Acquisition of Immovable Property by Foreign Nationals in India

India's real estate market has long been a point of interest for investors across the globe. With its rapidly growing economy, urban expansion, and emerging middle class, property investment in India is considered lucrative. However, the question then arises is that can foreigners buy property in India? The answer is affirmative although the rules for foreign nationals investing in Indian property are specific, regulated, and depend on the investor's status in India.

Who Can acquire or transfer Immovable property in India?

Non-Resident Indians (NRIs): a person resident outside India who is a citizen of India:

The 2018 Regulations has replaced the concepts of 'a person resident outside India is a citizen of India' and 'a person of Indian origin. The 2018 Regulations has replaced the concepts of 'a person resident outside India who is a citizen of India' and 'a person of Indian origin.

Overseas Citizen of India (OCI) is a person resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

From whom can the non-resident inherit immovable property?

A person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) can inherit immovable property from

(a) a person resident in India.

(b) a person resident outside India.

However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange regulations applicable at that point of time.

Legal Framework Governing Foreign Investment in Property

The RBI has, by way of a notification dated March 26, 2018, issued the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 ('2018 Regulations') that replaces the erstwhile Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 ('2000 Regulations')

Foreign Exchange Management Act, 1999

Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018

The laws aim to regulate and monitor foreign exchange transactions, including real estate investments.

Types of Properties that Foreign Nationals can buy

Acquisition of Immovable property only with the prior approval of RBI

Person from-

Repatriation of Sale Proceeds

When a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) sells immovable property in India (other than agricultural land, a farmhouse, or plantation property) the authorised bank can allow the money from the sale to be sent abroad, only if the following conditions are met:

1. The property was originally bought following the foreign exchange laws that were in place at the time.
2. The money used to buy the property came from foreign currency sent through proper banking channels, or from funds in a Foreign Currency Non-Resident (FCNR) Account or a Non-Resident External (NRE) Account.
3. If it's residential property, the sale proceeds can only be sent abroad for up to two such properties."

Any transaction involving the acquisition or transfer of immovable property under these regulations shall be undertaken:

1. through banking channels in India;
2. subject to payment of applicable taxes and other duties/ levies in India
3. No payment can be made either by traveller's cheque or by foreign currency
4. notes.

Tax Implications

1. Capital Gains Tax: Foreign nationals are subject to capital gains tax on the sale of property. Liability depends on the period for which the property was held, before being put on sale. If the holding period is more than 24 months, it is known as a long-term capital asset, and the gains are subject to long-term capital gains (LTCG) tax. If the property is held for 24 months or less, it is considered a short-term capital asset, and the gains are subject to short-term capital gains (STCG) tax.
2. TDS: The transferee is required to deduct TDS at the time of credit to the account of the transferor or at the time of payment of such sum, whichever is earlier, at the rate of 1% if the seller has a PAN. If the seller does not have a PAN, TDS shall be deducted at the rate of 20%.
3. 194-IA states that TDS shall be deducted on consideration for the transfer of immovable property. Consideration for the transfer of immovable property equals all charges in the nature of club membership, car parking fees, electricity or water facility fees, maintenance fees, advance fees, or any other charges of similar nature that are incidental to the transfer of immovable property.
4. The buyer shall fill out Form 26QB using his PAN. It is mandatory for the seller to have a PAN too
5. Filing of an Income Tax Return (ITR) in India is mandatory if income is earned from property (e.g., rent or sale proceeds).
6. Form 15CA/15CB: Required for repatriation of funds outside India.

Key Considerations Before Investing

1. Legal Due Diligence: Always verify property title, encumbrances, and ownership.
2. Professional Advice: Engage legal and tax professionals familiar with Indian laws.
3. Regulatory Compliance: Ensure compliance with FEMA, RBI, and local real estate laws.
4. Verification of Seller/Developer: Crucial when investing in under-construction properties.

Documents Needed to Buy Properties in India

• Passport
• PAN (mandatory for property transactions in India)
• OCI Card (if Applicable
• Bank Account Details (preferably NRE/NRO/FCNR account)
• Foreign Inward Remittance Certificate (FIRC) (if remitting funds for purchase)
• Title deed, in the seller's name
• Sanctioned building plan
• Certificate of commencement
• Occupancy Certificate
• Receipts paid for tax
• Encumbrance Certificate
• Documents of khata/ mutation

Conclusion

India offers promising opportunities in the real estate sector, looking to maintain a financial or emotional link to their homeland. However, foreign nationals must navigate a complex legal landscape and adhere to specific restrictions and processes. With the right due diligence and professional support, property investment in India can be a fruitful venture for global investors.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.