange Management Act (FEMA) 1999. According to FEMA, NRIs can buy residential and commercial properties in India without requiring any special permissions. However, they are prohibited from purchasing agricultural land, farmhouses, or plantation property.
The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India), Regulations came into effect in the year 2018. As per this regulation:
Regulation 3. An NRI or an OCI may
(a) acquire immovable property in India other than agricultural land/farmhouse/ plantation property
Provided that the consideration, if any, for transfer, shall be made out of
(i)funds received in India through banking channels 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, rules or regulations framed thereunder. Provided further that no payment for any transfer of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause.
This implies that NRIs are permitted to buy residential and commercial properties in India without seeking approval from the Reserve Bank of India. However, they are not allowed to use this purchasing power to buy agricultural land, farmhouses, or plantations. On the other hand, NRIs can inherit agricultural property without prior permission from the Reserve Bank of India. The payment for these properties should be made through funds remitted to India via normal banking channels or from funds held in any NRE or FCNR account of the Expat.
However, NRIs have an option to purchase agricultural land, by seeking special permission from RBI and justifying their clear intention to use the land for agricultural purposes. Such requests should adhere to several other regulatory compliances as mandated by RBI. Failure to obtain the necessary permissions can result in penalties, including land confiscation and huge fines.
The regulations outlined in the act also elaborate on various instances of acquisition such as joint acquisition by the spouse of an NRI, acquisition of property for carrying on a permitted activity, etc. It is, therefore, advisable to seek the aid of a legal professional while engaging and interpreting matters of such kind.
- Income Tax Act 1961
The Income Tax Act 1961 is another legislation that regulates property transactions involving NRIs or expats. NRIs are subject to tax liabilities in India on any income generated from any property, including rental incomes and capital gains from sale of any property.
Some key Taxation Aspects of this Act are:
o Rental income earned by NRIs is taxed at the applicable income tax slab rates for NRIs.
o Capital gains from the sale of property are subject to long-term or short-term capital gains tax, depending on the holding period of the property.
o NRIs are eligible for tax deductions under Section 80C for repayment of principal on home loans and under Section 24 for interest on home loans.
- Real Estate (Regulation and Development) Act, 2016
Since the implementation of the Real Estate Regulation and Development Act 2016, the real estate industry has emerged as an attractive market for numerous Non-Resident Indian (NRI) investors. The Act has introduced transparency and accountability to the real estate sector, safeguarding the interests of NRIs. Under the Act, developers are mandated to register all real estate projects and furnish comprehensive disclosures about the projects.
Some Key Provisions of this Act are:
o Mandatory registration of projects with the Real Estate Regulatory Authority.
o Developers must adhere to the project timeline and specifications as disclosed at the time of sale. The builder is therefore liable to complete the project on time without any issues. Security of investment is mandated which means that real estate builders shall keep 70% of the buyer’s payment in a bank account exclusively for the purpose and is overseen by RERA.
o Assist the NRIs by holding developers responsible for delays in completing the project undertaken and prompting interest payment on delays caused.
o To help NRI buyers make a well-informed investment decision, the developers must provide full information regarding the carpet area of the property. Earlier, the super built-up area included unnecessary elements, which reduced the available area to the buyers. However, now with the carpet area, it becomes easier to assess the property and determine its suitability.
o NRI buyers can also seek redressal for grievances through the RERA authority.
- The Benami Transactions (Prohibition) Amendment Act, 2016
When acquiring or transferring property, it is important to consider the Benami Transactions (Prohibition) Amendment Act, 2016. This legislation restricts NRIs from purchasing property in another person’s name in order to prevent money laundering and uphold transparency. The Act does allow for certain exceptions, such as the purchase of property for immediate family members under specific conditions. Non-compliance may result in significant penalties, including property confiscation and imprisonment.
Acquiring a property in India as a non-resident Indian (NRI) can be a promising and appealing prospect, provided individuals are well-versed in and comply with the legal framework governing such transactions. Familiarizing oneself with the regulations outlined in the Foreign Exchange Management Act (FEMA), the Income Tax Act, and the Real Estate (Regulation and Development) Act (RERA), as well as staying informed about pertinent case laws, empowers NRIs to make knowledgeable decisions and safeguard their investments. Undertaking thorough legal and financial due diligence, along with seeking professional guidance, can significantly streamline the process and ensure a seamless property acquisition journey.
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At ABS Partners Legal Consultants, we specialize in guiding NRIs through these complexities, ensuring compliance at every step. Our expert legal team is dedicated to helping you achieve your property acquisition goals smoothly and securely, safeguarding your investments and providing you with the peace of mind you deserve. You can trust ABS Partners to be your reliable partner in navigating the legal landscape of property acquisition in India.
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