India’s real estate market continues to be a lucrative investment destination for Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and foreign nationals. However, the acquisition and transfer of immovable property in India involves specific regulations under the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines.
This guide will help you understand the legal framework, eligibility criteria, and procedural requirements for acquiring and transferring immovable property in India.
For details on selling property, refer to Sale of Immovable Property by NRIs in India.
Who Can Acquire Immovable Property in India?
1. Non-Resident Indians (NRIs)
NRIs can acquire the following types of immovable property in India:
- Residential property (houses, apartments, villas, etc.)
- Commercial property (office spaces, retail outlets, warehouses, etc.)
However, NRIs cannot purchase:
- Agricultural land
- Farmhouses
- Plantation properties
NRIs can acquire property by way of inheritance from an Indian resident or another NRI who acquired it as per the applicable laws.
2. Persons of Indian Origin (PIOs)
PIOs can acquire residential and commercial property in India through:
- Purchase using funds from an NRE, NRO, or FCNR(B) account
- Gift from an NRI, PIO, or a resident Indian
- Inheritance from an Indian resident or an NRI
Like NRIs, PIOs are also restricted from purchasing agricultural land, farmhouses, and plantations.
3. Foreign Nationals
Foreign nationals who are not of Indian origin are generally not allowed to purchase property in India. However, they can inherit immovable property from an Indian resident. If a foreign national wants to acquire property through purchase, prior approval from the RBI is required.
Modes of Acquiring Property
1. Purchase
- Payment must be made through normal banking channels via inward remittance or funds held in NRE, NRO, or FCNR accounts.
- Payments cannot be made in foreign currency, traveler’s cheques, or cash.
2. Gift
NRIs and PIOs can receive residential or commercial property as a gift from:
- Indian residents
- Other NRIs
- PIOs
However, agricultural land, farmhouses, and plantations cannot be gifted.
3. Inheritance
- NRIs and PIOs can inherit any type of property (including agricultural land) from an Indian resident.
- The inherited property must have been legally acquired by the previous owner as per the foreign exchange laws in force at the time.
Transfer of Immovable Property in India
1. By NRIs and PIOs
- Residential and commercial properties can be transferred:
- By sale to an Indian resident
- By gift to an NRI, PIO, or Indian resident
- Agricultural land, farmhouses, and plantations can only be transferred to Indian citizens residing in India.
2. By Foreign Nationals
- Foreign nationals who inherit property must obtain RBI approval before transferring it.
- Property cannot be transferred to another foreign national.
Acquisition by Foreign Embassies, Diplomatic Missions, and Companies
- Foreign embassies and diplomats can purchase property with prior approval from the Ministry of External Affairs.
- Foreign companies with branch offices in India can acquire property for operational purposes, provided they comply with FEMA regulations and report the acquisition to the RBI within 90 days.
Repatriation of Sale Proceeds
NRIs and PIOs selling immovable property in India can repatriate the proceeds subject to the following conditions:
- The property must have been acquired in compliance with FEMA regulations.
- The repatriated amount cannot exceed:
- The amount paid for the property in foreign exchange through normal banking channels.
- The equivalent amount paid in INR from an NRE account at the time of purchase.
- Repatriation is restricted to two residential properties.
- If the property was purchased using rupee funds, the repatriation limit is USD 1 million per financial year, subject to tax compliance and certification from a Chartered Accountant.
For a detailed guide on the repatriation process for NRIs, refer to our blog:🔗 NRIs Remitting Property Sale Proceeds from India
Tax Implications for NRIs and PIOs
1. Tax on Rental Income
- Rental income from property in India is taxable under the “Income from House Property” category.
- TDS (Tax Deducted at Source) applies at 30% if rent is received by an NRI.
2. Capital Gains Tax on Sale of Property
- Short-Term Capital Gains (STCG): If the property is sold within 24 months, gains are taxed as per the applicable income tax slab rate.
- Long-Term Capital Gains (LTCG): If the property is held for more than 24 months, LTCG is taxed at:
- 12.5% without indexation (for property registered post-July 2024)
- 20% with indexation (for property registered before July 2024)
3. Tax Benefits & Exemptions
- Section 54: LTCG exemption if the gains are reinvested in another residential property.
- Section 54EC: Exemption if gains are invested in specified government bonds (e.g., NHAI, REC) within six months of sale.
For a detailed guide on inheritance laws and tax implications for NRIs in India, refer to our blog:🔗 Inheritance Laws & Tax Implications for NRIs in India
How Brivan Consultants Can Help
At Brivan Consultants, we specialize in assisting NRIs, PIOs, and foreign nationals with all aspects of real estate transactions in India. Our expert services include:
- Legal Assistance: Help with obtaining legal heir and succession certificates, property mutation, and compliance with FEMA regulations.
- Tax Advisory: Guidance on capital gains tax, agricultural income exemptions, and repatriation rules.
- Estate Planning: Creating or updating wills to streamline the inheritance process.
- Power of Attorney Execution: Managing transactions on behalf of NRIs to simplify the process.
Final Thoughts
The acquisition and transfer of immovable property in India requires careful adherence to FEMA regulations and tax laws. Whether you’re an NRI looking to invest, a PIO managing inherited property, or a foreign national seeking compliance assistance, expert guidance is essential.
Let Brivan Consultants handle the complexities so you can make informed and hassle-free real estate decisions. Contact us today to simplify your acquisition and transfer of immovable property in India!
