ACQUISITION AND TRANSFER OF PROPERTY IN INDIA
ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA
1.1 Background
Restrictions in respect of acquisition and transfer of immovable property in India by non-resident are covered in Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
Instructions are consolidated in RBI Master Circular No. 4/2013-14 dated 1-7-2013 [earlier Master Circular No. 4/2012-13 dated 2-7-2012]
In Geeta Reinboth v. Mrs. J Clairs Brohier (2005) 63 SCL 411 (MP HC DB), it has been held that restriction on acquisition, holding etc. of immovable property cannot be stretched so as to include prohibition to right of inheritance.
1.1-1 Acquisition and Transfer of Property in India by an Indian citizen resident outside India
A person resident outside India who is a citizen of India may acquire any immovable property in India other than agricultural/plantation/farm house. Payment of purchase price shall be made out of funds received from banking channels from outside India or from non-resident account maintained as per provisions of FEMA Act. Payment by traveller’s cheques or by foreign currency notes is not permissible [regulation 3 of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000] [para 2A of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
A PIO who has purchased residential/commercial property under general permission is not required to file any documents with RBI [para 2B(v) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
NRI can transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India. If asset is sold, amount equivalent to foreign exchange brought in can be repatriated [para 2A(ii) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
An NRI may acquire immovable property in India by taking loan from authorised dealer or housing finance institution in India. It may happen that after the loan is repaid, the NRI may sale the property. In such case, if he had repaid the amount out of remittances abroad or from their NRE/FCNR account, sale proceeds to the extent of foreign exchange inward remittances can be remitted abroad – RBI circular No. 101 dated 5-5-2003.
NRI can acquire property even from rupee funds in India while PIO can acquire immovable property only from out of funds received in India by inward remittance.
1.1-2 Acquisition and Transfer of Property in India by PIO
A person of Indian origin (PIO) resident outside India may acquire immovable property other than agricultural land/farm house/plantation property in India by purchase, from out of funds received in India by way of inward remittance from any place outside India or funds held in any non-resident account in India. Payment by traveller’s cheques or by foreign currency notes is not permissible [regulation 4 of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000] [para 2B of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
‘PIO’ has meaning as defined in regulation 2(c).
A NRI/PIO who has purchased residential/commercial property under general permission is not required to file any documents with RBI [para 2B(v) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
He can also acquire by gift/inheritance. It can be transferred to citizen of India.
If immovable property acquired by NRI/PIO is sold, amount equivalent to foreign exchange brought in can be repatriated. – – As per circular No. 35 dated 1-11-2002, there is no lock-in period for which the property should have been held in India – RBI press release No. 387 dated 18-9-2003 [para 5(B) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
[Really, this provision seems of little significance as remittance upto one million USD is permitted without any such restrictions].
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), can be deposited in NRE/FCNR account, 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 transaction. [RBI circular No. 44 dated 12-11-2002] – [para 6 of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
Restrictions in case of citizens of some countries – Citizen of Bangladesh. Pakistan, Sri Lanka, Afghanistan, China, Nepal, Iran or Bhutan cannot acquire immovable property without prior permission of Reserve Bank of India. However, he can acquire by lease for a period upto five years [para 7 of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
1.1-3 Acquisition by others only through inheritance
Foreign nationals of non-Indian origin resident outside India can acquire immovable property only by way of inheritance from a person who was resident in India. Others can acquire immovable property only with specific permission of RBI. Same of such property will also require approval of RBI [para 8 of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
1.2 Sale of immovable property by NRI/PIO
An NRI/PIO is permitted to sale his immovable property in India and repatriate the sale proceeds abroad upto US $ one million per financial year. There is no lock-in period – RBI circular No. 12 dated 16-11-2006 [para 5(B) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2013-14 dated 1-7-2013].
Remittance will be permitted on submission of certificate of CA in form prescribed by CBDT (in respect of TDS) [para 5(B) of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
A person resident outside India (other than above) referred to in section 6(5) of FEMA or his successor, will require prior permission of RBI to repatriate sale proceeds of immovable property [regulation 6(a) of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
1.3 Immovable Property for carrying on business
A person resident outside India who has established in India a branch or place of business (but not a mere liaison office) in accordance with RBI regulations, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity [regulation 5 of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000] [para 4 of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012].
All applicable laws, rules, regulations or directions for the time being in force should be duly complied with.
The person acquiring property should file with the Reserve Bank a declaration in the form IPI within 90 days.
The form IPI has to be filed only when the immovable property is acquired in India by a person resident outside India who has established in India a branch, office or other place of business, excluding a liaison office. Transaction made by person resident outside India who is citizen of India or PIO are not required to be reported – RBI Circular No. 79 dated 15-2-2012.
The property can be transferred by way of mortgage to an authorised dealer as a security for any borrowing. If the asset is sold, sale proceeds can be repatriated only with prior permission of RBI
1.4 Sale/purchase by foreign embassies/diplomats
A foreign embassy/diplomat/consulate general may purchase/sell immovable property in India other than agricultural land/plantation property/farm house. They should obtain clearance from Ministry of External Affairs. Purchase should be from inward remittance of foreign exchange. RBI permission is not necessary, but clearance from Ministry of External Affairs is required to be obtained – RBI circular No. 19 dated 23-9-2003 [regulation 5A of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000] [para 3 of RBI Master Circular No. 4/2013-14 dated 1-7-2013 – earlier Master Circular No. 4/2012-13 dated 2-7-2012
1.5 Encashment of security of immovable assets created for purpose of ECB
Authorised Dealer Category I can issue no objection under FEMA for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender/security trustee, to secure the ECB to be raised by borrower. ‘No objection’ can also be issued for issue of corporate guarantee in favour of overseas lessee, for operating lease in respect of import of aircraft/aircraft engine/helicopter.
The conditions to be specified while issuing ‘No objection’ have been specified in RBI circular No. 1 dated 11-7-2008 as amended by circular No. 62 dated 20-4-2009.
Second proviso to Regulation 8 of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 (inserted w.e.f. 11-7-2008), states that a Bank which is authorised dealer can permit a person resident in India to create charge on his immovable property in India in favour of overseas lender or security trustee to secure ECB availed by him.
Encashment of security if borrower of ECB fails to repay – If the Indian borrower fails to repay ECB, overseas secured lender or security trustee can sale the immovable property in India to a person resident in India and to repatriate the sale proceeds towards outstanding of this loan and not any other loan – Regulation 6(c) of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 inserted w.e.f. 11-7-2008.