A foreign national may acquire or transfer the immovable property in India, if at the time of purchase that foreign national qualifies as a ‘person resident in India’. This rule makes the legal definition of ‘person resident in India’ quite important. In order for a foreign national to qualify as a ‘person resident in India’, he is required to have resided in India for more than 182 days during the preceding financial year (financial year is defined here as April 1st to March 31st) for employment, business, vocation or any other purpose in India. Further, the type of Indian visa granted to such foreign national must clearly indicate his intention to stay in India indefinitely.
However, RBI prohibits acquisition or transfer of immovable property in India by the citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea without its prior approval, unless they are Overseas Citizens of India (OCI) or the immovable property under consideration is acquired on lease, not exceeding five years.
Further, the acquisition or transfer of immoveable property by a foreign national is required to be through normal banking channels and subject to applicable tax laws and other duties/levies in India.
The State Governments have been advised to be extra vigilant in matters relating to acquisition and transfer of immovable property in India by foreign nationals, and to verify the relevant travel documents and nature of visa before registering a sale or purchase of immovable property in India.
EXAMPLE: A Japanese businessman working in New Delhi seeks to purchase a house in India. The Japanese man resided in India during the previous financial year for a total of 254 days while working for an Indian company. In this situation, the Japanese businessman would qualify as a resident and be permitted to make the purchase.
Immovable property may also be acquired by a foreign individual by way of inheritance from a resident of India. Note, however, that no citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea may acquire immovable property, through inheritance, without prior approval of the RBI.
EXAMPLE: An Indian man who owns a house in Mumbai dies with a will leaving the house to his friend who lives in the UK and has UK nationality. The UK national could inherit the house in Mumbai under the will without qualifying as a resident of India.
EXAMPLE: Same facts as above, but the person inheriting land in India is an Iranian citizen. In this situation, the Iranian citizen would not be allowed to obtain title to the land unless prior approval is granted by the RBI.
EXAMPLE: Same facts as above, but shortly after receiving title, the UK national seeks to sell the house and send the sale proceeds to the UK. In this situation, in order to transfer the sale proceeds outside India, he would be required to first obtain approval from the RBI.
Indian law also grants rights to own an immovable property (other than agricultural land/ plantation property/ farmhouse) in India, to individuals who qualify as Non-resident Indian (NRI) and/or OCI, by way of purchase, gift or inheritance. Further, an NRI or an OCI is also entitled under the Indian laws to transfer the immovable property to a person resident in India, an NRI or an OCI, by way of sale or gift. In case the transfer is by way of gift, the transferee should be a relative as defined by law. An NRI or an OCI, however, need not qualify under the residency criteria to acquire or transfer the immovable property in India.
EXAMPLE: The son of an Indian national who grew up in the US and has US citizenship moves to Hyderabad and seeks to buy a house. Such person may do so as an OCI (without qualifying as an Indian resident) as long as the purchase price for the house is remitted in from a source outside India.
Note that the above explained requirement to obtain RBI approval before remitting the sales proceeds from the sale of immovable property outside India does not apply to NRIs and OCIs.
However, repatriation of sale proceeds outside India of an Indian residential property, by NRIs or OCIs, is restricted to not more than two such properties.
EXAMPLE: Same facts as above, and the son of the Indian national later sells the house and receives the sale proceeds from the purchaser and wishes to remit the sale proceeds to the US. In this situation, he may do so without obtaining approval from the RBI as long as the seller has not previously repatriated the proceeds from the sale of two residential properties in India.