Urgent - forigen investment in india (fema & income tax)
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
09 May 2013
DEAR EXPERTS,
PLEASE PROVIDE YOUR KIND SUGGESTIONS, WITH legal formalities in procedural aspects.
Case Study-
Option 1
Mr. A resides in UK (resident of UK) want to do investment in Real estate in India of Rs. 50 lac. and after two years he will sell the property for Rs. 60 lac in india and brought back whole amount after tax to UK.
Now what are the income tax and FEMA limitations or formalities to be complied for( also what kind of accounts to be opened in india like NRO ACCOUNT so on)
Option 2
Mr. A resides in UK ( resident of UK) want to make gift of Rs. 50 lac to his mother (residing in India-Resident of india) and his mother further invest the gifted money in Real estate in India. After one year Mother of Mr. A sold that property for Rs. 60 lac and after paying proper tax mother of Mr. A will again gifted that balance money to Mr. A in UK.
Now what are the income tax and FEMA limitations or formalities to be complied for( also what kind of accounts to be opened in india like NRO ACCOUNT so on)
Also please advise which option is more beneficial.
Thanks in Advance
PLEASE PROVIDE YOUR KIND SUGGESTIONS, WITH legal formalities in procedural aspects.
Case Study-
Option 1
Mr. A resides in UK (resident of UK) want to do investment in Real estate in India of Rs. 50 lac. and after two years he will sell the property for Rs. 60 lac in india and brought back whole amount after tax to UK.
Now what are the income tax and FEMA limitations or formalities to be complied for( also what kind of accounts to be opened in india like NRO ACCOUNT so on)
Option 2
Mr. A resides in UK ( resident of UK) want to make gift of Rs. 50 lac to his mother (residing in India-Resident of india) and his mother further invest the gifted money in Real estate in India. After one year Mother of Mr. A sold that property for Rs. 60 lac and after paying proper tax mother of Mr. A will again gifted that balance money to Mr. A in UK.
Now what are the income tax and FEMA limitations or formalities to be complied for( also what kind of accounts to be opened in india like NRO ACCOUNT so on)
Also please advise which option is more beneficial.
Thanks in Advance
Querist : Anonymous
Querist :
Anonymous
(Querist)
13 May 2013
Is there anyone who want to reply on above query ?
02 August 2025
Here's a professional and structured explanation for your case study dated **09 May 2013**, concerning **foreign investment in India** under **FEMA and Income Tax laws**, covering both **Option 1 and Option 2**.
---
## 📝 **Case Study: Foreign Investment in Indian Real Estate by a UK Resident (Mr. A)**
### ✅ **Regulatory Frameworks Involved**
* **FEMA (Foreign Exchange Management Act, 1999)**
* **Income Tax Act, 1961**
* **RBI Guidelines**
* **Transfer of Property Act (for gift cases)**
---
## 🔹 **Option 1: Direct Investment by Mr. A (Resident in UK)**
### ✅ **Step-by-Step Process:**
1. **Type of Account to Open**:
* **NRO (Non-Resident Ordinary) Account**: For income from property like rent or sale proceeds.
* **NRE (Non-Resident External) Account**: Repatriation is easier, but only income from abroad is allowed.
* For real estate investment, **NRO account is typically used** for local transactions.
2. **Eligibility under FEMA**:
* Mr. A (as an NRI) is allowed to **invest in immovable property in India** (except agricultural land, plantation, or farmhouse).
* The investment must be made via **inward remittance through normal banking channels** or using funds in **NRE/NRO/FCNR account**.
3. **Sale of Property & Repatriation**:
* After sale, **repatriation of sale proceeds is allowed up to USD 1 million per financial year**, subject to:
* Payment of applicable **capital gains tax**
* Submission of **Form 15CA & 15CB** (from a Chartered Accountant)
* RBI approval if repatriation exceeds USD 1 million
4. **Income Tax Implications**:
* Short-Term or Long-Term Capital Gains (LTCG/STCG) apply depending on the holding period (held 24 months = LTCG)
* **STCG** taxed at applicable slab rates
* **LTCG** taxed @ **20% with indexation**
* **TDS under Section 195** applies at time of sale to NRI (buyer must deduct TDS)
---
## 🔹 **Option 2: Gift to Mother in India → Investment by Mother → Gift Back to Mr. A**
### ✅ **Step-by-Step Process:**
1. **Gift from Mr. A to Mother (India)**:
* Gift to **close relative (mother)** is **not taxable** under Indian Income Tax Act.
* Funds can be remitted to mother’s **resident savings account** under **LRS (Liberalized Remittance Scheme)** provisions.
2. **Mother’s Investment & Sale**:
* She buys the property and later sells it.
* After sale, **mother pays Capital Gains Tax** as applicable (same as above).
* After paying tax, she can gift the remaining funds to Mr. A.
3. **Gift from Mother to Mr. A (UK)**:
* Under FEMA, a resident Indian can **gift funds abroad up to USD 250,000 per year** under **LRS**.
* Requires:
* PAN of mother
* Form A2 and declaration
* Bank and RBI compliance
4. **Accounts to Use**:
* Mr. A remits from UK to mother’s **resident account**
* After sale, mother remits via **LRS** to Mr. A’s overseas account
---
## 🔍 **Comparison: Option 1 vs Option 2**
| Criteria | Option 1 (Direct Investment) | Option 2 (Gift Route) |
| ---------------------- | ------------------------------------------------------------- | -------------------------------------------------- |
| **Control** | Direct ownership by Mr. A | Indirect (via mother) |
| **Compliance Burden** | Higher – repatriation requires CA certificate, RBI compliance | Split compliance – gift + investment + gift back |
| **Taxation** | Capital gain taxed in hands of Mr. A (NRI rules apply) | Tax applies to mother (resident slab + indexation) |
| **Repatriation Limit** | USD 1 million/year | USD 250,000/year (gift by mother) |
| **Gift Tax** | N/A | Not taxable (to/from mother) |
---
## 📌 **Suggestion – Which Option is Better?**
* **Option 1** is **simpler legally**, gives direct ownership, and allows for easier long-term management of property.
* **Option 2** may allow for slightly **better tax planning** if the mother falls in a lower tax bracket, but it involves **more procedural steps and slower repatriation**.
---
## 🧾 **Documents & Compliance Checklist**
| Requirement | Document/Form |
| ----------------------- | -------------------------------------------------- |
| Remittance for purchase | Bank remittance certificate, KYC, FEMA declaration |
| Sale of property | Sale deed, PAN, capital gains computation |
| Repatriation | Form 15CA, 15CB (from CA), Form A2 |
| Gift documentation | Gift deed (optional, but advised), ID proofs |
| Tax filings | ITR with capital gains, Form 26AS |
---
If this is still relevant in **2025**, note that **GST doesn't apply on sale of completed real estate** between individuals. Also, FEMA and LRS limits (USD 250,000) and procedures are **still valid** with minor updates.
Would you like a downloadable letter or email format of this explanation for formal use?
---
## 📝 **Case Study: Foreign Investment in Indian Real Estate by a UK Resident (Mr. A)**
### ✅ **Regulatory Frameworks Involved**
* **FEMA (Foreign Exchange Management Act, 1999)**
* **Income Tax Act, 1961**
* **RBI Guidelines**
* **Transfer of Property Act (for gift cases)**
---
## 🔹 **Option 1: Direct Investment by Mr. A (Resident in UK)**
### ✅ **Step-by-Step Process:**
1. **Type of Account to Open**:
* **NRO (Non-Resident Ordinary) Account**: For income from property like rent or sale proceeds.
* **NRE (Non-Resident External) Account**: Repatriation is easier, but only income from abroad is allowed.
* For real estate investment, **NRO account is typically used** for local transactions.
2. **Eligibility under FEMA**:
* Mr. A (as an NRI) is allowed to **invest in immovable property in India** (except agricultural land, plantation, or farmhouse).
* The investment must be made via **inward remittance through normal banking channels** or using funds in **NRE/NRO/FCNR account**.
3. **Sale of Property & Repatriation**:
* After sale, **repatriation of sale proceeds is allowed up to USD 1 million per financial year**, subject to:
* Payment of applicable **capital gains tax**
* Submission of **Form 15CA & 15CB** (from a Chartered Accountant)
* RBI approval if repatriation exceeds USD 1 million
4. **Income Tax Implications**:
* Short-Term or Long-Term Capital Gains (LTCG/STCG) apply depending on the holding period (held 24 months = LTCG)
* **STCG** taxed at applicable slab rates
* **LTCG** taxed @ **20% with indexation**
* **TDS under Section 195** applies at time of sale to NRI (buyer must deduct TDS)
---
## 🔹 **Option 2: Gift to Mother in India → Investment by Mother → Gift Back to Mr. A**
### ✅ **Step-by-Step Process:**
1. **Gift from Mr. A to Mother (India)**:
* Gift to **close relative (mother)** is **not taxable** under Indian Income Tax Act.
* Funds can be remitted to mother’s **resident savings account** under **LRS (Liberalized Remittance Scheme)** provisions.
2. **Mother’s Investment & Sale**:
* She buys the property and later sells it.
* After sale, **mother pays Capital Gains Tax** as applicable (same as above).
* After paying tax, she can gift the remaining funds to Mr. A.
3. **Gift from Mother to Mr. A (UK)**:
* Under FEMA, a resident Indian can **gift funds abroad up to USD 250,000 per year** under **LRS**.
* Requires:
* PAN of mother
* Form A2 and declaration
* Bank and RBI compliance
4. **Accounts to Use**:
* Mr. A remits from UK to mother’s **resident account**
* After sale, mother remits via **LRS** to Mr. A’s overseas account
---
## 🔍 **Comparison: Option 1 vs Option 2**
| Criteria | Option 1 (Direct Investment) | Option 2 (Gift Route) |
| ---------------------- | ------------------------------------------------------------- | -------------------------------------------------- |
| **Control** | Direct ownership by Mr. A | Indirect (via mother) |
| **Compliance Burden** | Higher – repatriation requires CA certificate, RBI compliance | Split compliance – gift + investment + gift back |
| **Taxation** | Capital gain taxed in hands of Mr. A (NRI rules apply) | Tax applies to mother (resident slab + indexation) |
| **Repatriation Limit** | USD 1 million/year | USD 250,000/year (gift by mother) |
| **Gift Tax** | N/A | Not taxable (to/from mother) |
---
## 📌 **Suggestion – Which Option is Better?**
* **Option 1** is **simpler legally**, gives direct ownership, and allows for easier long-term management of property.
* **Option 2** may allow for slightly **better tax planning** if the mother falls in a lower tax bracket, but it involves **more procedural steps and slower repatriation**.
---
## 🧾 **Documents & Compliance Checklist**
| Requirement | Document/Form |
| ----------------------- | -------------------------------------------------- |
| Remittance for purchase | Bank remittance certificate, KYC, FEMA declaration |
| Sale of property | Sale deed, PAN, capital gains computation |
| Repatriation | Form 15CA, 15CB (from CA), Form A2 |
| Gift documentation | Gift deed (optional, but advised), ID proofs |
| Tax filings | ITR with capital gains, Form 26AS |
---
If this is still relevant in **2025**, note that **GST doesn't apply on sale of completed real estate** between individuals. Also, FEMA and LRS limits (USD 250,000) and procedures are **still valid** with minor updates.
Would you like a downloadable letter or email format of this explanation for formal use?
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