Real Estate

Foreign companies with branch offices or project offices, in India, engaged in specified business activities (see below) or designated projects, respectively, are permitted to acquire immovable property in India for their own use and to pursue such business activities or designated projects, as the case may be. However, Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea companies are not allowed to acquire immovable property in India for a Branch/Project Office without prior RBI approval.

Further, the acquisition of immoveable property by a branch office or project office in India can take place through normal banking channels, subject to applicable tax laws and other duties/levies in India.

As discussed above, as per the Indian law a branch office can only engage in specific business activities as state below:

(a) Exporting and importing goods;
(b) Rendering professional or consulting services;
(c) Carrying out research work in which the parent company is engaged;
(d) Promoting technical or financial collaborations between Indian companies and parent or overseas group companies;
(e) Representing the parent company in India and acting as buying/selling agents in India;
(f) Rendering services in Information Technology and development of software in India;
(g) Rendering technical support for the products supplied by the parent/ group companies; and
(h) Serving as a foreign airline and shipping company.

A declaration in the required form (called IPI) should be filed with the RBI within ninety days from the date of acquisition of the immovable property. Such immovable property can also be mortgaged with an authorised dealer bank as a security for the purpose of borrowings.

In the event that such branch/project office is closed and immovable property sold, the sale proceeds of such immovable property may be repatriated only with the prior approval of the RBI.

EXAMPLE: A Canadian import/export company establishes a branch office in India to export Indian made handicrafts and importing certain consumer goods into India. The Canadian company then seeks to purchase office space in which to operate. This is permissible under the law, with no prior approval required from the RBI.

EXAMPLE: A Dutch company is awarded a project in India and establishes a project office to carry out the project. The company may purchase the land and buildings necessary or incidental to carrying out that project, with no prior approval required from the RBI.

EXAMPLE: A branch office of a Spanish company which qualifies to purchase immovable property in India for a business purpose seeks to purchase a warehouse. In this situation, the company may purchase the land and buildings with no prior approval from the RBI as long as the branch office finances the purchase by remitting the purchase price from outside of India through normal banking channels.

EXAMPLE: A Swedish company with a project office in India purchases land and buildings, and after three years, the Swedish company sells the land and buildings. In order for the Swedish company to transfer such sales proceeds outside India, it must first obtain approval from the RBI to do so.

Lease

Persons resident outside India, including but not limited to branch offices, liaison offices and project offices of foreign companies operating in India, have general permission to acquire or transfer the immovable property in India, on leases not exceeding five years.

EXAMPLE: A Canadian company with a liaison office in India enters into a lease agreement to rent space in a warehouse in New Delhi for five years. This company would not require any approval from the RBI.

In contrast to the rules applicable to the foreign companies with branch offices/project offices/liaison offices in India, Indian law does not place restrictions on acquisition or transfer of immovable property in India by the Indian subsidiaries of foreign companies.

Further, the acquisition is required to be made through normal banking channels, subject to applicable tax laws and other duties/levies in India.

EXAMPLE: A Singaporean company registers a wholly owned subsidiary in India, and that subsidiary purchases land for the purpose of leasing the land to third parties. This purchase is permissible under the law, with no prior approval required from the RBI as long as the purchase is made through normal banking channels and applicable taxes are paid.

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.

Foreign Embassy/Diplomat/Consulate General, are permitted to acquire or transfer the immovable property (other than agricultural land/plantation property/farmhouse) in India after obtaining clearance from the Indian Government, Ministry of External Affairs and out of the funds remitted from a source outside India through normal banking channels.

EXAMPLE:  A US diplomat working in New Delhi seeks to purchase a residential house in India. He would be required to obtain the approval of the Indian Government, Ministry of External Affairs and ensure that the purchase price for the residential house is repatriated from a source outside India through normal banking channels.

A lease deed is a legally binding contract between lessor and lessee defining terms and conditions with regard to the property to be leased out. It confirms the rights, interests of the lessee over the leased property on payment of rent for the use of such leased property during the term of lease.

A leave and license agreement is an agreement whereby the licensor grants certain the license to the licensee to use an immovable property for a defined term. Said license may be either for commercial or residential purpose.

Leave and license agreements are governed by the Indian Contract Act, 1872 and the Indian Easements Act, 1882. Whereas, lease deed are governed by the Indian Contract Act, 1872 and Transfer of Property Act, 1882.

The period of lease can either be for a specific time duration say, 11 months, 2 years or can be for perpetuity.

In a lease deed interest of property is transferred from lessor to lessee, resulting in exclusive possession of an immoveable property during the lease term. Whereas in case of a leave and license agreement, no such interest of property is transferred and therefore, the licensee has been granted a right to occupy/use the said property for limited purpose.

A leave and license agreement or a lease deed as the case may be must be registered under the Registration Act, 1908 by a sub-registrar of the area where the said property is located. The said property has to be registered only if the said leave and license agreement or the lease deed confers right on the part of the licensee or the lessee for a term exceeding 11 months.

The registration is done in the office of the sub-registrar of the area where the said property is located. The parties have to visit physically along with the deed and supporting documents. However, many state governments have now offered a facility of online registration for easing the registration process.

The stamp duty on such agreements are collected by the State, where the property is located, at the rates specified under the State specific Stamp Acts. For example in the State of Maharashtra, if average annual rent and security deposit is less than 2,50,000 for single term of 12 months then, Rs. 750 will be the amount of stamp duty.

Generally, we see a renewal clause in the lease agreements. If the renewal is to be done through a fresh agreement then, stamp duty will be calculated for the initial term only. Whereas, if such renewal clause provides for automatic renewal of the arrangement after the expiry of the initial term then, the stamp duty will be calculated for the initial term and the renewal term at time of executing initial term agreement only.