Legal framework governing purchase of a residential property in India

1.          Who is a Non-Resident Indian (“NRI”)?

Ans.    An NRI is a citizen of India resident outside India.

            As per to Section 2(v) of Foreign Exchange Management Act, 1999, a person is considered an Indian resident if he’s in India for more than 182 days during the preceding financial year.  However, there are two exceptions to this -

1. A person who has gone out of India or who stays outside India for any of the following three purposes-

• for or on taking up employment outside India; or
• for carrying on business or vocation outside India; or
• for any other purpose, in such circumstances, as would indicate his intention to stay outside India for an uncertain period

2. A person who comes to or stays in India, not for these three purposes is not considered an NRI-

• for or on taking up employment in India
• for carrying on in India a business or vocation in India
• for any other purpose, in such circumstances, as would indicate his intention to stay in India for an uncertain period

2.         Can an NRI purchase a residential apartment in India?

Ans.    Yes, an NRI can purchase a residential apartment in India.

3.         What can an NRI not purchase?         

Ans.    An NRI cannot purchase agricultural land/ plantation property/ farm house in India.

4.         Can an NRI inherit a residential property in India?

Ans.    Yes, an NRI can inherit a residential property in India. The property can be inherited either from a person resident in India or outside India.

5.         Can all NRIs purchase immovable property in India say, a residential flat, or inherit or receive it as the gift or transfer it to a third party?

Ans.    No, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong cannot, without prior permission of the Reserve Bank of India ("RBI"), acquire immovable property in India by purchase/inheritance/gift or later transfer such acquired immovable property to a third party. They can only acquire immovable property in India on the lease of maximum 5 years and not more.

6.         Who governs the purchase of a residential property in India by an NRI?

Ans.    Although laws such as the law of contracts, transfer of property laws, stamp duty laws, registration laws, newly enacted real estate laws and foreign investment laws primarily govern a purchase; it is the RBI that carefully monitors, and may even scrutinize, NRI's investment in a residential property in India.

7.         Do any documents need to be filed with the RBI after the purchase of a residential property?

Ans.    No, there is no such requirement under the law.

8.         How many residential properties can an NRI purchase in India?

Ans.   There is no restriction on the number of investments that an NRI can do in residential properties in India.

9.         Can two or more than two NRIs co-hold a residential property in India?

Ans.    Yes, they can.

10.        How can NRIs fund purchase of residential apartments in India?

Ans.    NRIs can make payment for acquisition of immovable property (other than agricultural land/ plantation property/ farm house) out of funds received in India only through normal banking channels by way of inward remittance from any place outside India or by debit to his NRE/ FCNR[1] (B)/ NRO account[2]. Such payments cannot be made either by traveler’s cheque or by foreign currency notes or by another mode except those specifically mentioned above.

11.        Can NRIs take loans too?

Ans.    Yes, NRIs can seek housing loan in Rupees from any bank in India authorized by the RBI in this regard. Alternatively, they can also ask a loan either from their employer in India or housing finance Institutions in India subject to certain conditions.

12.        How can NRIs repay home loans?

Ans.    This can be done by any of these ways (a) inward remittances through normal banking

channels; or (b) debit to NRE/FCNR (B) account of the NRI; or (c) rental income of the NRI from the property so bought; (d) borrowing credit from close relatives’ account in India. “Relatives” would mean husband, wife, brother or sister or any lineal ascendant or descendant of that individual

13.        Can an NRI sell his residential flat in India?

Ans.    Yes, an NRI can sell his residential flat in India to a person resident in India, an NRI as well to a Person of Indian Origin (“PIO”).

14.        Can an NRI sell his agricultural land/plantation estate/farm house in India?

Ans.    Yes, he can sell it to a person resident in India.

15.        How can an NRI repatriate (remit back outside India) sale proceeds of his residential flat or his agricultural land/plantation estate/farm house in India?

Ans.    NRI can do that, but with RBI’s prior permission and fulfillment of these conditions (i) at one point in time, the NRI cannot repatriate proceeds of more than two apartments; (ii) the sale took place after at least three years from the date of its acquisition of the property by the NRI or at least three years from the time of payment of final installment by the NRI; whichever is later.

16.        If NRI acquired a residential apartment by way of gift and the NRI sells it, can he repatriate the sale proceeds and how?

Ans.    Yes, provided the sale proceeds were received in NRI’s NRO account. From the NRO account, an NRI can repatriate up to USD 1 million in a financial year.                                   

17.        Can an NRI gift his residential flat?

Ans.    Yes, an NRI can gift his residential flat to a person resident in India, another NRI or a PIO.

18.        Can an NRI mortgage his residential flat?

Ans.    Yes, an NRI can mortgage his residential flat to an authorized dealer banks or housing finance institution in India without RBI's approval. However, specific approval from the RBI will have to be sought if the NRI intends to mortgage his flat to a foreign party say, a foreign bank.

19.        What if the seller has defaulted or for some reason he has to refund the money remitted by the NRI?

Ans.    The money can be remitted back to NRI’s NRE\FCNR (B) account.

20.       Suppose the NRI has remitted money to India through NRE/FCNR (B)/NRO account for acquiring a residential apartment or for repayment of the loan. Now he/she wants to send back the excess. Can an NRI do that?

Ans.    Yes, he can repatriate the money through normal banking channels or credit that payment to an account denominated in foreign currency or to an account in Indian currency from which the money can be converted to foreign currency and the account is maintained in a bank which is an RBI authorized bank. However, the amount of money so repatriated should not be in excess of the value of the residential property for which the money was remitted to India in the first place. Also, from an NRI’s NRO account, the NRI may repatriate up to USD 1 million in a financial year.       

21.        Can an NRI rent out his/her residential apartment in India?

Ans.     Yes, that can be done with RBI’s prior permission. RBI will require a certificate from a Chartered Accountant certifying that the income has been accrued to the NRI out of rent. However, please note that the proceeds of the rent must be received in NRI’s NRE\NRO account.

22.       Who is a PIO?

Ans.      A PIO means an individual who at any time, held an Indian Passport or who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by the Constitution of India or the Citizenship Act, 1955 (57 of 1955). However, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan are exempted from this definition. PIO has to satisfy the following conditions:

(i)         who was a citizen of India by the Constitution of India or the Citizenship Act, 1955; or

(ii)        who belonged to a territory that became part of India after 15th August 1947; or

(iii)       who is a child or a grandchild or a great-grandchild of a citizen of India or a person referred to in clause (a) or (b); or

(iv)       who is a spouse of foreign origin of a citizen of India or spouse of foreign birth of a person referred to in clause (a) or (b) or (c)

Note: PIOs include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955 by Notification No. FEMA 5(R)/2016- Foreign Exchange Management (Deposit) Regulations, 2016.

23.       Can a PIO purchase a residential apartment in India?

Ans.    Yes, an PIO can purchase a residential apartment in India.

24.       What can a PIO not purchase?

Ans.    Similar to a NRI, a PIO cannot purchase agricultural land/ plantation property/ farm house in India.

25.       Can an NRI continue to hold any agricultural land/ plantation property/ farm house in India which he received while he was resident in India?

Ans.    Yes, an NRI can.

26.       Can a NRI receive a residential apartment in India as gift?

Ans.    Yes, an NRI can receive a residential property in India as a gift. The gift can be received from a person resident in India, another NRI or a PIO.

27.       Can a PIO receive a residential apartment in India as a gift?

Ans.    Yes, a PIO can receive a residential property in India as a gift. The gift can be received from a person resident in India, another NRI or a PIO.

28.       Can a Foreigner purchase a residential apartment in India?

Ans.    No, a Foreigner cannot purchase any immovable property in India; be it land, apartment, etc. unless the Reserve Bank permits so. However, Foreign Embassy/ Diplomat/ Consulate General, may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided they get-

(i)         Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and

(ii)        The consideration for the acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.

29.       Can a Foreigner co-hold a residential property in India with an NRI?

Ans.     No, a Foreigner cannot.

30.       Can a foreign company purchase a flat in India?

Ans.    Yes, it can if it has set up a branch office in India as per the RBI's Master Direction for setting up a Branch office.