NRI OCI PIO – FEMA Act & Assets In India

by Whytecroft Ford | Dec 30, 2022 | Indian Law, Indian Law Weekly Round-Up, NRI Legal Services, OCI, PAN, Power of Attorney

Acquisition and transfer of immovable property in India by NRIs / PIOs / Foreign Nationals of Non-Indian Origin is regulated by the Foreign Exchange Management Act, 1999. Popularly referred to as FEMA Act.

This segment continues from our last article(s) Buying Indian Property. In particular, we consider FEMA and its role in Acquisition and Transfer of Immovable property in India. As well as its other related areas of scope.

Scope & Consideration

Albeit, some terminology in Indian Law in combination with its outlay, respectively, can be somewhat difficult to understand for most individuals. The aim of this article is to provide a general overview of key points relating to FEMA.

Beginning with what is FEMA?

FEMA

The full form of FEMA is Foreign Exchange Management Act (1999). The main bodies involved are;

Government of India – Ministry of Finance
Reserve Bank of India

FEMA came into force on 01st June 2000 by the Government of India – Ministry of Finance. It came into effect outlining the official guidelines in relation to Foreign Exchange Management (ie; current account transactions).

It is an Act made in collaboration with;

Rules made by the Government of India and,
Regulations/notifications issued by the Reserve Bank of India.

Together these are known as FEMA. The Act specifies particular guidelines and regulations in relation to financial transactions in India. These regulatory guidelines are applicable to all persons that fall under the parameters of FEMA.

When Did FEMA Act (1999) Begin – Brief Timeline

Foreign Exchange Management Act – 1999
Ministry of Finance, Government of India Notification – 01/05/2000 of No.GSR(371)(E)
From 01/05/2000 notification, FEMA came into effect on – 01/06/2000 throughout India

Who Does FEMA Act Apply To

Anyone with financial transactions in India that fall within the parameters set out by FEMA.

Emphasis for the purpose of this article is on FEMA and its key role in relation to Overseas Indians – Indian Property.

What Are Its Main Functions

The main role of FEMA involves (as the name suggests) Foreign Exchange Management and its related parameters.

As specified by the following framework;

All foreign exchange transactions taking place with effect from 1st June 2000, will be governed by the provisions of the Foreign Exchange Management Act, 1999, Rules, Regulations, Notifications/directions or orders made or issued thereunder:

Annexure I – Rules relating to Current Account Transactions.
Annexure II – Regulations relating to Capital Account Transactions.
Annexure III – Regulations relating to export of goods and services.
Annexure IV – Other regulations/notifications issues by RBI

Acquisition & Transfer of Immovable Property

Acquisition and transfer of immovable property in India by NRIs / PIOs / Foreign Nationals of Non-Indian Origin is regulated by the Foreign Exchange Management Act, 1999.

Why this may be relevant to your property in India? Let’s take the example of – transferring immovable property. What does FEMA state in relation to transfer of immovable property by an Overseas Indian?

As per the regulatory implications detailed by the Act, you can do the following;

An NRI may transfer any immovable property in India to a person resident in India.

NRI may transfer any immovable property (other than agricultural land or plantation property or farm house) to an Indian Citizen resident outside India or a PIO resident outside India.

As outlined in the above paragraph, you can see that agricultural land pertains to some restrictions.

Next, we move onto some examples of the Act.

FEMA Act - Overseas Indian — FEMA Act – Overseas Indian

Examples – FEMA Act Guidelines for Overseas Indian

Below we look at a few examples of the regulatory parameters, specifically relating to;

Remittance of Assets
Acquisition & Transfer of Immovable Property

For example, in the following notification(s) by FEMA;

(Remittance of Assets) Regulation, 2000, Notification No.FEMA 13/2000-RB dated 3rd May, 2000 states the following. Remittance of capital assets in India held by a person whether resident in or outside India would require approval of the Reserve Bank. Except to the extent provided in the Act or Rules or Regulations made under the Act; – (a) Remittance of winding up proceeds of a branch in India, remittance of legacy, bequest or inheritance or remittance of assets on hardship grounds would require approval of Reserve Bank as stated in Regulation 6.

In relation to, to be specific (Immovable assets), (Acquisition & transfer of immovable property in India) Regulations, 2000, Notification No.FEMA 21/2000-RB dated 3rd May, 2000; – (b) In terms of Section 6(5) of the Act a person resident outside India can hold own or transfer immovable property in India if such property was acquired by him when he was a resident in India or inherited from a person resident in India.

General Overview

When preparing for any process related to movable/immovable property in India, it is important to be aware of any benefits or limitations surrounding the process. When initiating a course of action in terms of your assets the more considered approach will serve better process.

For example, you sell a piece of your property in India as an NRI with a sale price of USD 1.5 Million (Approx GBP 830,000 based on the date of this article). Under FEMA guidelines as it stands without further process from RBI, the limit amount allowed to repatriate funds in a financial year is up to USD 1 million. Therefore, if you are planning on repatriating over USD 1 million then further process may be required under the RBI layout. This is one example.

Subsequently, below, we look at FEMA and acquisition of property in India. If you are acquiring Indian Real estate today or in the near future. Some key areas to consider that can make all the difference in process;

You Can Do The Following – Immovable Property

An NRI is permitted to the following (Regulation No.3);

acquire any immovable property in India other than agricultural/plantation property or a farm house;
transfer any property in India to a person resident in India;
transfer any property other than agricultural or plantation property or a farm house to an Indian citizen or a person of Indian origin as defined in Regulation 2(c), resident outside India.

A Person of Indian origin is permitted to the following (Regulation No.4);

acquire immovable property other than agricultural land/plantation property or a farm house by way of purchase subject to the conditions mentioned in clause (a) of the Regulation;
acquire any immovable property other than agricultural land/plantation property/farm house by way of gift from an Indian citizen resident outside India or from a PIO;
acquire property by inheritance subject to the conditions stipulated in clause (c) of the Regulation;
transfer by way of sale any immovable property other than agricultural/plantation property or a farm house by way of sale to a person resident in India;
transfer agricultural land/farm house or plantation property by way of gift or sale to an Indian citizen resident in India.

In the latter section of this article, we look at repatriation of sales proceeds & FEMA. Ie; from the sale of your property in India bringing the funds back to your country of residence. Certainly a popular area of interest across the board.

If you’ve missed our previous segments Determining the value and Indian Property you may wish to read further.

FEMA & Repatriation of Sales Proceeds

What are any conditions you should be aware of as set out by FEMA if any?

In the event of sale of immovable property other than agricultural land/farm house /plantation property in India by a person resident outside India who is a citizen of India or a person of Indian origin, the authorised dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:

the immovable property was 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 sale takes place after three years from the date of acquisition of such immovable property or from the date of payment of final instalment of consideration for its acquisition, whichever is later; and ;

the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non-Resident Account or (b) 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;

in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

In Summary

FEMA Act applies universally to anyone conducting financial activity in India. It is applicable for both Nationals and Non Indian Nationals. If you are transferring, acquiring, selling property in India then your course of action should make considerations as to the pro’s & restrictions by FEMA.

If you are unable to travel to India and require to begin due process in India, you can issue a Power of Attorney allowing your representative to act on your behalf. Here’s what some of our clients have said;

_{“It proved extremely helpful and the PoA was successfully registered and used subsequently in India. It was well worth the price I paid for their services and would definitely highly recommend.”}
_{Mr. Tiwari – london}

Frequently Asked Questions

Who can determine whether a person is resident in India or not?

Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority.

What is meant by a person resident outside India?

The Act defines a ‘a person resident outside India’ as a person who is not a person resident in India.’

Can a person who bought immovable property when he/she was a resident, continue to hold such property even after becoming an NRI’PIO?

Yes, he/she can continue to hold the residential/commercial property /agricultural land/ plantation property / farm house in India without the approval of the Reserve Bank.