Asset Ownership in India for Foreigners, NRIs and PIOs.
– Vishal Dhawan, Chief Financial Planner, Plan Ahead Wealth Advisors.
In our November 2013 article on “Financial Planning for Foreigners, NRIs and PIOs moving to India”, we had shared “Residency/Visa related issues”. This time, we would like to share our insights on Asset Ownership in India for Foreigners, NRIs and PIOs.
Exchange control in India is regulated under the FEMA Act 1999. Under the FEMA, foreign exchange transactions are divided into two broad categories – current account transactions and capital account transactions. Transactions that alter the assets and liabilities outside India of a person resident in India, or in India, of a person resident out of India, are classified as capital account transactions. All other transactions are considered current account transactions.
The Indian rupee is fully convertible for current account transactions, subject to a negative list of transactions which are either prohibited or require prior approval. Capital account transactions can only be undertaken to the extent permitted. Generally, foreigners are not permitted to acquire immoveable property, except in certain cases.
A foreign national of non-Indian origin, 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, he / she can acquire or transfer immovable property in India, on lease, not exceeding five years.
A person resident outside India can own, hold, transfer or invest in Indian currency, securities, or immovable property in India provided it was acquired when he was a resident of India or inherited from a person who was a resident in India. Thus, for example, if a foreign citizen comes to India on an employment visa for three years, it is possible for an immovable property to be acquired as he is resident in India. For sale of immovable property as well, foreigners do not need any approval if they are Indian residents. However, if they propose to sell the property after becoming non residents, they require approvals from the Reserve Bank of India (RBI)
NRIs or PIOs are allowed to acquire immoveable property – residential and commercial (except agricultural land / plantation property / farm houses). There is no restriction on the number of properties acquired. They are also permitted to receive a gift or inheritance from a resident in India or a NRI or PIO as long as the FEMA provisions on the same have been adhered to.
In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by a NRI / PIO, the following conditions need to be satisfied, namely.
- the immovable property should have been acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;
- the amount to be repatriated does not exceed:
- the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or
- the amount paid out of funds held in Foreign Currency Non-Resident Account, or
- the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property; and
- in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Considering the complexity of the laws, it is crucial to take the help of a real estate attorney before making purchases so that the provisions applicable specifically to the individual can be taken into account.