ACQUISITION OF IMMOVABLE PROPERTY

In order to determine who can or cannot purchase immovable property in India, it would be
prudent to first establish what categories of persons are stated in the law. They are as follows:

Indian citizen:
The Citizenship Act of 1955, provides four ways through which a person can acquire Indian
citizenship. It could be through birth, descent, registration, or naturalization as listed in Sections
3, 4, 5, and 6 of the Act, respectively.

NRI:
A person who is staying abroad for employment purposes or business-related purposes is
generally referred to as an NRI. Legally speaking, NRI – a non-resident Indian is an Indian
citizen who lives in a foreign country for more than 180 days in a financial year. As per Section
2(aj) of Foreign Exchange Management (Non-debt Instruments) Rules, 2019, a ‘Non-Resident
Indian (NRI)’ means a person resident outside India who is a citizen of India.

ACQUISITION OF PROPERTY IN INDIA BY A NON-RESIDENT

Earlier the acquisition and transfer of immovable property in India by Non-resident Indians /
persons of Indian origin / foreign nationals of non-Indian origin is regulated in terms of the
Foreign Exchange Management Act, 1999 ('FEMA') read with Notification No. FEMA 21/2000-
RB dated May 3, 2000. FEMA empowers the Reserve Bank of India ('RBI') to frame regulations
to prohibit, restrict or regulate the acquisition or transfer of immovable property in India by
persons residents outside India. The Foreign Exchange Management Act, 1999 (FEMA) along
with the Regulations issued by the Reserve Bank of India (RBI) govern the process of
acquisition and transfer of real estate in India to a major extent. Out of the mentioned categories,
PIO, OCI, and NRI can acquire and transfer immovable property in India with some specified
terms and conditions, whereas a foreign national cannot do so.

In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of
the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of the Foreign
Exchange Management (Transfer of Issue of Security by a Person Resident outside India)

Page | 1
 Regulations, 2017 and the Foreign Exchange Management (Acquisition and Transfer of
Immovable Property in India) Regulations, 2018 as amended from time to time, the Reserve
Bank of India makes the regulations. Any Acquisition or transfer of property by a person resident
outside India or a Non-Resident Indian or OCI Cardholders shall be regulated by the Foreign
Exchange Management (Non-debt Instruments) Rules, 2019.

i. Acquisition of Immovable Property by Non-Resident Indian-

Types of Immovable Permissibility Relevant Provision Explanation

Property
Acquisition of Agricultural
land or plantation property
or farm house
Not permissible by way Section 24 of Foreign Acquisition by NRI or
of purchase or gift Exchange Management OCI of the Agricultural
(Non-debt Instruments) land or plantation
Rules, 2019. property or a farm
house by way of
purchase or gift is not
permissible.
Non-residents are
permitted to hold where
these were acquired,
held or owned when he
was resident of India or
he has inherited from
resident of India.

Acquisition by way of Permissible Section 24(a) of Foreign Acquisition by way of

purchase Exchange Management Purchase permissible
(Non-debt Instruments) An NRI or an OCl is
Rules, 2019. allowed to acquire any
immovable property
(other than agricultural
land/ plantation

Page | 2
 property/ farm house)
by way of purchase in
India
Acquisition by way of gift Permissible from Section 24(b) of Foreign An NRI or an OCl is
Relative Resident Exchange Management allowed to acquire any
person/ NRI/OCI (Non-debt Instruments) immovable property
Rules, 2019 (other than agricultural
Relative as defined in land/ plantation
section 2(77) of the property/ farm house)
Companies Act, 2013 by way of gift from any
person resident in India
or from an NRI or an
OCl being his relative
Acquisition by way of Permissible Section 24(c) of Foreign An NRI or an OCI is
inheritance Exchange Management allowed to acquire any
(Non-debt Instruments) immovable property in
Rules, 2019 India by way of
inheritance from a
person resident outside
India or a person
resident India.

In case the property is

acquired by way of
inheritance from a
person resident outside,
then the property must
be acquired by the
transferee in
accordance the
provisions of the

Page | 3
 existing law relating to
foreign exchange at the
time of acquisition.

ii. Transfer of Immovable Property by Non-Resident Indian-

Transferred to Permissibility Relevant Provision Explanation

Person Resident in India Permissible Section 24(d) of Transfer of any immovable
Foreign Exchange property in India by an NRI or
Management (Non- an OCI to a person resident in
debt Instruments) India is fully permissible
Rules, 2019
NRI/OCI other than by way Permissible (other Section 24(e) of Transfer of any immovable
of gift than agricultural land Foreign Exchange property (other than agricultural
or plantation property Management (Non- land or plantation property or
or farm house) debt Instruments) farm house) by NRI or an OCI
Rules, 2019 to an NRI or OCI for
consideration is permissible
NRI/OCI by way of gift Permissible only to Section 24(e) of Transfer of any immovable
relative (other than Foreign Exchange property (other than agricultural
agricultural land or Management (Non- land or plantation property or
plantation property or debt Instruments) farm house) by NRI or an OCI
farm house) Rules, 2019 to an NRI or OCI as a gift is
permissible, only if the
transferee is relative to the NRI
or OCI

Mode of Payment:

As per Section 24(a), and Section 32 of Foreign Exchange Management (Non-debt Instruments)
Rules, 2019,

Page | 4
 (i) funds received in India through banking channels by way of inward remittance from
any place outside India or;
(ii) funds held in any non-resident account maintained in accordance with the provisions
of the Act, rules or regulations framed thereunder.
(iii) Provided further that no payment for any transfer of immovable property shall be
made either by traveler’s cheque or by foreign currency notes or by any other mode
other than those specifically permitted under this clause.
(iv) Any transaction involving acquisition or transfer of immovable property under these
regulations shall be undertaken: through banking channels in India; subject to
payment of applicable taxes and other duties/ levies in India.
(v) No payment shall be made outside India for this purpose.

Prohibitions on Transfer and Acquisitions:

As per Section 31 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019, no

person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal,
Bhutan, Hong Kong or Macau or Democratic People’s Republic of Korea (DPRK) without prior
permission of the Reserve Bank shall acquire or transfer immovable property in India, other than
lease, not exceeding five years. Provided this prohibition shall not apply to an OCI.

Explanation: For the purpose of this regulation the term “citizen” shall include natural persons
and legal entities.

Foreign national of non-Indian origin and resident outside India:

As per Section 31 a foreign national of non-Indian origin, resident outside India cannot invest
real estate in India. Although they may take immovable property on lease provided it is not for a
period exceeding 5 years. Approval of RBI is required to increase the lease period from 5 years.
However, they are permitted to acquire one immovable property (other than agricultural
land/plantation property/farm house) jointly with their spouse, provided the spouse is NRI or
OCI and otherwise not prohibited from such acquisition.

Documents Required:

Page | 5
Purchase of residential/commercial property comes under general permission and as such a PIO
is not required to file any specific documents with the Reserve Bank of India. The same is the
case with an NRI. Real estate other than the agricultural land category, generally requires
following the documents:

 OCI card (In case of OCI)

 Passport (In case of NRI)
 Passport size photographs
 Address proof
 Pan card (Permanent account number)

Restrictions on Purchase of Property:

The statutory rules and regulations do not stipulate any restriction as such on the number of
residential/commercial properties that can be purchased by NRI/PIO. The only limitation placed
is that they can repatriate sales proceeds, i.e., convert the money in the currency of the country
they are residing in, of only 2 residential properties outside India. The amount of repatriation is
limited to USD 1 million per Financial Year, subject to satisfaction of Authorized Dealer (AD)
Bank and payment of applicable taxes. This manner of repatriation applies to foreign nationals
too, on the condition that the property should have been inherited from a person resident in India.
Sale proceeds in foreign exchange are not permitted to repatriate to Nepal and Bhutan. NRI or
Person of Indian origin, is not permitted to purchase the properties for trading purpose.
Difference between for investments and for trading purpose of the immovable properties are
always debatable as needed reasonableness in period of holding of the properties.

Page | 6
 PURCHASE OF PROPERTY OUTSIDE INDIA BY AN INDIAN RESIDENT:

Currently, the overseas investment by a person resident in India is governed by the Foreign
Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the
Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India)
Regulations, 2015. The government in consultation with RBI undertook a comprehensive
exercise to simplify overseas investment rules. The Centre has announced an amendment in the
Foreign Exchange Management (Overseas Investment) Rules. The new amendments have
come into effect from 22nd August 2022 onward. In view of the evolving needs of businesses in
India, in an increasingly integrated global market, there is need of Indian corporates to be part of
global value chain.

ACQUISITION OF PROPERTY:

As per Section 2(e) 'Direct investment outside India' means investment by way of contribution to
the capital or subscription to the Memorandum of Association of a foreign entity or by way of
purchase of existing shares of a foreign entity either by market purchase or private placement or
through stock exchange, but does not include portfolio investment.

i. Rules before 2022 amendment:

Before the amendment in Foreign Exchange Management (Overseas Investment) Rules, 2022,
the overseas investment by a person resident in India is governed by the Foreign Exchange
Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign
Exchange Management (Acquisition and Transfer of Immovable Property Outside India)
Regulations, 2015. As per Foreign Exchange Management Act (“FEMA”), the Reserve Bank of
India is empowered to form rules and regulations with respect to acquisition or transfer of
immovable property outside India by person resident in India. Accordingly, provisions with
respect to acquisition of immovable property outside India are notified vide Notification No.
FEMA 7(R)/2015-RB dated January 21, 2016. As per provisions, a person resident in India can
acquire property outside India if the same is permitted under the FEMA or with the general or
special permission of RBI. Therefore, acquisition of immovable property outside India is neither
completely prohibited nor is completely liberal.

Modes of acquisition of immovable property outside India-:

Page | 7
Persons’ resident in India are eligible to purchase property abroad through a number of different
routes. Each of these routes are subject to differing legal conditions and have differing tax
implications, both in India and the foreign country. Purchasing property abroad, therefore,
requires a certain amount of structuring to ensure that foreign property investments are both
legitimate and tax-efficient. Structuring a foreign property transaction correctly can greatly
mitigate the risks involved with purchasing property abroad.

a. Purchase of Immovable property at the time being resident outside India

As per Section 6(4) of FEMA read with Regulation No. 3 of Part-I of Master Direction 12/
2015-16, is a person acquires an immovable property at the time he was resident outside India
then he can continue to hold, own or transfer such immovable property.

b. Immovable property inherited from person resident outside India

A person resident in India is permitted to hold, own or transfer any immovable property which is
inherited from a person resident outside India.

c. Immovable property acquired through inheritance or gift

A person resident in India may acquire immovable property outside India by way of gift or
inheritance, provided such gift is given by or inheritance is received from- A person who has
acquired, own or hold such immovable property when he was resident outside India. A person
who in turn has inherited it from a person resident outside India. A person resident in India who
has acquired such immovable property on or before 8th July, 1947 and continued to held it with
permission of RBI A person resident in India who has acquired such property in accordance with
provisions of FEMA applicable at that time

d. Acquisition out of funds held in Resident Foreign Currency (RFC) account

A person resident in India can purchase an immovable property outside India out of Foreign
Exchange held in his Resident Foreign Currency (RFC) account maintained in accordance with
the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India)
Regulations, 2015.

RFC savings Account is a saving account maintained in foreign currency for Non-Resident
Indians who have returned to India and hold funds in foreign currency.

Page | 8
 e. Acquisition of property outside jointly with a relative who is resident outside India

A resident can acquire immovable property outside India jointly with a relative who is a person
resident outside India, provided there is no outflow of funds from India. This means that a
resident is eligible to buy immovable property outside India jointly with non-resident relatives as
long as there is no outflow of funds from India.

f. Acquisition of Immovable property under Liberalised Remittance Scheme (“LRS”)

According to Regulation 4 of Part-I of FED Master Direction No. 12/2015-16, a resident

individual can remit funds outside India in accordance with the Liberalised Remittance Scheme
and then can use such an amount to buy immovable property outside India. The LRS has been in
operation in India since 2004. This scheme permits resident individuals to transfer funds abroad
from India, up to a fixed annual limit (in 2015, this annual limit (per financial year) was
increased to USD 250,000), without prior RBI approval. It is important to note that LRS scheme
is applicable only on Individuals.

Therefore, any other person such as Company, Firm etc. can’t transfer funds under LRS and
purchase immovable outside India by availing benefit of this clause. These funds transferred
abroad under the LRS can be used to purchase property abroad. Further, individuals can also
pool money transferred under the scheme with their family members and purchase joint property
overseas. Here, minors are also permitted to avail the LRS limit through their natural guardians.
Therefore, a family of four can jointly transfer USD 1,000,000 abroad in one financial year to
purchase a property in their joint names.

g. Acquisition of immovable property by Company having overseas offices

Companies also need land or buildings or other immovable property abroad to set up their
business office or for the purpose of investment or for the accommodation of their staff. A
company incorporated in India having overseas offices may acquire immovable property outside
India for its business and for residential purposes of its staff. However, total remittances for the
acquisition of immovable property must not exceed the following limits prescribed for initial and
recurring expenses, respectively:

Page | 9
15% of the average annual sales/ income or turnover of the Indian entity during the last two
financial years or up to 25% of the net worth, whichever is higher;

10% of the average annual sales/ income or turnover during the last two financial years.

II. Foreign Exchange Management (Overseas Investment) Rules, 2022

The revised regulatory framework for overseas investment provides for simplification of the
existing framework for overseas investment and has been aligned with the current business and
economic dynamics. Clarity on Overseas Direct Investment and Overseas Portfolio Investment
has been brought in and various overseas investment related transactions that were earlier under
approval route are now under automatic route, significantly enhancing "Ease of Doing Business".
The overseas investment rules, notified under the foreign exchange management Act (FEMA)
will subsumed all existing rules pertains to overseas investment along with those for acquisition
and transfer of immovable property outside India. The Reserve Bank of India will administer the
new regulations.

The rules also clarified that gift of foreign securities is permitted only between relatives. Earlier,
anyone could have gifted securities to Indian persons. No person resident in India shall make a
financial commitment to a foreign entity that has invested or invests in India, at the time of
making such financial commitment or at any time thereafter, either directly or indirectly,
resulting in a structure with more than two layers of subsidiaries, as per the amended rule. An
Indian entity having an overseas office may acquire immovable property outside India for the
business and residential purposes of its staff.

Meanwhile, an Indian resident may acquire immovable property outside India from a person
resident outside the country by way of inheritance, purchase out of foreign exchange held in RFC
account; purchase out of the remittances sent under the Liberalised Remittance Scheme instituted
by RBI; jointly with a relative; out of the income or sale proceeds of the assets, other than ODI.
Any resident individual can make an ODI by way of investment in equity capital or OPI subject
to the overall ceiling under the Liberalised Remittance Scheme of the Reserve Bank. Currently,
the LRS permits USD 2,50,000 outward investment by an individual in a year.

Page | 10
An Indian entity not engaged in financial services activity in India may make ODI in a foreign
entity, which is directly or indirectly engaged in financial services activity, except banking or
insurance, subject to the condition that such Indian entity has posted net profits during the
preceding three financial years. Notably, an Indian entity not engaged in the insurance sector
may make ODI in general and health insurance where such insurance business is supporting the
core activity undertaken overseas by such an Indian entity.

Mode of Payment:

As per Section 8 of Foreign Exchange Management (Overseas Investment) Regulations, 2022, A

person resident in India making Overseas Investment may make payment –

 by remittance made through banking channels;

 from funds held in an account maintained in accordance with the provisions of the Act;
 by swap of securities;
 by using the proceeds of American Depository Receipts or Global Depositary Receipts or
stock-swap of such receipts or external commercial borrowings raised in accordance with
the provisions of the Act and the rules and regulations made thereunder for making ODI
or financial commitment by way of debt by an Indian entity.

Page | 11