Buying property is not only an investment opportunity but also a necessity to obtain a place to stay or a place to set up your business. Therefore, the need to buy property keeps on arising for some or another person. The perimeters, rules, and regulations of buying property in the territory of India while being a resident of India are quite clear. However, the need to buy property outside India keeps on arising in various situations like a resident Individual settling outside India, an Investment opportunity outside India, a business entity needs to set up business outside India, and many others.
In this article, you will get to explore the possibilities of purchasing immovable property outside India while being an Indian resident.
1. Who is a person resident in India
Term “Person resident in India” is defined under FEMA based on various criteria for Individual, Body Corporate, Offices, Branch, and Agency.
2. What is an immovable property
Taking into consideration the various definitions of immovable property available in the Transfer of Property Act, 1882, General Clauses Act, 1897, and Indian Registration Act, 1908, when one talks about Immovable Property, it includes land, building, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth but not standing timber, growing crops, or grass.
3. Can a Person resident in India acquire immovable property outside India
- As per Foreign Exchange Management Act (“FEMA”), the Reserve Bank of India is empowered to form rules and regulations with respect to acquisition or transfer of immovable property outside India by person resident in India.
- Accordingly, provisions with respect to acquisition of immovable property outside India are notified vide Notification No. FEMA 7(R)/2015-RB dated January 21, 2016.
- As per provisions, a person resident in India can acquire property outside India if the same is permitted under the FEMA or with the general or special permission of RBI. Therefore, acquisition of immovable property outside India is neither completely prohibited nor is completely liber.
4. What are the modes of acquisition of immovable property outside India
Persons resident in India are eligible to purchase property abroad through a number of different routes. Each of these routes are subject to differing legal conditions and have differing tax implications, both in India and the foreign country. Purchasing property abroad, therefore, requires a certain amount of structuring to ensure that foreign property investments are both legitimate and tax-efficient. Structuring a foreign property transaction correctly can greatly mitigate the risks involved with purchasing property abroad.
Here are a few ways in which an a person resident in India can hold assets outside India:
4.1 Purchase of Immovable property at the time being resident outside India
- As per Section 6(4) of FEMA read with Regulation No. 3 of Part-I of Master Direction 12/ 2015-16, is a person acquires a immovable property at the time he was resident outside India then he can continue to hold, own or transfer such immovable property.
4.2 Immovable property inherited from person resident outside India
- A person resident in India is permitted to hold, own or transfer any immovable property which is inherited from a person resident outside India.
4.3 Immovable property acquired through inheritance or gift
A person resident in India may acquire immovable property outside India by way of gift or inheritance, provided such gift is given by or inheritance is received from-
- A person who has acquired, own or hold such immovable property when he was resident outside India.
- A person who in turn has inherited it from a person resident outside India.
- A person resident in India who has acquired such immovable property on or before 8th July, 1947 and continued to held it with permission of RBI
- A person resident in India who has acquired such property in accordance with provisions of FEMA applicable at that time
4.4 Acquisition out of funds held in Resident Foreign Currency (RFC) account
A person resident in India can purchase an immovable property outside India out of Foreign Exchange held in his Resident Foreign Currency (RFC)* account maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015.
* RFC savings Account is a saving account maintained in foreign currency for Non-Resident Indians who have returned to India and hold funds in foreign currency.
4.5 Acquisition of property outside jointly with a relative who is resident outside India
A resident can acquire immovable property outside India jointly with a relative who is a person resident outside India, provided there is no outflow of funds from India. This means that a resident is eligible to buy immovable property outside India jointly with non-resident relatives as long as there is no outflow of funds from India.
* ‘Relative’ in relation to an individual means husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
4.6 Acquisition of Immovable property under Liberalised Remittance Scheme (“LRS”)
- According to Regulation 4 of Part-I of FED Master Direction No. 12/2015-16, a resident individual can remit funds outside India in accordance with the Liberalised Remittance Scheme and then can use such an amount to buy immovable property outside India.
- The LRS has been in operation in India since 2004. This scheme permits resident individuals to transfer funds abroad from India, up to a fixed annual limit (in 2015, this annual limit (per financial year) was increased to USD 250,000), without prior RBI approval.
- It is important to note that LRS scheme is applicable only on Individuals. Therefore, any other person such as Company, Firm etc. can’t transfer funds under LRS and purchase immovable outside India by availing benefit of this clause.
- These funds transferred abroad under the LRS can be used to purchase property abroad. Further, individuals can also pool money transferred under the scheme with their family members and purchase joint property overseas. Here, minors are also permitted to avail the LRS limit through their natural guardians. Therefore, a family of four can jointly transfer USD 1,000,000 abroad in one financial year to purchase a property in their joint names.
4.7 Acquisition of immovable property by Company having overseas offices
Companies also need land or buildings or other immovable property abroad to set up their business office or for the purpose of investment or for the accommodation of their staff. A company incorporated in India having overseas offices may acquire immovable property outside India for its business and for residential purposes of its staff.
However, total remittances for the acquisition of immovable property must not exceed the following limits prescribed for initial and recurring expenses, respectively:
- 15% of the average annual sales/ income or turnover of the Indian entity during the last two financial years or up to 25% of the net worth, whichever is higher;
- 10% of the average annual sales/ income or turnover during the last two financial years.
4.8 General or specific permission of RBI
As per Regulation No. 1.2 of Part-I of RBI/FED/2015-16/7 FED Master Direction No. 12/2015-16, a person resident in India may acquire property outside India:
- If same is permitted under FEMA or regulations framed there under; or
- With General or specific permission of RBI
5. Non-applicability of provisions for acquisition of immovable property outside India
As per Regulation No. 1.2, Above mentioned restrictions on the purchase of immovable property outside India shall not apply where:
- property held by a person resident in India who is a foreign national or
- property was acquired by a person resident in India on or before July 8, 1947 and continued to be held by him with the permission of the Reserve Bank.
- Property is acquired by a person resident in India on a lease not exceeding five years.
6. Frequently Asked Questions
1. Can a resident continue to hold immovable property outside India which was acquired by him when he was a non-resident?
According to section 6(4) of the FEMA, a person resident in India can hold, own, transfer or invest in any immovable property situated outside India if such property was acquired, held or owned by him/ her when he/ she was resident outside India or inherited from a person resident outside India.
2. Can a resident individual invest in property through a foreign company?
A resident individual in India is permitted to use the annual LRS limit to invest in foreign companies, which can then purchase property abroad. Investment by an individual in a foreign company is subject to certain additional conditions that are covered under FEMA, 1999.
3. Can certain persons jointly send remittance outside India to acquire immovable property?
Every resident Individual can transfer funds under LRS for the acquisition of immovable property. Where certain individuals combine funds for the acquisition of a property then such property should be in the name of all members who have made the remittance.