Seamless Transfers : NRI’s Property sales made easy across borders!

Author: Overseas Indian Desk, at ZEUS Law

The inheritance of properties in India by the Non-Resident Indians is governed by the provisions of the Foreign Exchange Management Act, 1999 (FEMA), amongst other statutes. To summarise, an NRI can acquire any immovable property in India, including residential, commercial, agricultural, plantation and farmhouse properties, by way of inheritance / legacy from a person resident in India or outside India, provided that the deceased person had acquired the property in compliance with the foreign exchange law in force at the time of acquisition of such a property. Apart from the rules governing inheritance of immovable property in India by NRIs, FEMA also stipulates strict rules for the purchase and disposal of immovable properties. 

Buying property

NRIs are permitted to purchase any type of immovable property in India, without any limitations on the number and size of the properties. Further, NRIs are not required to seek any prior permission from the Reserve Bank of India (RBI) for purchasing a residential / commercial property in India. The RBI, in a clarification has said that NRIs can acquire or transfer the immovable property in India without any prior approval from the RBI as per the terms and conditions laid down in Chapter IX of FEMA rules 2019, dated October 17, 2019 issued under Section 46 of FEMA, 1999. They are also not required to file any documents with RBI after having purchased residential/commercial property under the general permission.

Payment of the sale consideration can be made only from the funds that have been remitted to India through normal banking channels or from funds held in an NRE/NRO/FCNR(B)* account maintained in India. Such payments cannot be made in foreign currency or by traveller’s cheques or any other mode, except those that have been specified by RBI. 

Selling property

An NRI can transfer by way of sale the commercial/residential properties acquired by him in India to

  • a person resident in India, or;
  • a person resident outside India but is a citizen of India, or;
  • a person of Indian origin resident outside India. 

Repatriation of sale proceeds

For an NRI who wants to sell an immovable property, rules for outward remittance come into play. Importantly, the immovable property being sold should have been acquired as per the provisions of applicable foreign exchange law in force when it was acquired. In the event of sale of immovable property by NRI other than agricultural/farmhouse/plantation property in India, repatriation of the sale proceeds outside India may be allowed subject to certain conditions :

  1. The amount to be repatriated should not exceed the amount that was paid (from foreign exchange received through normal banking channels or out of funds in FCNR/NRE accounts) for acquiring such properties. However, this facility is restricted to repatriation of sale proceeds for a maximum of two residential properties.
  2. Where the purchase price was paid from an NRO account, a maximum of USD 1 million per financial year can be remitted from sale proceeds of immovable property.
  3. The authorized dealer bank being satisfied about the transaction, supporting documentary evidence submitted to it, and payment of applicable taxes as prescribed by Central Board of Direct taxes from time to time being made.
  4. As regards remittances that exceed USD 1 million in any financial year, NRIs have to obtain prior permission from RBI.

There are cases where, despite an NRI having invested some funds towards purchasing an immovable property, the transaction does not materialize into an ultimate sale-purchase for various reasons (for instance, on account of non-allotment of property or cancellation of bookings). In such cases, provisions of FEMA allow refund of application/earnest money/purchase consideration to be made, together with interest, if any (net of applicable income tax). In bona fide transactions, such refund of amounts would be allowed by the way of credit to an NRE/FCNR (B) account, provided that original payment has also been made either out of NRE/FCNR (B) account or from funds that had been received via inward remittance through normal banking channels.

When contemplating sale-purchase transactions, NRIs must refer to the latest rules stipulated by RBI from time to time.