Legal Framework on Acquisition of Immovable Property in India by Foreign Nationals / NRIs / PIOs

Foreign investment in India is at an all-time high, with a 26% increase to an estimated US $35 billion in Foreign Direct Investment (‘FDI’) inflow in 2014. Directly linked with this is the growing demand for acquiring land/office space in India. The legislative framework for acquiring immovable property in India is as follows:

  • This is applicable for:
    • Foreign nationals (persons who are not of Indian origin),
    • Non-resident Indians or NRIs (a citizen of India resident outside India)
    • Person of Indian Origin or PIOs (individual, not being a citizen of Pakistan or Bangladesh or Sir Lanka or Afghanistan or China or Iran or Nepal or Bhutan, who at any time, held an Indian Passport or who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955)
  • Under The Foreign Exchange Management Act, 1999 (‘FEMA’), residential status is determined by operation of law.
  • NRIs are permitted to acquire immovable property in India, other than agricultural land, plantation property or farm house. An NRI who has purchased residential/commercial property is not required to file any documents/reports with the RBI.
  • As per RBI’s Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin, a foreign national of non-Indian origin, who is resident outside India, cannot purchase any immovable property in India, unless such property is acquired by way of inheritance from a person who was resident in India. However, such foreign national can acquire or transfer immovable property in India, on lease, not exceeding five years. In such cases, there is no requirement of taking any permission of /or reporting to the RBI.
  • A foreign national, who is a ‘person resident in India’ under FEMA, can purchase immovable property in India, subject to obtaining RBI approval. Other requirements, as may be prescribed by other authorities, such as, the concerned State Government, may also have to be fulfilled. As per FEMA a ‘person resident in India’ means one who has been residing in India for more than 182 days during the preceding financial year and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period.
  • Foreign companies who have been permitted to open a Branch or Project Office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity, provided all applicable laws, rules, regulations or directions for the time being in force are duly complied with and a declaration in Form IPI has been filed with the RBI, not later than ninety days from the date of such acquisition. The payment for acquiring such a property should be made by way of foreign inward remittance through the proper banking channels. Such dispensation is however not available to entities which are permitted to open liaison offices in India.

In addition to the above, the FDI Policy effective from 17 April 2014, read with the DIPP Press Note 10 of 2014 allow 100% FDI through automatic route in the sector of “Construction Development: Townships, Housing, Built-up Infrastructure”. However, under this sector, there are requirements pertaining to minimum land area to be developed for each project (before the release of the Press Note – 10 hectares and 50,000 sq. mts. for serviced housing plots and constructions development projects, respectively, currently none), minimum capitalization and other compliance requirements, which need to be taken care of.

Author: Sohini Mandal

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