India has seen an increasing interest among foreigners in investing in real estate. The Indian government has introduced several measures to attract foreign investment. However, buying property in India as a foreigner is not as straightforward as it may seem. There are different rules and regulations that apply depending on the type of property, the nationality and residency status of the buyer, and the purpose of the purchase.
Can Foreigners Buy Property in India?
Person of Indian Origin (NRI/ OCI/ PIO)
Non-Resident Indians (NRI) and OCI Cardholders (OCI) have the option to purchase properties in India as well. The Reserve Bank of India (RBI) is authorised by the Foreign Exchange Management Act (FEMA) to establish regulations that control, restrict, or prohibit the acquisition or transfer of immovable property in India by individuals residing outside the country.
According to these regulations, NRIs and OCIs can acquire immovable property through the following means:
- Purchase: They can purchase property from various sources, such as builders, developers, resident Indians, or NRIs/OCIs, and make payments from their NRO/NRE account or through international transfers via regular banking channels. They can also utilise loans obtained from banks or financial institutions in India.
- Gift from Resident Indians: They are permitted to receive a property gift from any resident Indian, whether it is a relative or a friend. However, it is important to note that any gift received from a non-relative is subject to income tax. Therefore, it is advisable to restrict gifts to relatives as defined in Section 56 of the Income Tax Act.
- Gift from NRIs or OCIs: NRIs or OCIs can acquire property through a gift from another NRI or OCI cardholder who is a relative. The definition of “relative” in this case corresponds to Section 2(77) of the Companies Act, which includes a person’s spouse, siblings, and lineal ascendants or descendants.
- Inheritance from a resident Indian: They can inherit property from a person residing in India.
- Inheritance from a non-resident Indian: They can inherit property from a person residing outside India, provided that the transferor complied with FEMA regulations at the time of property acquisition.
- Agricultural Land: NRIs and OCIs are eligible to inherit agricultural land, farmhouses, and plantation properties.
Foreign Spouse of NRI/ OCI Buying Property in India
If an individual resides outside India and is not classified as an NRI or OCI, but is married to an NRI or OCI, they have the opportunity to jointly acquire one immovable property (excluding agricultural land, farmhouses, or plantation properties) with their NRI/OCI spouse.
However, it is necessary for the marriage to be registered and have remained in effect for a continuous duration of at least two years immediately prior to obtaining the said property.
Foreigners Residing Outside India
Foreign nationals who are not of Indian origin and reside outside India are restricted from acquiring any immovable property in India, unless the property is inherited from a person who was a resident of India. It is important to be aware that foreign nationals of non-Indian origin who have inherited immovable property in India with explicit approval from the RBI are not allowed to transfer such property without obtaining prior permission from the RBI.
Foreigners Residing in India
Foreign Nationals (other than NRI or OCI) living in India can buy property in India.
- With RBI permission: Individuals from countries such as Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong, or the Democratic People’s Republic of Korea (DPRK) are required to obtain prior approval from the RBI to acquire immovable property in India. However, they have the option to acquire property through lease for a period not exceeding five years.
- Without RBI permission: Foreign nationals from countries other than those mentioned above (such as the USA, UK, or Australia) who are not of Indian origin but reside in India are permitted to acquire property in India.
Long Visa Holders
A person who is a citizen of Afghanistan, Bangladesh, or Pakistan and belongs to minority communities such as Hindus, Sikhs, Jains, Buddhists, Parsis, and Christians, and is currently residing in India with a Long-Term Visa (LTV) granted by the Central Government, is eligible to acquire a single residential immovable property in India for self-occupation. Additionally, they may also acquire one immovable property for self-employment purposes.
Foreigners Buying Property in India for Business Activity
Foreigners who are purchasing property in India for business activities are eligible to acquire immovable property, such as a branch, office, or any other place of business (excluding a liaison office), if it is necessary for or incidental to carrying out their business activity. However, this is subject to compliance with all applicable laws, rules, regulations, or directions in force.
The foreign company or entity, along with the concerned person, must file a declaration in the form IPI with the Reserve Bank of India within ninety days from the date of acquiring the property. The non-resident is also permitted to transfer the said immovable property by way of mortgage to an authorised bank as security for any borrowing.
In the event of winding up the business, the sale proceeds from such property can only be repatriated with the prior approval of the Reserve Bank of India.
Purchase or Sale of Property by Foreign Diplomats
Foreign Consulates, Embassies, and Diplomatic personnel in India have permission to buy or sell immovable property in India, excluding agricultural land, plantation property, or farmhouses, under the following conditions:
- They must obtain clearance from the Ministry of External Affairs, Government of India, for the intended purchase or sale.
- The payment for acquiring the immovable property in India should be made through funds remitted from abroad via a banking channel.
Documents and Agreements Required for Buying Property in India
The following are the documents required for buying a property in India:
- Pan Card
- Passport (in case of NRI)
- OCI/PIO card
- Passport-size photographs
- Proof of residential address
- Land titles/ necessary approvals from authorities/ construction permits
- Society clearance and membership proof
- Title clearance certificate
- Income Tax clearance
- Sale or Purchase Agreement
- Stamp duty and registration
Income Tax on Properties in India
According to the Income Tax Act in India, if a resident or an NRI (Non-Resident Indian) possesses multiple house properties, only one property will be considered as self-occupied. Self-occupied property is not subject to income tax. However, for the other property, whether it is rented out or not, the individual will need to calculate the deemed rental income.
The Income Tax Act does not specify whether these properties must be located solely in India. With the increasing trend of people moving and settling abroad, the rule of owning multiple properties applies globally. This means that if an NRI owns only one property worldwide, and it happens to be in India, they are not required to pay any tax. However, if an NRI owns a property in India but resides in and owns a house in the United States of America. They would be liable to pay income tax on the deemed rent in India.
Frequently Asked Questions
Foreign nationals, including NRIs (Non-Resident Indians), PIOs (Persons of Indian Origin), or individuals of non-Indian origin, are eligible to inherit and possess immovable property in India from the following:
– A person who is a resident of India.
– A person who is a resident outside India.
However, it is essential that the person from whom the property is inherited had acquired it in compliance with the foreign exchange regulations in effect at that time.
Please note that citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan must obtain specific approval from the Reserve Bank in such cases.
PIOs or NRIs may only transfer agricultural land, plantation property, or farmhouses acquired through inheritance to Indian citizens who permanently reside in India.
A Person of Indian Origin (PIO) has the option to sell any immovable property in India, excluding agricultural land, plantation property, or farmhouses, to a person who is a resident of India. Additionally, a PIO can also transfer the property as a gift to an Indian resident or another PIO/NRI.
In the case of agricultural land, plantation property, or farmhouses in India, a PIO can transfer them through sale or gift solely to an Indian citizen who is a resident of India.
Yes, NRIs/PIOs have the opportunity to obtain housing loans in Indian rupees from housing finance institutions. Repayment of such housing loans in India can be made through inward remittance via the normal banking channel, debiting the NRE/NRO account, utilising rental income from Indian properties, or receiving financial support from close relatives of the borrowers.
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