Purchase of Property by /NRI
NON RESIDENT INDIANS
Purchase of Property by /NRI
INVESTMENT IN IMMOVABLE PROPERTY
Section 31 of FERA generally governs the matters relating to immovable properties and the work relating to permissions for purchase etc. of immovable properties is centralised in the Foreign Investment Division at Central Office of Reserve Bank of India at Mumbai. Far reaching changes have taken place recently in Reserve Bank of India’s policy under FERA in the area of investment in commercial and residential immovable property in India. These changes can be understood and appreciated if we analyse the issue of illustrating the different types of situations by means of the Chart as under:
INVESTMENT IN IMMOVABLE PROPERTY BY INDIVIDUALS
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Foreign Citizens Indian Citizens
Foreign Citizens (regardless of Residence)
Of Indian Origin
Of Non-Indian Origin
FOREIGN CITIZENS OF INDIAN ORIGIN
For foreign citizens of Indian origin, different procedures have been laid down depending on:
Whether they invest their money in the form of Foreign Currency remitted from abroad through normal banking channels or forms founds withdrawn from the NRE/FCNR accounts; or
From local funds in Rupees.
INVESTMENT FROM FOREIGN FUNDS
If foreign citizens invest in the immovable property by meeting the consideration payable for purchase of such properties out of Foreign Exchange remitted through normal banking channels or from funds withdrawn from their NRE/FCNR accounts, the Reserve Bank of India has granted them general permission. Thus, for the above persons, no prior RBI formalities are necessary before purchasing immovable properties. However, it is necessary for such persons to submit to Reserve Bank of India, a declaration in Form IPI 7 within a period of 90 days from the date of purchase of the properties. Form IPI 7 must be accompanied by a certified copy of the document evidencing the transfer/registrations of property in the names of the purchasers and certificates from banks in India which would prove that the purchase consideration was paid either out of remittances received from abroad through normal banking channels or from funds held in the Purchaser’s NRE/FCNR accounts maintained in India.
CONDITIONS FOR REPATRIATION
Further, Reserve Bank of India has permitted repatriation of original investment in equivalent foreign exchange after obtaining their prior approval. Such repatriation is subject to the following conditions (ECM 11E.6):
In case of residential properties repatriation is subject to a maximum of 2 houses.
The properties should have been purchased on or after 26th May, 1993.
The properties have been held by the purchaser for a period of at least three years from the date of final purchase deed or from the date of payment of final installment of the purchase consideration, if the purchase agreement so provides, whichever is later.
Only the amount of sale proceeds equivalent to the original investment in foreign exchange will be allowed to be repatriated outside India. The balance amount of sale proceeds of the property must be credited to the seller’s NRO account or to the Resident Rupees Account (in case of resident foreign citizens), with an authorized bank in India. Thus, the balance sale proceeds over and above the original investment in foreign exchange is not repatriable. At the present point in time, the intention is clearly not to allow any investment gains the immovable property to flow out of India.
If the seller intends to repatriate the original investment in the immovable property after 3 years, he should take permission from Reserve Bank of India prior to approaching his baker to allow him the repatriation. The application for repatriation must be make within a period of 90 days of sale of the property in the prescribed Form IPI 8. It is pertinent to note that persons wishing repatriation should scrupulously follow the deadline of 90 days as otherwise Reserve Bank of India may have a valid reason for disallowing repatriation on the ground of delay in submission of the relevant application.
However, Reserve Bank of India is normally reasonable in all meritorious where post facto approvals or condo nation permissions are sought. Hence, if for any bonafide reasons beyond the control of the seller, the seller is prevented from filing the prescribed application for repatriation, he can present the case before the Reserve Bank India explaining in no unclear terms, the reasons for his failure to file the application for repatriation in time. The Reserve Bank of India, if convinced about the genuineness of the reasons, may, in individual cases, on merit permit such repatriation.
The policy and procedures stated herein above cover both commercial and residential immovable property but they do not cover acquisition of agricultural land or farm house or plantation properties.
INDIAN ORIGIN
For the purpose of the above policy and procedures, a foreign citizen is deemed to be of Indian origin if:
He held an Indian passport at any time; or
He or his father or paternal grandfather was/were a citizen(s) of India under the Constitution of India or the Citizenship Act, 1995.
However, citizens of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri Lanka and Nepal are deemed to be not of Indian Origin.
INVESTMENT FROM LOCAL FUNDS
For foreign citizens of Indian origin who wish to invest their local funds in immovable properties, the policy and procedure is quite different. These require permission from Reserve Bank of Indian Prior to their making the investment in immovable property. Such persons have to apply to Reserve Bank of India in Form IPI 1. Reserve Bank of India will grant its permission for foreign citizens to invest their local funds in immovable properties provided it is required only for their bonafide residential use. Properties not immediately required for use can be let out. The only provision is that such rental income was not allowed to be repatriated earlier. However, now stage wise repatriation of rental income is permitted. Moreover, foreign citizens resident in India are generally permitted by Reserve Bank of India to acquire only one immovable property in India for their or their families’ own bonafide residential use if their local funds are to be invested in these properties. Moreover, Reserve Bank of India has to be satisfied about the reasonableness of the valuation of the property and further, the purchasers have to furnish an undertaking to Reserve Bank of India that they will not ask for repatriation outside India of either the income accruing from the property or the sale proceeds thereof. Thus, if Indian, rupees are used for investment, no repatriation is permitted except of Rental income which is now permitted to be repatriated in stages.
FOREIGN CITIZENS OF NON-INDIAN ORIGIN
Reserve Bank of Indian has now permitted foreign citizens of Non-Indian origin,(whether resident in India or not) to acquire, hold, transfer, or dispose of immovable properties in India provided the following conditions are satisfied (ECM 11E.8)
Property to be purchased should be for residential use only.
The purchase consideration must be met from Foreign Exchange remitted from abroad through normal banking channels.
Income arising from the property purchased or sale proceeds of such property or income arising out of investments made out of such sale proceeds at any further date shall not be allowed to be repatriated outside India.
Prior permission from Reserve Bank of India is to be obtained before purchase of the properties by submitting an application in Form IPI 1 together with the documents specified therein.
These documents are:
An authorized copy of the agreement to purchase or draft purchase deed.
A detailed valuation report from a Government approved valuer indicating the Fair Market Value of the property as on the date nearer to the date of agreement for its purchase.
Certificate from a bank in India confirming receipt of foreign exchange necessary to purchase the property.
An undertaking regarding non-repatriation of the sale proceeds and income of or from the property. Foreign citizens of Non-Indian origin are not yet permitted to purchase commercial properties in India even if these are meant to be used for their bona fide commercial purpose in India.
INDIAN CITIZENS
Repatriation Facility for Non-Residents
For Indian citizens wishing to invest in immovable property, it is clarified, at the outset, that there are no restrictions under FERA 1973 for an Indian citizen to purchase any immovable property in India. If, further, the Indian citizen is a Non-resident and if he invests after 26th May, 1993 in either commercial or residential immovable property, either from funds remitted from abroad through normal
Banking channels or from his NRE/FCNR accounts with banks in India, he can avail of the benefits of repatriation of his original investment in foreign exchange, if he submits within a period of 90 days from the date of purchase a declaration about the purchase in Form IPI 7. Thus, even though, technically Section 31 of FERA which deals with immovable property is only applicable to foreign citizens, Non –resident Indians who are Indian citizens would be well advised to fill the declaration in Form IPI 7, if they are investing their foreign funds in immovable property after 26th May 1993 and wish to avail of the repatriation facility at a later date. The terms and conditions on which the repatriation is allowed are similar to those applicable to foreign citizens of Indian origin already discussed in hereinabove.
EXCLUSIONS
However, it is important to note that Reserve Bank of India has specifically excluded investment by NRIs in agricultural land, farm houses or plantations of any kind as in Reserve Bank of India’s view, purchase of these properties for Non-Resident Indians. FERA, of course, does not put any restrictions on purchase of such properties by Indian citizens who are resident in India.
Sale of Immovable Property By Non-Residents
We now deal with cases where Non-residents wish to sell their immovable property in India.
General Permission
There are no formalities under FERA in case of a Non- Resident Indians who is an Indian citizen and who wishes to sell his immovable property in India. Even if the Non-resident is a foreign citizen (regardless of origin), he has been granted general permission by Reserve Bank of India to sell his immovable property situated in India.
However, while a Non-Resident Indian can sell his immovable property without Reserve Bank of India’s permission, at this point in time, it is an absurdity in FERA law and administration that a resident Indian cannot make any payment including the purchase price for the property to a Non-resident without RBI’s of FERA prohibits any payment by a resident to any non-resident except with prior general or special permission from Reserve Bank of India. Thus, it is a bizarre situation that for the same transaction e.g. purchase and sale of a Flat, while the non-resident is under no obligation to obtain any permission from Reserve Bank of India to sell his flat.
However, when approached the RBI, the RBI has advised as under:
“Dear Sirs/Madam,
Section 31(1) of Foreign Exchange Regulation Act (FERA) 1973
Permission under section 9 of FERA, 1973 for making payment to a person resident outside India. Please refer to your letter dated on the above subject. In this connection we advise that we have granted General Permission vide our Notification No. FERA-100/92-RB and FERA-152/92 RB dated 8.1.1992 and 26.5.1993 respectively to foreign nationals of Indian origin/NRIs to acquire /hold/sell immovable property situate in India. No special permission is required from the bank in this regard. The sale proceeds should be credited to their NRO account. In these circumstances it is not necessary for resident Indians who are acquiring the property from foreign nationals of Indian origin/NRIs, under the General Permission as above, to take our specific permission under Section 9 of FERA 1973 for making payment to the sellers.
Acquisition By Inheritance
Many non-residents have parents or other relatives in India who own immovable residential or commercial properties. These relatives very often wish to bequeath these properties to non-residents in their wills. For these type of cases too, Reserve Bank of India has recently relaxed the provisions. Now, Reserve Bank of India has granted general permission to Non-residents of Indian origin (irrespective of their citizenship) to acquire immovable properties by way of inheritance and also to hold and enjoy these properties acquired by them.
Non-Repatriation
However, it must be clearly appreciated that Reserve bank of India has not granted any repatriation facilities for sale proceeds of such inheritated properties. This is understandable as these properties were never initially acquired in foreign exchange in the first place, and, till date there is no convertibility of the Indian Rupee on capital account.
Acquisition through Gift
Non-residents have also been granted general permission to acquire such properties by way of gifts. However, in so far as gifts of immovable properties are concerned, 2 additional conditions are to be satisfied to avail of the general permission. These are:
i) The gift must be from/to a relative who may be either an Indian citizen or a person of Indian origin who may not be a resident in India.
ii) Gift-tax arising on gift of the property must be paid in India. For the above purposes the word “Relative” is to be construed as per definition given under section 6 of the Companies Act, 1956.
Letting Out Immovable Property
Reserve Bank of India has granted general permission to the persons, to let out , either commercial or residential premises, to persons in India , subject to the following conditions: (a) The rental income and the proceeds of any investment, out of such income, shall be Non-repatriable; the Non-citizen’s Resident Rupee Account maintained with a bank in India.
However, these conditions are now to be read along with the amendment on stagewise reptriation of Income.
The Persons to Whom The Above Relaxation Applies Are:
Foreign citizens of Indian origin (whether resident in India or not)
Non-residents of Indian nationality and origin. However, citizens of Pakistan, Bangladesh, Nepal, Bhutan, Afghanistan and Sri Lanka shall be deemed to be of Non-Indian Origin. Further, it must be noted that till date there seems to be no direct reference to Foreign Citizens of Non-Indian Origin, for the above relaxation. In their cases, therefore, it may be necessary to take Reserve Bank of India’s prior approval before renting out their properties. However, for the reason discussed in para, in our opinion, persons taking the property on rent would require prior permission under Section 9 from Bank of India to make any rent payments to persons resident outside India.
General
A few other miscellaneous points may also be noted.
(1) The restrictions and relaxations discussed hereinabove also apply to flats in co-operative housing societies even though, strictly speaking, in co-operative housing societies only shares are transferred.
(2) In the case of Partnership firms, if even one of the Partners is a foreign citizen, the firm would be required to take the permissions from Reserve Bank of India, wherever necessary, for the acquisition or disposal of immovable properties in the name of the partnership firm.
(3) In the case of any association organization or any trust, member or trustee is a foreign citizen then the permissions from Reserve Bank of India, wherever necessary, would be required to be taken for acquisition or disposal of immovable properties.
Foreign Companies
Companies (other than banking companies), which are not incorporated under any law in India, are granted general permission by RBI to acquire or hold any immovable property which is necessary for, or incidental to, any activity permitted by RBI under Section 28 or Section 29 of FERA. A declaration is to be filed with RBI in form IPI5 not later than 90 days from acquisition of immovable property (ECM 11E.4).
Foreign companies which have been permitted to open liaison office or to post representatives in India are allowed to acquire properties in India with prior permission of RBI. RBI may permit purchase of properties for their own use and not for earning income by way of rent etc. The purchase consideration is to be met out of foreign exchange remitted from abroad through normal banking channels. Sale proceeds are not allowed to be repatriated outside India.
The acquisition, sale etc. of immovable properties by foreign banks operating in India are governed by the relevant comply with directions of RBI’s Department of Banking Operations and Development (DBOD) in this regard.
INVESTMENT IN IMMOVABLE PROPERTY
Q.1. Do, Non-resident Indian Citizens require permission of Reserve Bank to acquire residential/commercial property in India?
Ans. No.
Q.2. Do foreign citizens of Indian origin require permission of Reserve Bank to purchase immovable property in India for their residential use?
Ans. Yes, However, Reserve Bank has granted general permission to foreign citizens of India Origin, whether resident in India or abroad, to purchase immovable property in India for their bonafide residential purpose. They are, therefore, not required to obtain separate permission of Reserve Bank.
Q.3. In what manner the purchase consideration for the residential immovable property should be paid by foreign citizens of Indian origin under the general permission?
Ans. The purpose consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/FCNR accounts maintained with banks in India.
Q.4. What are the formalities required to be completed by foreign citizens of Indian Origin for purchasing residential immovable property in India under the general permission?
Ans. They are required to file a declaration in Form IPI 7 with the Central Office of Reserve Bank of Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.
Q.5. Can such property be sold with permission of Reserve Bank?
Ans. Yes. Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of India origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.
Q.6. Can sale proceeds of such property if and when sold be remitted out of India?
Ans. In respect of residential properties purchased on or after 26th May 1993, Reserve Bank considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property.
Q.7. Are any conditions required to be fulfilled if repatriation of sale proceeds is desired?
Ans. Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed from the date of payment of final installment of consideration amount, whichever is later.
Q.8. What is the procedure for seeking such repatriation?
Ans. Application for necessary permission for remittance of sale proceeds should be made in form IPI8 to the Central Office of Reserve Bank of Mumbai within 90 days of the property.
Q. 9. Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?
Ans. Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way gift from or to a relative who may be an Indian Citizen or a person of Indian Origin whether resident in India or not, provided gift tax has been paid.
Q.10. Can foreign citizens of Indian origin acquire commercial properties in India?
Ans. Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the Purchaser’s NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the Property/final payment of purchase consideration.
Q. 11. Can they dispose of such properties?
Ans. Yes.
Q.12. Can sale proceeds of such property be remitted out of India?
Ans. Yes. Repatriation of original investment in respect of properties purchased by foreign citizens of Indian origin on or after 26th May 1993 will be allowed to be remitted up to the consideration amount originally remitted from abroad provided the property is sold after a period of three years from the date of payment of final installment of consideration amount, whichever is later. Applications for the purpose are required to be made to the Central office of Reserve Bank within 90days of the sale of property in form IPI8.
Q.13. Can the properties (residential/commercial) be given on rent if not required for immediate use?
Ans. Yes. Reserve Bank has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income has to be credited to NRO Account.
Q.14. Can NRIs obtain loans for acquisition of a house /flat for residential purpose from financial institutions providing housing finance?
Ans. Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd. etc., to grant housing loans to non-resident Indian nationals for acquisitions of houses/flats for self-occupation subject to certain conditions. The borrower is required to meet at least 25% of the cost by way of foreign inward remittance through banking channels or out of funds held in his NRE/FCRN accounts.
Q.15. Can authorised dealer grant loans to NRIs for acquisition of a flat/house for residential purposes?
Ans. Authorised dealers have been granted permission to grant loans up to Rs. 10 Lacs to Non-resident Indian Nationals for acquisition of only one house/flat for self-occupation on his return to India subject to certain conditions. At least 25 per cent of the cost should however be remitted from abroad by way of foreign inward remittance through banking channels or out of funds held in the investors’ NRE/FCNR accounts.
Q. 16. Can Indian Companies grant loans to their NRI staff?
Ans. Reserve Bank permits Indian Firms/companies to grant housing loans to their employees deputed abroad and holding Indian Passport subject to certain conditions.
Paragraph 11 E. 6(i)
Declarations of immovable property acquired by way of purchase in India under the general permission granted vide Reserve Bank’s Notification No. FERA.152/93-RB dated 26th May, 1993.
Instructions:
The declaration should be submitted to the Chief General Manager, Exchange Control Department, Foreign Investment Division (iii) Reserve Bank of India, Central Office, Mumbai-400023.
A separate form may be submitted for each immovable property.
In case the declaration is signed by the power of Attorney holder of the declarant, a copy of the valid Power of Attorney duly certified by a competent authority should be submitted with the declaration.
Documentation:
4) A certified copy of the purchase deed or certificate from the Co-operative Housing Society or an Association of the apartment owners as an evidence of transfer/registration of the property in the declarant’s name.
________________________________________________________________________
5) Certificate from the declarant’s bankers in India evidencing receipt of inward remittance/s in foreign exchange through normal banking channel or withdrawal of funds from the declarant’s NRE/FCNR account and payment of consideration for the property out of those funds.
1. (a) Full name and address of the declarant who (a)
has acquired the immovable property .
(b) Citizenship of the declarant. (b)
Reasons for treating himself/herself as a
Person of Indian origin. (c)
Note: A person shall be deemed to be of Indian
Origin if (i) he/she at any time held Indian
Passport or (ii) he/she or his/her father or
Grandfather was an Indian and permanent
resident in India at any time. [Citizens of
Pakistan or Bangladesh or Afghanistan or
Bhutan or Sri Lanka or Nepal are however,
deemed to be not of Indian original]
2. (a) (i) Description of residential Property. (a) (i)
(ii) Description of commercial property (ii)
(b)Details of its exact location stating the names
of the state, town and Municipal j/survey
number etc. (b)
3. Purpose for which property has been acquired
4. Date of acquisition of the property
5. (a) Name, citizenship and address of the seller. (a)
(b) Amount of purchase price– (b)
(i) In Indian Rupees (i)
(ii) Equivalent in foreign currency. (ii)
( c) Source of founds from which payment was
made. (c)
(a) Details of any other immovable property (a)
held in India. Also state whether residential
or commercial
(b) Date of acquisition. (b)
(c) Source of funds from which payment was
made. (c)
(d) whether property was declared to Reserve (d)
Bank of India/permission was obtained.
If so, details thereof may be indicated.
I/we hereby declare that the particulars given above are true and correct to the best of my/our knowledge and belief and the immovable property, the particulars of which have been declared in this form, has been acquired for my/our family’s use.
________________________
(Signature of the declarant)
Place: _______________ Stamp
Date: _______________ Name: ________________________
IPI 8
[Paragraph 11 E. 6(i)]
Application for permission to repatriate the original investment made in commercial / residential immovable property/ies situate in India.
Instructions:
The application should be completed and submitted through the bank with which the sale proceeds of the property have been deposited, to the Chief General Manager, Exchange Control Department, [ Foreign Investment Division (iii) ], Reserve Bank of India, Central Office, Mumbai -400023.
Documentation:
An authenticated copy of agreement for sale.
A copy of declaration submitted to Reserve Bank of India at the time of purchase of immovable property.
If the application is signed by a holder of Power of Attorney on behalf of the applicant, a copy of the valid Power of Attorney duly certified by a competent authority.
_____________________________________________________________________
1. Full name and address of the applicant
2. (a) Nationality of the applicant (a)
(b) Nationality of the applicant’s father /
Grandfather. (b)
3. (A) If the applicant is a foreign citizen residing (A)
in India, please state;
Country of birth (a)
Date of birth (b)
Since when staying in India and probable duration
of further stay in India. (c)
(d) Purpose of stay in India. (d)
(B) If the applicant is non-resident Indian
national, please state, country of residence
(a) Description of residential/commercial/ (a)
immovable property disposed of/transferred.
(b)Details of its exact area and location, stating
the name of the State, town and municipal
survey number etc. (b)
( c) Details of any other immovable property/ies
held in India stating (c )
Nature of Property (i)
Date of acquisition (ii)
Amount of purchase price (iii)
Source of funds (iv)
whether repatriation of sale proceeds of any (d)
property has been made previously? If so, the
details thereof such as Reserve Bank’s
permission number and date the amount
repatriated may be indicated.
5. (A) Whether repatriation in question was declared (A)
to the Reserve Bank
Date of the declaration (i)
Original purchase price of residential/ (ii)
Commercial property
(a) In foreign currency (a)
(b) In Indian Rupees (b)
Date on which the residential property was
Acquired by the applicant (B)
6. The reason for transferring or disposing of the property.
7. If the property is sold, please state:
(a) Name, nationality and present and permanent (a)
address of the purchaser .
(b) If the purchaser is a proprietary/partnership (b)
concern, please state the name, nationality
and place of present and permanent residence
of the proprietor /each partner of the concern
( c) If the purchaser is a company, please state (c)
whether Indian company/Overseas
Corporate Body.
(d) Amount of Sale price (d)
(e) How the difference between original investment (e)
and the sale proceeds will be disposed of.
(f) The name and address of the bank in which NRE
account is maintained. (f)
I/We here by declare that the particulars given above are true and correct to the best of my /our knowledge and belief.
______________________________
(Signature of the applicant)
Encls. : _______________
Place : _______________ Stamp Name: ______________________
Date : _______________ Designation: __________________
