Non-Resident
Indians (NRI’s)
Persons
of Indian origin or citizens of India not presently residing in India due
to reason of employment outside India or carrying on a business outside
India. Persons of Indian origin include those persons who at any time have
held an Indian passport or who have at least one parent or grandparent who
were citizens of India. A spouse of an Indian citizen is also treated as a
person of Indian origin. NRI’s require general or special permission of
the RBI to purchase and hold immovable property in India.
Overseas
Corporate Bodies (OCB’s)
OCB’s
are overseas companies, partnership firms, societies and other corporate
bodies predominantly owned by NRIs,directly or indirectly, to the extent
of at least 60%. This includes any overseas trust in which not less than
60% beneficial interest is held by NRI’s, directly or indirectly but
irrevocably. OCB’s are permitted to invest up to 100% in six specific
areas of real estate development.
Foreign
Companies And Foreign Nationals
Foreign
companies and foreign nationals are required to obtain permission of the
RBI to acquire, hold, transfer, or dispose of in any manner (except by way
of lease for a period not exceeding 5 years) any immovable property in
India.
Forms
Of Real Estate Investment For Foreign Nationals And Companies
Investments
in real estate may be direct as well as through purchase of
shares/debentures of companies engaged in the business of real estate.
NRI’s
and OCB’s are permitted to invest in residential property in India;
however, it must be for bona fide use. The property may be rented out if
it is not immediately required for the purchaser's own residential use.
NRI’s and OCB’s are also permitted to invest up to 100% in a new issue
of equity shares or convertible debentures of Indian companies engaged in
the following areas:
(i)
Development of serviced plots and construction of built up
residential premises;
(ii)
Real estate covering construction of residential and commercial
premises including business centres and offices;
(iii)
Development of townships;
(iv)
City and region level urban infrastructure including roads an
bridges;
(v)
Manufacturing of building materials;
(vi)
Financing of housing developments
By
its notification (No. FERA 133/93 date April 26 1993), the RBI has granted
general permission to foreign companies (other than banking companies),
which are not incorporated under any law in force in India, to acquire or
hold immovable property which is necessary for or incidental to any
activity permitted by the RBI under section 28 or 29 of FERA. This general
permission is not applicable to foreign companies, which have been
permitted to open liaison offices or post representatives in India.
The
acquisition, sale, etc. of immovable properties in India by foreign banks
operating in India is governed by section 9 of the Banking Registration
Act, 1949 which states that "no banking company shall hold any
immovable property howsoever acquired, except such as is required for its
own use, for any period exceeding seven years.
Foreign
citizens (whether resident in India or not) and foreign companies are
permitted to acquire residential property in India upon specific
application to the RBI provided that the consideration for purchase of the
property is met out of foreign exchange remitted from abroad in any
convertible currency through normal banking channels.
Neither
foreign nationals or companies nor NRI’s and OCB’s are permitted to
invest in agricultural land, farmhouses and plantation property in India.
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Specific
Approvals Required For NRI’s And OCB’s Prior To Investing In Real
Estate
As
mentioned earlier, NRI’s and OCB’s require general or special
permission of the RBI to purchase and. hold immovable property in India.
Applications by NRI’s and OCB’s for the purpose of making investments
through purchase of shares /debentures are to be made to the RBI.
Although
the RBI has granted general permission to foreign companies to acquire and
hold immovable property, (under its notification No. FERA 133/93) a
declaration must be made in Form IPI 5 to the RBI within 90 days from the
date of the acquisition of the immovable property, except where
acquisition is made by way of lease for a period not exceeding 5 years.
Specific
applications under section 31 (1) of FERA for purchase of immovable
property in India by foreign nationals/companies have to be in Form IPI 1
along with the requisite documents to the RBI. As mentioned earlier, the
consideration for purchase of the property is met out of foreign exchange
remitted from abroad in any convertible currency through normal banking
channels.
According
to the Income Tax Act 1991 any property sold for a value in excess of a
specified limit (US$31,750) cannot be transferred without the vendor first
submitting Form 37 (1) to the Income Tax Authorities.
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Regulations
Governing The Income Generated From Real Estate Investment In India
Investment
by NRI’s
Income
from investments in residential property is not repatriable outside India
but must be credited to the owner's Ordinary Non-Resident Rupee (NRO)
Account. In case of properties purchased after 26 May 1993, RBI considers
applications for repatriating the sale proceeds of such property up to the
maximum of the original amount brought into India for purchasing the
property. This is currently permitted for a maximum of two such properties
and provided the property has been held for at least three years.
Repatriation
of original investment in housing and real estate development through
shares / debentures is permitted only after a lock-in period of three
years from the date of issue of the equity shares/convertible debentures.
By
its notification (No. FERA 155/93-RBI dated 16 September 1993) issued
under section 29(I) of FERA, the RBI has granted permission to NRI’s and
foreign citizens of Indian origin to let out any immovable property in
India. The rental proceeds or income of any investment of such income is
not repatriable outside India at any time in future and such funds may be
credited into the owner's Ordinary Non-Resident Rupee (NRO) Account
maintained with a bank in India.
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Investment
by OCB’s
Income
from investment by OCB’s in housing and real estate development through
shares/debentures can be repatriable on the following escalating basis:
-
1/3 of the annual income earned during Fiscal 1994/95
-
2/3 of the annual income earned during Fiscal 1995/96
-
Entire income during Fiscal 1996/97 and thereafter
Also
OCB’s will be permitted to repatriate net profit (up to 16%) arising
from sale of investment in housing and real estate development after the
lock-in-period of three years
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Investment
By Foreign Citizens (Non-Indian Origin) And Foreign Companies
Income
accruing by way of rent from the property purchased by foreign citizens
(non-Indian origin) and foreign companies or the sale proceeds of such
properties must be credited to the NRO account and cannot be repatriated
outside India.
Currently,
the Indian rupee is convertible only on the current account. It is
expected that it will be made fully convertible within a couple of years.
If this change is effected, the conditions relating to non-repatriability,
as mentioned above, would automatically cease to apply.
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