NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI

Submitted To: Submitted By:

Mr. Utkarsh Verma Naveen Toppo

Asst. Professor, Law Sem. - X Sec. - A

NUSRL, Ranchi Roll No. 631

 LAND ACQUISITION IN INDIA UNDER FEMA REGULATIONS

INTRODUCTION
Post-Liberalization, after 1990’s, when the new industrial policy of 1991 came, there was a need to remove
shackles of regulatory and legal provisions. There was a need to consolidate and amend laws relating to foreign
exchange with the objective of facilitating external trade and payments and for promoting the orderly
development and maintenance of foreign market in India. The Industrial licensing was pragmatic and objective
oriented, and thus it was decided to review the provisions of the Foreign Exchange Regulation Act, 1973.

FERA was enacted to regulate and control foreign exchange, however the need of the hour was to bring a
legislation which would be in line with the emerging trends of liberalization so as to remove obstacles in the
inward flow of the foreign exchange and foreign management. Accordingly, on June 1, 2000, the Foreign
Exchange Management Act, 1999 was brought in force to replace the then existing FERA. Reserve Bank of
India is entrusted with the administration and implementation of FEMA.

FEMA applies to the whole of India and all branches, offices and agencies outside India which are owned or
controlled by a person resident in India. Among other things ranging from regulating Cross-Border Mergers, to
Transfer of Securities, it also regulates acquisition of immovable property in India by Foreign Nationals. The
FEMA Act states that the RBI may by regulations prohibit, restrict or regulate the acquisition or transfer of
immovable property in India, other than a lease not extending five years, by a person resident outside India.

Further, the RBI has also time and again issued notifications and Master Directions in regard to the acquisition
of Immovable Property both in and outside India by Residents and non-Residents. The legal validity of these
notifications and circulars have been upheld in the case of Prof. Krishnaraj Goswami v. RBI,1 whereby the
court upheld the power of RBI based on powers conferred to it under section 10(4) and 11(1) of the Act.

According to the Regulations, there is a disparity between the Residents, Non-Residents: Non- Resident Indians
and Persons of Indian Origin and Foreign Nationals. The government needs to be extra vigilant in matters
relating to acquisition of immovable property in India by a person resident outside India. Such persons have to
satisfy the eligibility criteria under FEMA before registering a sale or purchase of immovable property in India.
The enquiries may relate to both the intending buyers and sellers. The relevant travel documents and the nature
of visa are also to be determined and verified before registering such sale/purchase.

RESIDENTIAL STATUS UNDER FEMA

Under FEMA residential status is of two types: –

1
2007 (6) Bom. CR 565
Person resident in India and Person resident outside India. In case of Person resident outside India, they are
further divided into Non-Resident Indians and Overseas Citizen of India. Non-Resident Indian (NRI) means a
person resident outside India who is a citizen of India, whereas an OCI means a person resident outside India
who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

PERSON RESIDENT IN INDIA [Sec. 2(v)(i) of FEMA]:

Residing in India for more than 182 days during the course of preceding F.Y. but doesn’t include-

 going out of India or staying outside India for taking up employment, for carrying business or vocation,
for any other purpose in such circumstances as would indicate his intention to stay outside India for
uncertain period
 coming to India or staying in India otherwise than for taking up employment or for carrying business or
vocation or for any other purpose in such circumstances as would indicate his intention to stay in India
for uncertain period.

PERSON RESIDENT OUTSIDE INDIA [Sec. 2(w) of FEMA] is a person who is not resident in India.
Further, Person to be resident in India, has to reside in India for more than 182 days during the previous
financial year. Exclusion to this is if a person stays outside India for employment, for vocation or for any other
purpose for uncertain period, then even if he has resided in India for more than 182 days he will become a
‘person resident outside India.’ Moreover a person to be treated as person resident in India he has to satisfy not
only the condition of period of stay (i.e. 182 days) but has to also comply with the conditions of the ‘purpose’ of
stay i.e. for taking up employment, carrying on business or vocation in India or for any other purpose which
would indicate his intention to stay in India for an uncertain period.

Further, a person resident in India on account of his employment or deputation of a specified duration
(irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed 3
years, is considered to be a person resident but not permanently resident in India

Foreign Nationals-
There is a prohibition on acquisition or transfer of immovable property in India by citizens of certain countries.
Citizens (natural person, and legal entities) of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal,
Bhutan, Macau, Hong Kong or Democratic People’s Republic of Korea (DPRK), irrespective of their residential
status, cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India,
other than on lease, not exceeding five years.
This prohibition is not applicable to OCIs. Foreign nationals of non-Indian origin resident in India except the 11
above mentioned countries can acquire immovable property in India. Foreign nationals of non-Indian origin
resident outside India can acquire/ transfer immovable property in India, on lease not exceeding five years, and
Foreign nationals of non-Indian origin resident outside India can acquire immovable property in India by way of
inheritance from a resident. However, under Section 7B (1) of the Citizenship Act, 1955 (read with notification
no. S.O. 585(E) dated 23.03.2012, w.e.f. 27.03.2012), OCI Cardholder is not eligible to acquire agricultural or
plantation properties.

As per Government of India Press Release dated February 1, 2009, foreign nationals coming to India and
staying beyond 182 days on a tourist or other visa meant for a certain period are illegally acquiring immovable
property in India in violation of the extant rules and regulations under FEMA. They, in order to be considered
as a person resident in India, have not only to satisfy the condition of the period of stay (being more than 182
days during the course of preceding financial year) but also the purpose of stay as well as the type of Indian visa
granted to him should clearly indicate the intention to stay in India for an uncertain period. In this regard, to be
eligible, the intention to stay has to be unambiguously established with supporting documentation including
visa.

Person who is Resident but Not Permanently Resident in India

ACQUISITION OF IMMOVABLE PROPERTY-

According to Section 2 (ze) of the FEMA Act, the term transfer has been defined. The term ‘transfer’ includes
sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or
lien. Repatriate to India means bringing into India the realized foreign exchange and the selling of such foreign
exchange to an authorised person in India in exchange for rupees, or the holding of realized amount in an
account with an authorised person in India to the extent notified by the Reserve Bank, and includes use of the
realized amount for discharge of a debt or liability denominated in foreign exchange 2.

Whereas, Repatriate outside India means the buying or drawing of foreign exchange from an authorised dealer
in India and remitting it outside India through banking channels or crediting it to an account denominated in
foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be
converted in foreign currency. 3

The Definition of Immovable property is absent in both the parent Act and the related notifications issued by the
RBI. Acquisition and transfer of immovable property in India by a person resident outside India comes under

2
Section 2(y) of FEMA, 1999.
3
Regulation 2(e), Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.
Capital Account as determined by the Foreign Exchange Management (Permissible capital account transactions)
Regulations, 2000, and as such all such transactions except involving debt instruments will be regulated by the
Central Government, which are currently being regulated by the RBI. This further means that these transactions
can only be done from an Authorized person who are registered to deal in foreign exchange. Dealing in or
transferring of any foreign exchange to any person other than and by the authorized person is prohibited 4.

Now, Acquisition and Transfer of Immovable Property being a Capital Account Transaction, Section 6(3)(i)
prescribes the capital account transaction as under-

6(3)(i)- Acquisition or transfer of immovable property in India, other than a lease not extending five years, by a
person resident outside India. Further, no person resident outside India shall make investment in India in any
form, in any company or partnership firm or any entity which is engaged in Real Estate business or construction
of farm house or engaged in trading of TDRs. 5

By NRI or OCI-
Further, an NRI or an OCI can by way of purchase any immovable property (other than agricultural land/
plantation property/ farm house) in India. Such a person can acquire by way of gift any immovable property
(other than agricultural land/ plantation property/ farm house) in India from person resident in India or from an
NRI or an OCI who in any case is a relative as defined in section 2(77) of the Companies Act, 2013. Immovable
property can also be acquired by way of inheritance from a person resident both outside or in India who had
acquired the property in accordance with the provisions of the foreign exchange law in force at the time of
acquisition. Further, An NRI or an OCI may transfer any immovable property in India to a person resident in
India. They can also transfer any immovable property (other than agricultural land or plantation property or
farm house) to an NRI or an OCI. In case the transfer is by way of gift the transferee should be a relative as
defined in section 2(77) of the Companies Act, 2013.

Payments for the Transactions- NRIs or OCIs may make payment, if any, for transfer of immovable property
out of funds received in India through banking channels by way of inward remittance from any place outside
India or by debit to their NRE/ FCNR (B)/ NRO account. Such payments cannot be made either by traveller’s
cheque or by foreign currency notes or by other mode.

However, deposit given by NRI for acquiring immovable property on rental basis is a Current Account
Transaction. It is directed that where deposits are kept with an Indian company by persons resident outside

4
Section 3 (a).
5
Notification 1, Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.
India, in accordance with section 160 of the Companies Act, 2013, is a current account (payment) transaction
and, as such, does not require any approval from Reserve Bank.

NRIs/ OCIs can remit the sale proceeds of immovable property (other than agricultural land/ farm house/
plantation property) in India subject to the following conditions:

1. The immovable property was acquired in accordance with the provisions of the foreign exchange law in
force at the time of acquisition or the provisions of Foreign Exchange Management (Acquisition and
Transfer of Immovable Property in India) Regulations 2018;
2. The amount for acquisition of the property was paid in foreign exchange received through banking
channels or out of the funds held in foreign currency non-resident account or out of the funds held in
non-resident external account;
3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two
such properties.

Joint Acquisition
Joint Acquisition of immovable property can also be made. A person resident outside India, not being a Non-
Resident Indian or an Overseas Citizen of India, who is a spouse of a Non-Resident Indian or an Overseas
Citizen of India may acquire one immovable property (other than agricultural land/ farm house/ plantation
property), jointly with his/ her NRI/ OCI spouse. The marriage should have been registered and subsisted for a
continuous period of not less than two years immediately preceding the acquisition of such property and the
non-resident spouse should not otherwise be prohibited from such acquisition.

The consideration for these transactions are to be made out of funds received in India through banking channels
by way of inward remittance from any place outside India or by debit to non-resident account of the person
concerned maintained in accordance with the Act or the rules framed thereunder. Payments cannot be made
either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned.

Acquisition by Long Term Visa Holders

A person who is neither an OCI or a NRI can also acquire immovable property in India. These people need to
be having a Long term visa granted by the Central Government and need to fulfill certain requirements so that
they can legally purchase property in India. The persons covered under this section are those who are citizen of
Afghanistan, Bangladesh or Pakistan and belonging to minority communities in those countries, namely,
Hindus, Sikhs, Buddhists, Jains, Parsis and Christians. They need to be residing in Indiaand may purchase only
one residential immovable property in India as dwelling unit for self-occupation and only one immovable
property for carrying out self-employment subject to the following conditions:
  The property should not be located in and around restricted/protected areas so notified by the Central
Government and cantonment areas.
 The person submits a declaration to the Revenue Authority of the district where the property is located,
specifying the source of funds and that he/she is residing in India on LTV;
 The registration documents of the property should mention the nationality and the fact that such person
is on LTV;
 The property of such person may be attached/confiscated in the event of his/her indulgence in anti-India
activities;
 A copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of
Police (DCP)/Foreigners Registration Office (FRO)/Foreigners Regional Registration Office (FRRO)
concerned and to the Ministry of Home Affairs (Foreigners Division);

Such person shall also be eligible to sell the property only after acquiring Indian citizenship. However, transfer
of the property before acquiring Indian citizenship shall require prior approval of DCP/FRO/FRRO concerned

Acquisition of Immovable Property by Branch Officeor any other place of business in India
Due to Globalization and opening of foreign companies in India, they need to have a permanent place from
where they can carry out their activities. For this, they can either rent out place or purchase immovable property
in India. Thus, a person resident outside India who has established in India in accordance with the Foreign
Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any
other place of business) Regulations, 2016 a branch, office or other place of business for carrying on in India
the activity carried on in India by such branch or office, excluding a liaison office, may-

a. Acquire any immovable property in India, which is necessary for or incidental tocarrying on such
activity; and files with RBI a declaration in the Form IPI not later than ninety days from the date of such
acquisition. Sale would require RBI approval.
b. Transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable
property acquired in pursuance of clause (a).

However, no person of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong or
Macau or Nepal or Bhutan or Democratic People's Republic of Korea (DPRK) shall acquire immovable
property, other than on lease not exceeding five years, without prior approvalof RBI.

There are also embassies and consulates of other countries in India. They may purchase or sell immovable
property (other than agricultural land/ plantation property/ farm house) in India provided clearance from the
Ministry of External Affairs is obtained. The consideration for acquisition of immovable property in India by
them is to be paid out of funds remitted from abroad through the normal banking channels

Acquisition by Gift, Trust or Inheritance

Inheritance-

According to Section 6 (5), of the FEMA Act, a person resident outside India may hold, own, transfer or invest
in Indian currency, security or any immovable property situated in India if such currency, security or property
was acquired, held or owned by such person when he was resident in India or inherited from a person who was
resident in India.

Such a person, who has acquired the property under the above-mentioned section of FEMA or his successor
cannot repatriate the sale proceeds of such property without RBI approval. However, Repatriation up to USD 1
million per financial year is allowed, along with other assets under (Foreign Exchange Management
(Remittance of Assets) Regulations, 2016) for NRIs/ PIOs and a foreign citizen (except Nepal/ Bhutan/ PIO)
who has-

1. Inherited from a person referred to in Section 6(5) of the FEMA, or

2. Retired from employment India, or
3. Is a non-resident widow/ widower and has inherited assets from her/his deceased spouse who was an
Indian national resident in India.

REPATRIATION OF SALE PROCEEDS

Specific or General Permission of RBI is required to be obtained to repatriate sale proceeds of immovable
property outside India by persons referred to in Section 6(5) or his successor who had acquired such property
when he was resident in India or inherited from a person resident in India. However, an NRI or a OCI resident
outside India, he/she can utilise the remittance facilities available under the Foreign Exchange Management
(Remittance of Assets) Regulations, 2016.

In the event of sale of immovable property other than agricultural land/farm house/plantation property in India
by an NRI or an OCI, the authorised dealer may allow repatriation of the sale proceeds outside India, provided
the following conditions are satisfied, namely-

a. the immovable property was acquired by the seller in accordance with the provisions of the foreign
exchange law in force at the time of his acquisition or the provisions of these Regulations.
 b. the amount for acquisition of the immovable property was paid in foreign exchange received through
banking channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held
in Non-Resident External account.

In case an immovable property in India has been purchased by a PIO resident outside India [who held property
in India in terms of the erstwhile FEM (Acquisition and transfer of Immovable Property in India) Regulations,
2000] or an NRI or a OCI out of housing loans availed in terms of Foreign Exchange Management Borrowing
Regulations, and the repayments for such loans are made out of remittances received from abroad through
banking channels or by debit to the NRE/ FCNR(B) account of such person, such repayments may be treated as
equivalent to foreign exchange received.

c. in the case of residential property, the repatriation of sale proceeds is restricted to not more than two
such properties. These two are limited to the lifetime of a person and not during a financial year.

For repatriation of proceeds of properties exceeding two, the same can be credited to the NRO account and can
be remitted out of NRO account upto USD 1 million per financial year.

CREATION OF CHARGE ON IMMOVABLE PROPERTY FOR SECURING LOAN/ EXTERNAL COMMERCIAL

BORROWINGS
A bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this behalf,
permit a person resident in India or on behalf of such person to create charge on his immovable property in
India in favour of an overseas lender or security trustee, to secure an external commercial borrowing availed
under the provisions of the Foreign Exchange Management Borrowing Regulations.

An Authorized Dealer in India being the Indian correspondent of an overseas lender may, subject to the
directions issued by the Reserve Bank in this regard, create a mortgage on an immovable property in India
owned by an NRI or an OCI, being a director of a company outside India, for a loan to be availed by the
company from the said overseas lender, provided the funds shall be used by the borrowing company only for its
core business purposes overseas and in case of invocation of charge, the Indian bank shall sell the immovable
property to an eligible acquirer and remit the sale proceeds to the overseas lender.

A person resident outside India who has acquired any immovable property in India in accordance with foreign
exchange laws in force at the time of such acquisition or with the general or specific permission of the Reserve
Bank may transfer such property to a person resident in India provided the transaction takes place through
banking channels in India and provided that the resident is not otherwise prohibited from such acquisition.
Further, in the event of failure in repayment of external commercial borrowing availed by a person resident in
India under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000, as amended from time to time, a bank which is an authorised dealer may permit the overseas
lender or the security trustee (in whose favour the charge on immovable property has been created to secure the
ECB) to sell the immovable property on which the said loan has been secured only to a (by the) person resident
in India and to repatriate the sale proceeds towards outstanding dues in respect of the said loan and not any
other loan.

Availing loan against security of immovable property

Rupee loan against security of Immovable Property other than Agriculture Land, Plantation Landand Farming
House can be also obtained subject to following conditions:

 Shall be utilized for borrower’s personal requirements or for business purposes

 Shall not be utilized for activities in which investment by NRI is prohibited (chit fund, nidhi company
and AP, PL, FH or real estate business and trading in TDR)
 Shall not be credited to NRE / FCNR / NRNR account of the borrower,
 Shall not be remitted outside India – Repayment out of foreign remittance or NRO / NRSR / NRNR /
NRE / FCNR account or sale of shares or securities or immovable property

Availing loan for purchase of immovable property

Housing loan to NRI or PIOROI for acquisition of a residential accommodation in India can be made subject to
following conditions-

 Quantum of loans, margin money and repayment period shall be same as for housing loans to Resident.
 Shall not be credit to NRE / FCNR / NRNR account.
 Fully secured by equitable mortgage of property proposed to be acquired and if required, by lien on the
borrower’s other asset in India.
 EMI and other charges to be paid by way of remittance or out of funds in NRE / FCNR / NRNR / NRO /
NRSR account in India or rental income or by any 'relative' (as defined under sec. 6 of the Companies
Act) in India by crediting the borrower’s loan account through the bank account of such relative.
 Rate of interest shall conform to RBI or NHB directives.

METHOD OF PAYMENT FOR INVESTMENT

As already mentioned above, but for clarifying it further, the payments for the acquisition can be made out of –
  Funds received in India through normal banking channels by way of inward remittance from any place
of India, or
 Funds held in any non-resident account maintained in accordance with the provisions of the Foreign
Exchange Management Act, 1999 and the regulations made by Reserve Bank Of India from time to
time.

Such payments cannot be made either by through a traveller’s cheque or by foreign currency notes or by other
mode than those specially mentioned.

When there is acquisition of property by purchase-

An NRI having a valid Indian passport can acquire any number of immovable properties in India both
residential and commercial other than an agricultural land, plantation property and farmhouse unless it is
acquired as a result of succession or gift. Section 80C on the Income Tax Act, 1961 empowers an NRI to claim
a deduction of Rs. 1 lakhs on the acquisition of the property. Every purchase of property comes with stamp
duty, registration charges and service tax which will differ accordingly if the property is under construction or is
an apartment.

Further, an NRI if , he is taking out a loan to acquire property, then there is no upper limit on the deduction that
he can claim unlike a resident Indian for who can claim a reduction only upto Rs. 1.5 lakh for home loan
interest. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during
the year and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance is available to NRIs
as well. They however need to pay a withholding TDS at the rate of 1% if the property is worth more than Rs 50
lakh. They would be exempted from wealth tax if the property is vacant and declared as ‘self-occupied’.
Otherwise they need to rent it out for a minimum of 300 days to avoid wealth tax. If they have a subsequent
property, then they need to pay tax at the rate of 1% the value (net of outstanding loans) in excess of Rs 30 lakh.

Section 54F of the Income Tax Act provides exemption on sale of any capital asset other than a residential
house property. Under this provision exemption can availed if the NRI has purchased a house property within
one year from the date of transfer or after 2 years from the date of transfer of capital asset. Else if it is under
construction it should be completed the within 3 years from the date of transfer of capital asset and also the
house property should not be sold within 3 years .

When acquisition by Gift / Inheritance-

The NRI can gift his property and remit the money outside India. But there are certain restrictions on gifting of
property that is in case of gifting of inherited property it can be given only to the one who is resident in India or
NRI or PIO. In case if the property is gifted to a non relative than the person receiving the property has to pay
tax based on the market value of the property got as a gift.

If the inherited house property is vacant that is if he/she has kept it for their stay when they are in India will be
not covered under taxation. In contrast if they have more than a single house property including the inherited
one and they are keeping it vacant than they have to chose one of them as self- occupied and has to pay notional
rental income according the prevailing market rates. The NRI has to file his income tax returns in India based
on income tax slab rates for NRI.

Sale of Property-
NRI’s need to take permission of Reserve Bank of India for selling their property in India. Also if the NRI
wants to sell his inherited agriculture land, farmhouse or plantation land it should be sold to an Indian citizen
only who is resident Indian. Though the NRI who inherited or owned a property at the time when he/she was
Indian resident can gift or transfer, sale, rent the way they want. NRIs have to pay tax based on the capital
gains. Gains are calculated by taking out difference between sales value and indexed cost. Indexed cost is that
cost of purchase which is adjusted to inflation. When any house property is sold within two years from the very
date when it was owned by an NRI it comes under the ambit of short term capital gains otherwise if the house
property is sold after two years it is counted under long term capital gains.

But when the property has been acquired by way of inheritance the NRI has to calculate the capital gains from
the date when it was purchased from the original owner to see whether will come under short term or long term
capital gain to pay the tax accordingly. The long term capital gains are taxed at the rate of 20 percent. While the
short term capital gains are taxed as per the normal tax bracket applicable on him. When the NRI sells property
the buyer is liable to deduct the tax deductable at the source (TDS) at the rate of 30 percent if property is sold
within two years of purchase and TDS of 20 percent if sold after 2 years.

CONCLUSION
Thus, it can be said that there are varying laws for acquisition of property and so, land, as whole immovable
property is mentioned and there have been specific exclusions made wherever required, by Non-Resident
Indian, Overseas Indian Citizens and Foreign Nationals in India. There are various rules and regulations as to
how such transactions and acquisition of land can be done. As, even though foreign currency is coming in the
country, when they sell such property, currency flows out. So, RBI has to keep a check on these transactions, so
that there is no black money laundering through these transactions and that proper process and requirements are
fulfilled. Further, there are different specified ways of how payments are to be made and received, how such
property can be acquired through inheritance, gift or will and how can these be given away in the same mode.