March 23, 2023

rbi: NRIs and OCIs don’t need RBI nod to buy or sell property | India News – Times of India

The Reserve Bank of India, in a clarification issued on Wednesday, has said that non-resident Indians (NRIs) and overseas citizens of India (OCIs) do not require prior approval of RBI for acquisition and transfer of immovable property in India, other than agricultural land, farm house or plantation property, as per the terms and conditions laid down in Chapter IX of the Foreign Exchange Management (non-debt instruments) rules, 2019, dated October 17, 2019 (as amended from time to time), issued under Section 46 of Foreign Exchange Management Act (FEMA) 1999.
This, according to the RBI press release, is in response to a large number of queries that have been received at various offices of the Reserve Bank, based on newspaper reports on a Supreme Court judgement, on whether prior approval of RBI is required for acquisition or transfer of immovable property in India by OCIs.
The RBI press release further added that the concerned Supreme Court judgment dated February 26, 2021 in civil appeal 9546 of 2010 was related to provisions of Foreign Exchange Regulation Act (FERA), 1973, which has been repealed under Section 49 of FEMA, 1999. At present, NRIs and OCIs are governed by provisions of FEMA 1999.
“One needs to distinguish, under Foreign Exchange Management Act 1999 (earlier FERA), between foreign citizens who are of Indian origin versus those not of Indian origin. Those of Indian origin are legally classified as persons of Indian origin (PIOs) or OCIs. Non-resident Indians (NRIs), OCIs and PIOs do not require prior approval for the acquisition of immovable assets in India, except in the case of acquisition of farm houses or agricultural land. On the other hand, foreigners of non-Indian origin have always required permission from RBI, whether under FERA, 1973 or FEMA, 1999, for the acquisition of immovable assets in India,” explains Dr Mitil Chokshi, chartered accountant and senior partner Chokshi and Chokshi, India. For NRIs, PIOs and OCIs there have been certain procedures and compliances required to be undertaken with respect to such acquisitions, in the past; for instance, filing of form IPI7 under FERA or Form IPI under FEMA, Chokshi adds. However, these have always been in the nature of post-facto declarations and not in the nature of prior approval.
There have been instances of non-compliance, especially in states such as Goa, where immovable assets were acquired by Russians (not of Indian origin), without obtaining the permission of RBI and several notices had been issued by the authorities for such non-compliance. “The Supreme Court ruling is in the context of situations where foreigners of non-Indian origin require prior RBI approval for the sale or gift of immovable assets in India under FERA. Immovable assets referred to herein include residential houses and commercial offices, but exclude farm houses and agricultural land as they are governed by separate rules,” Chokshi says.
This ruling, according to Chokshi, has triggered a welcome clarification from the RBI on December 29, 2021, in order to allay any doubts pertaining to acquisition and transfer of immovable property in India by NRIs or OCIs. “It specifically concludes that NRIs, PIOs and OCIs are governed by the provisions of FEMA, not erstwhile FERA. Such individuals can freely invest in India in the real estate sector or acquire immovable properties, whether residential or commercial, and do not require prior RBI approval.”
According to RBI rules, the payment for immovable property can be received in India through banking channels and is subject to payment of all taxes and other duties and levies in India. The payment can also be made out of funds held in non-resident external (NRE), foreign currency non-resident (FCNR-B) and non-resident ordinary (NRO) accounts of the NRIs and OCIs. Payments should not be made through travellers’ cheque and foreign currency notes.
“There has been no change in the RBI guidelines but the clarification has been issued because of the queries from a large number of NRIs on this issue. This statement by the RBI will now clear all doubts and comes as a relief,” says Rajesh Shah, chartered accountant and expert on the Foreign Exchange Management Act.
Such clarifications from the Central Bank are welcome and help in enhancing overall investment confidence, feels Chokshi. “NRIs and PIOs, being subject to tax in India, often get confused between the provisions governing immovable assets under FEMA (erstwhile FERA), the Income Tax Act and the Black Money Act. In this regard, it is clarified that there are no restrictions under the Income tax Act apart from the payment of capital gains on the sale of immovable assets in India, after considering indexation. Such taxes paid in India would be eligible for credit under the double taxation avoidance agreements (DTAA) entered into with the respective home country of the NRIs and OCIs,” he says.

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