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EAL ESTATE has generated immense interest in recent times. With the growing pace it has attracted investments not just from India but from overseas also. Even though after being a part of real estate industry, people do not have much information about the legality of transactions and they rely mostly on half baked information and practices.


Real Estate broadly means Land & Buildings. Lands in Law means Real property, real estate and ownership interests Estate in land, law regarding land ownership and titles. Land may be earmarked for agricultural industrial, residential or other purposes. Buildings may mean the structure erected on lands.

With the overwhelming interest of Foreign Investors in real estate it is important to study TRANSFER OF IMMOVABLE PROPERTY AND FEMA in this regard.

With the great efforts of Finance Minister and Liberalization of Indian Economy has permitted foreign investments in the immovable property in India. Foreign nationals, non-residents Indians (NRI) and persons of Indian Origin have been allowed to invest/ acquire immovable properties in India.


To attract FEMA in Immovable Property two factors must be present fundamentally

i.                     Transaction is in foreign exchange

ii.                   Foreign citizen is a party to the transaction


The regulations have been drafted in a manner that these aim at promoting investments in real estate in India, while protecting the basic structure of Indian economy from interference by foreign investors. Therefore, agricultural properties, farmhouses and plantation properties have been exempted from attracting foreign investments in India. Meaning therby, only Indian Citizens residing in India are permitted to acquire and transfer agricultural properties, farmhouses and plantation properties in INDIA.



 Residential and Commercial properties other than no-agricultural and non-plantation properties, and properties not classifies as farmhouses can be acquired in India, by anyone irrespective of the nationality and residential status of the transferor and the transferee

Investment by NRI


 Investment upto 100% in the new issue of equity shares/convertible debentures of Indian companies engaged in the followed areas is allowed-
i) Development of serviced plots and construction of built up residential premises;
ii) Real estate covering construction of residential and commercial premises including business centres and offices;
iii) Development of township;
iv) City and region level urban infrastructure facilities including roads and bridges;
v) Manufacture of building material;
vi) Financing of housing development.




Applications for the purpose should be made by the concerned Indian company to the Central Office of Reserve Bank in Mumbai in form ISD(R).




Repatriation of amount in Proprietorship and partnership firm are not allowed. However in case of Companies, Repatriation of original investment will be permitted after a lock-in period of three years from the date of issue of the equity shares/convertible debentures. In addition, OCBs (Overseas Corporate bodies) will be permitted to repatriate net profit (upto 16 per cent) arising from the sale of such investment after the lock-in period of three year. Annual dividend/interest on equity shares/debentures can, however, be freely remitted subject to payment of tax.


The rental income or proceeds of any such income from the properties are not allowed to be repatriated outside India and such funds should be credited to the owner's Ordinary Non-Resident rupee account (NRO) maintained with authorised banks in India.


Whether NRI are allowed to incorporate a company with their main object of Real estate Development?


With regard to Reserve Bank's present Notification dated 22nd March 2000 granting general permission for issue of shares under FERA, 1973 it is clarified as under :


a) All items/activities not covered by List A & B (mentioned in the Notification) will be eligible for foreign investment (FDI and NRI/OCB) under the 'Automatic Route of Reserve Bank', upto even 100% of capital subject to compliance of the conditions of the Notification.

(b) Automatic Route of Reserve Bank will not be available in respect of items in List A. All such investment proposals would come under SIA/FIPB route.

(c) Automatic Route of Reserve Bank will be available only upto the cap indicated in List B. [Proposals beyond the cap would come under SIA/FIPB route].




1. Banking

2. NBFC's activities in Financial Services Sector

3. Civil Aviation

4. Petroleum including exploration/refinery/marketing

5. Housing & Real Estate Development sector for foreign investment, other than NRIs/OCBs.

6. Venture Capital Fund & Venture Capital Company

7. Investing companies in Infrasturcture & Service Sector

8. Atomic Energy & related projects

9. Defence and strategic industries

10. Agriculture (including plantation) 

11. Print Media

12. Broadcasting

13. Postal services













1. “--------------------


2.Housing and Real Estate

No foreign investment is permitted in this sector. NRIs/OCBs are allowed to invest. The scheme specificto NRIs and OCBs covers the following:

a)Development of serviced plots and construction of residential premises

b)Investment in real estate covering construction of residential and commercial premises including business centres and offices

c)Development of townships

d)City and regional level urban infrastructure facilities, including both roads and bridges.

e)Investment in manufacture of building materials

f)Investment in participatory ventures in (a) to (e) above

g)Investment in housing finance institutions






From the analysis of above lists as per list A point 5 NRI’s are allowed to make an investment under automatic route for the purpose of Housing and Real Estate and as per point 2 of list B Nri’s are allowed to incorporate a company with a main object of developing the real estate subject to the provisions specified under the point.




Non-Resident Indians are now permitted to enter into the business of real estate development. This can be done by either forming a partnership firm or investing in a company incorporated in India. The Reserve Bank of India has relaxed certain provisions with regard to investment in Indian companies engaged in housing and real estate development. Person of Indian nationality / origin resident outside India (NRIs) are permitted to invest upto 100 percent in the new issues of equity shares/convertible debentures of Indian companies engaged/proposing to engage in the following areas:

(a) Development of serviced plots and construction of built-up residential premises

(b) Real estate covering construction of residential and commercial premises including business centres and offices.

(c) Development of township.

(d) City and region level urban infrastructure facilities including roads and bridges.
(e) Manufacturing of building materials.

(f) Financing of housing development.

(g) Investment in proprietary/partnership firms engaged in real estate development is permitted on non-repatriation basis.

The invested firm obtaining investment from the NRI/OCB will have to file a DIN declaration within 90 days to the RBI within whose jurisdiction the company is situated.

The RBI has permitted limited repatriation facility to the interest or income portion on the investment (Circular No. 18 of 1994 series dated 10.9.94) subject to the terms and conditions that capital invested shall not be repatriable.

(h) Investment in real estate development has since been extended to Overseas Corporate Bodies (OCBs) predominantly owned by NRIs. Overseas Corporate Body would mean any overseas company, partnership company, society and other Corporate body predominantly owned directly or indirectly to the extent of at least 60 per cent by NRIs and includes any overseas trust in which not less than 60 per cent beneficial interest is held by NRIs directly/indirectly but irrevocably (notification 159/94 of 5.10.94).

(g) Investment in real estate development on repatriation basis is available only to NRIs/OCBs in companies. Repatriation of the original investment in foreign exchange made by OCBs will be permitted with the prior permission of Reserve Bank only after a lock in period of three years from the date of issue of shares/debentures. In addition, OCBs will be permitted to repatriate the net profit (upto 16 per cent) arising from the sale of such investment after the lock in period of three years.

(h) Dividend/interest on equity shares/debentures can, however, be remitted as per the procedure laid down in paragraph 10.C.24 of Exchange Control Manual subject to payment of applicable taxes without any lock-in period.

(i) Application for necessary permission for the investment should be made in form ISD (R) by the concerned Indian company to the Chief General Manager, Exchange Control Department, Foreign Investment Division (II), Reserve Bank of India, Central Office, Bombay - 400 023.

(j) The facilities are granted to OCBs so long as the ownership/beneficial interest held in them by persons of Indian nationality/origin resident outside India continues to be atleast 60 per cent.

(k) The OCBs are required to furnish at the time of applying for the facility for the first time and thereafter as and when required by Reserve Bank/authorised dealers, a certificate from an overseas auditor/chartered accountant/certified public accountant in form OAC/OAC-1 as the case may be. The overseas auditor/chartered account/certified public accountant has to certify That the ownership interest in the OCBs is held by NRIs.

(l) The proforma of the certificates in form OAC/OAC-1 have been modified to ensure that the interest held by persons of Indian nationality/origin in the OCB is actually held by such persons and is not held by them in the capacity as nominees.




A foreign company/Individual planning to set up business operations in India has the following options:


i)        By incorporating a company under the Companies Act, 1956 through


• Joint Ventures; or

• Wholly Owned Subsidiaries


Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy.

All items/activities except the following fall under the automatic route for FDI/NRI/OCB investment up to 100 percent FDI:

  1. All proposals that require an Industrial Licence which includes (i) the item requiring an Industrial Licence under the Industries (Development and Regulation) Act, 1951; (ii) foreign investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries; and (iii) all items which require an Industrial Licence in terms of the locational policy notified by Government under the New Industrial Policy of 1991.
  2. All proposals in which the foreign collaborator has a previous venture/tieup in India. The modalities prescribed in Press Note No. 18 dated 14.12.98 of 1998 series, shall apply in such cases.
  3. All proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor.
  4. All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.
  5. Whenever any investor chooses to make an application to the FIPB and not to avail of the automatic route, he/she may do so.

All objects other than specified above are allowed to be undertaken by a company incorporated by 100% NRI shareholders or FDI’s or OCB without any permission by RBI.

ii) As a foreign Company through


• Liaison Office/Representative Office

• Project Office

• Branch Office


Such offices can undertake activities permitted under theForeign Exchange Management (Establishment in India ofbranch or office of other place of business) Regulations, 2000.




Eligible Criteria of Investment


1) Minimum area

  • In case of development of serviced housing plots, 10 hectares (25 acres)
  • In case of construction-development projects, built-up area of 50,000 sq m.
  • In case of a combination project, any of the above two conditions


2) Investment

  • Minimum capitalization

·      for wholly owned subsidiaries - US$ 10 million

·      for JV with Indian partners - US$ 5 million–, to be brought in within 6 months of commencement of business

  • Original investment cannot be repatriated before a period of three years from completion of capitalization.
  • The investor may exit earlier with prior approval from Foreign Investment Promotion Board (FIPB).


3) Time frame & rules

  • At least 50 per cent of the project to be developed within five years from the date of obtaining all statutory clearances.
  • Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage, sewerage and other conveniences are not available.



4) Other Legal Compliances


§ The Foreign company intending to invest shall be registered as an Indian Company under Companies Act 1956. In case of joint ventures, an SPV other than the parent company of the joint venture partners needs to be formed to invest in real estate.


§ Development of at least 50 per cent of the integrated project within a period of five years from the date of obtaining all statutory clearances has to be completed instead of from the date of procurement of land. The investor would not be permitted to sell underdeveloped plots (where roads, water supply, street lighting, drainage, sewerage and other conveniences have not been made available). The investor must provide these infrastructures and obtain the completion certificate from the concerned local body/service agency before being allowed to dispose of the serviced housing plots.


§ The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities as laid down in the applicable building control regulations, by-laws, rules and other regulations of the State Government/Municipal/Local Body concerned.


§ The State Government/ Municipal/ Local Body concerned, which approves the building/development plans, will monitor the developer's compliance to the above conditions.







FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment / foreign technical collaboration are also granted on the recommendations of the FIPB.


Applications for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance.


Applications for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion.


Applications can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for further processing.



Applications can be made in Form FC-IL which can be downloaded from

 Plain paper applications carrying all relevant details are also accepted. No fee is payable.

The following information should form part of the proposals submitted to FIPB: -

(a) Whether the applicant has any existing financial/technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and

(b) If so, details thereof and the justification for proposing the new venture/technical collaboration (including trade marks).

(c) Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing.

(d) Foreign investment proposals received in the DEA are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. The Decision of the Government in all cases is usually conveyed within 30 days.

However, unlike in IT Sector, if any FIPB does not fulfill the conditions specified under the automatic route will not be allowed to step in to the real estate in India even through Government Approval.












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shipra walia
Category Income Tax   Report

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