Preliminary Guidelines for NRI & OCC for Purchasing a Property in India

Posted On - 3 March, 2020 • By - Latha Shanmugam

The real estate sector has experienced
a slowdown in the recent past, however, it is an undeniable truth that there
was a great demand and supply in the real estate sector earlier which attracted
millions of Non-resident Indians (“NRI”) to invest in purchasing the
properties. It is crucial to note that the purchase of property by NRI has
always been a difficult task due to restrictions imposed by the Foreign
Exchange Management Act, 1999 (“FEMA”) and the Reserve Bank of India (“RBI”).
It is very important for an NRI investor to know the legalities and limitations
involved in the purchase of a property.

To understand the requirements that are
necessary for an NRI and Overseas citizen of India Cardholder (“OCC”) for
purchasing a property in India, it is crucial to understand the terms NRI and
OCC.

NON-RESIDENT
INDIANS: The word
NRI has not been explicitly defined in any act or legislation, however, by the
definition of the term “Person resident in India” as defined in two Acts namely,
Income Tax Act 1961 and Foreign Exchange Management Act 1999, we can understand
that NRI is an Indian citizen who resides in India for less than 182 days
during the preceding financial year and stays abroad for the purpose of
employment or carrying business or vacation outside India.

OVERSEAS CITIZEN OF INDIA CARDHOLDER: As defined under section 7A of the
Citizenship Act, 1955, a person registered as an OCC under the Citizenship Act
shall acquire the citizenship of India on basis of Overseas Citizen of India
subject to conditions[1].

Purchasing
property in India for an NRI’s has always been a debatable issue. The dilemma
of whether to purchase or not, if willing to purchase what may be the
consequences has always been there. Few guidelines to help avoid such a dilemma
are as follows[2]:

Purchase
or sale of immovable property by NRI or OCC

As per the Foreign Exchange Management
(Permissible Capital account transactions) Regulations, 2000 read with Foreign
Exchange Management (Acquisition and transfer of immovable property in India)
Regulations 2000, any immovable property other than agricultural land,
plantation or farmhouse can be purchased by a person resident outside India or
Overseas Citizen of India. Further, an NRI or OCC may transfer any immovable
property to a person resident in India, or transfer any immovable property to
other NRI or OCC except agricultural land, plantation or a farmhouse.

Purchase
of property by the person who is an Indian holding foreign passport

The
same rule, as mentioned above, is applicable to a person of Indian origin which
provide an opportunity to hold dual citizenship which in fact was considered as
unconstitutional and subsequently there was an amendment to the Citizenship Act
in Citizenship Amendment Act, 2015, and it was made mandatory for a person
holding foreign passport to acquire Indian citizenship vide overseas citizen of
India card. Further, the amendment also linked the Overseas Citizenship card
with a person of Indian origin. As per the amendment, an Indian holding a foreign
passport can acquire property only after obtaining an Overseas Citizen of India
(OCI) card.

Inheritance
of property or acquire by way of gift

As noticed, there is no restriction in FEMA
1999 nor in the Foreign Exchange Management (Transfer and acquisition of
immovable property) Regulations, 2000 for acquiring the property by way of gift
from the person resident in India. The NRI or OCC can acquire any immovable
property in India from a person resident outside India who had acquired the
same in accordance with the FEMA laws or any immovable property either
agricultural or plantation or farmland from a person resident in India.

Property acquired by NRI through Indian spouse

As per Foreign Exchange Management
Regulation (Transfer and Acquisition of immovable property) 2000, spouse of NRI
who is not an NRI himself, is allowed to acquire property in India, however,
they have limitations on the kind of properties and the number of properties
that can be purchased by them. They can acquire any immovable property (but not
more than one) except agricultural land and plantation farms provided the
marriage between Indian resident and the NRI spouse is registered and subsisted
for a continuous period of not less than two years preceding the acquisition of
such property and that NRI spouse should not be prohibited from such
acquisition.

Property
purchased through a company

Foreign companies established in
accordance with FEMA can purchase immovable properties for their business purposes
only. If the foreign companies have established a liaison office in India then
they can only acquire the property on the basis of a lease for the term of not
exceeding five years. Therefore, an NRI cannot acquire property through the company.

Mode payment for the purchase of
immovable property by an NRI

The payment can be made by a Non-resident
investor through the following modes:

  • Normal banking channels
  • Foreign Currency Non-resident account(FCNR)
  • Non-resident Indian accounts(NRI)
  • Non- resident rupee account(NRE)
  • Non-resident ordinary rupee account(NRO)

Repatriation of sale
proceeds of immovable property in India

If a person resident outside India
acquired the immovable property situated in India from the following modes then
he cannot repatriate the sale proceeds from such property without the prior
permission from the RBI:

  • If the property is acquired by him by way of inheritance
  • If the property was acquired by him when he was resident of India

However, repatriation up to 1 million
USD is allowed for a person of Indian Origin/Non-resident Indians if the
property is acquired by him through the following persons:

  • Immovable property situated in India acquired from a person
    resident in India by way of inheritance
  • From a person who has retired from employment in India
  • From a person who has inherited immovable property from the spouse
    who is resident in India

But if the sale proceeds of immovable
property should be repatriated then it is subject to the following conditions:

  • The immovable property should be acquired in accordance with the provisions
    of FEMA.
  • The amount paid for acquisition should be any one of the permissible
    modes of payment.
  • If the immovable property is a residential property then an NRI can
    repatriate sale proceeds of two properties.

Transfer of property vide
power of attorney

NRIs can execute duly stamped special
power of attorney for the execution of sale of the property held by NRI,
whereas general power of attorney can be executed for the purpose of management
of day to day affairs. The execution of the sale by the General power of
attorney (GPA) holder is considered invalid as the rule implemented after the landmark
judgement of the Supreme Court in the case of Suraj Lamp and Industries Pvt.
Ltd v State of Haryana[3]
wherein it was held that sale transactions cannot be made through agreement to
sell or general power of attorney.  The
intention of the Supreme Court behind this order was to protect the interest of
the NRI in the property.

Limitations regarding the remittance
of money

NRIs, as per the Liberalised Remittance
Scheme, can remit only up to 2,50,000 $ per year through rental income or sale
proceeds from India.

Remedies available to a
non-resident India in case dispute relating to the property

An NRI can avail of any remedies as is
availed by the Indian citizen. If there is any dispute regarding the property,
he can approach any court of law and forums for the relief. He can also
approach the Real Estate Regulatory and Development Authority for remedies.

Conclusion

On the analysis of the above, we
observe that restrictions have been imposed upon an NRI regarding not only the sale
or purchase of the immovable property but also upon repatriation of the sale
proceeds.  The reason behind these
restrictions are:

  • To keep control over the capital account
    transactions
  • To prevent imbalance in the Indian economy which may occur due to
    excessive foreign currency transactions.

Contributed By – Latha Shanmugam & Siddartha Karnani

King Stubb & Kasiva,
Advocates & Attorneys

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