Research on Acquisition & Transfer of Immovable

Property in India by a NRI/PIO

1
IND!
Sr
No.
Particulars Page No.
1 Introduction 3-4
2 Acquisition of Immovable Property in India
through
purchase / gift/ inheritance
5-7
3 Transfer of immovable property in India by ay
of sale
by
ay of gift
8-9
! "oreign #irect Investments 10-11
$ %egulations regarding Portfolio Investments by
&%Is/PI's(
12
2
Introduction
Acquisition of immovable property in India by persons resident
outside India )foreign national* is regulated in terms of section 6 (3
(i o! t"e #oreign $%c"ange &anage'ent (ct (#$&() 1999 as
*ell as +, t"e regulations contained in t"e Noti-cation No.
#$&( 21.2000-/0 dated &a, 3) 2000) as amended from time to
time+ ,ection 2 )v* and ,ection 2 )* of "-.A/ 1000 de1nes 2person
resident in India3 and a 2person resident outside India3/ respectively+
Person resident outside India is categori4ed as &on5 %esident Indian
)&%I* or a foreign national of Indian 'rigin )PI'* or a foreign national
of non5Indian origin+ The %eserve 6an7 does not determine the
residential status+ 8nder "-.A/ residential status is determined by
operation of la+ The onus is on an individual to prove his / her
residential status/ if questioned by any authority+
A person resident in India ho is not a citi4en of India is also covered
by the relevant &oti1cations+
In ter's o! t"e 1ro2isions o! Section 6(5 o! #$&( 1999) a
1erson resident outside India can "old) o*n) trans!er or
in2est in Indian currenc,) securit, or an, i''o2a+le
1ro1ert, situated in India i! suc" currenc,) securit, or
1ro1ert, *as ac3uired) "eld or o*ned +, suc" 1erson *"en
"e *as a resident in India or in"erited !ro' a 1erson *"o
*as a resident in India.
4"e regulations under Noti-cation No. #$&( 21.2000-/0
dated &a, 3) 2000) as a'ended !ro' ti'e to ti'e) 1er'it
a N/I or a PI5 to ac3uire i''o2a+le 1ro1ert, in India)
ot"er t"an agricultural land or) 1lantation 1ro1ert, or
!ar' "ouse. #urt"er) !oreign co'1anies *"o "a2e +een
1er'itted to o1en a 0ranc" or Pro6ect 57ice in India are
also allo*ed to ac3uire an, i''o2a+le 1ro1ert, in India)
*"ic" is necessar, !or or incidental to carr,ing on suc"
acti2it,. Suc" dis1ensation is "o*e2er not a2aila+le to
entities *"ic" are 1er'itted to o1en liaison o7ices in
India.
3
The restrictions on acquiring immovable property in India by a
person resident outside India ould not apply here the
immovable property is proposed to be acquired by ay of a lease
for a period not e9ceeding $ years or here a person is deemed
to be resident in India+
Note8 :iti4ens of Pa7istan/ 6angladesh/ ,ri ;an7a/ Afghanistan/
:hina/ Iran/ &epal or 6hutan cannot acquire or transfer immovable
property in India/ )other than on lease not e9ceeding 1ve years*
ithout the prior permission of the %eserve 6an7+
&%Is/ PI's are alloed to repatriate an amount up to 8,# one
million/ per 1nancial year )April5.arch*/ out of the balances held
in the &on5%esident )'rdinary* %upee )&%'* account/ sub<ect to
compliance ith applicable ta9 requirements+ This amount
includes sale proceeds of assets acquired by ay of inheritance
or settlement+
4
(c3uisition o! I''o2a+le Pro1ert, in India t"roug"
1urc"ase . gi!t. in"eritance
9.1. :"o can 1urc"ase i''o2a+le 1ro1ert, in India ;
(ns. 8nder the general permission available/ the folloing categories
can purchase immovable property in India=
i* &on5%esident Indian )&%I*
ii) Person of Indian 'rigin )PI'*
The general permission/ hoever/ covers only purchase of residential
and commercial property and is not available for purchase of
agricultural land / plantation property / farm house in India+
9.2. <an N/I.PI5 ac3uire agricultural land. 1lantation 1ro1ert,
. !ar' "ouse in India;
(ns. &o+
9.3. (re an, docu'ents re3uired to +e -led *it" t"e /eser2e
0an= a!ter t"e 1urc"ase;
(ns. &o+ An &%I / PI' ho has purchased residential / commercial
property under general permission/ is not required to 1le any
documents/reports ith the %eserve 6an7+
9.4. >o* 'an, residential . co''ercial 1ro1erties can N/I .
PI5 1urc"ase under t"e general 1er'ission;
(ns. There are no restrictions on the number of residential /
commercial properties that can be purchased+
9.5. <an a !oreign national o! non-Indian origin +e a second
"older to i''o2a+le 1ro1ert, 1urc"ased +, N/I . PI5;
(ns. &o+
9.6. <an a !oreign national o! non-Indian origin resident
outside India 1urc"ase i''o2a+le 1ro1ert, in India;
5
(ns. &o+ A foreign national of non5Indian origin/ resident outside
India cannot purchase any immovable property in India unless such
property is acquired by ay of inheritance from a person ho as
resident in India+ >oever/ he / she can acquire or transfer immovable
property in India/ on lease/ not e9ceeding 1ve years+ In such cases/
there is no requirement of ta7ing any permission of /or reporting to
the %eserve 6an7+
9.7. <an a !oreign national *"o is a 1erson resident in India
1urc"ase i''o2a+le 1ro1ert, in India;
(ns. ?es/ a foreign national ho is a @person resident in IndiaA ithin
the meaning of ,ection 2)v* of "-.A/ 1000 can purchase immovable
property in India/ but the person concerned ould have to obtain the
approvals and ful1l the requirements/ if any/ prescribed by other
authorities/ such as/ the ,tate Bovernment concerned/ etc+ The onus
to prove his/her residential status is on the individual as per the
e9tant "-.A provisions/ if required by any authority+ >o*e2er) a
!oreign national resident in India *"o is a citi?en o! Pa=istan)
0anglades") Sri @an=a) (!g"anistan) <"ina) Iran) Ne1al and
0"utan *ould re3uire 1rior a11ro2al o! t"e /eser2e 0an=.
9.8. <an t"e +ranc" . liaison o7ice o! a !oreign co'1an,
1urc"ase i''o2a+le 1ro1ert, in India;
(ns. A foreign company hich has established a 6ranch 'Cice or
other place of business in India/ in accordance ith the "oreign
-9change .anagement )-stablishment in India of 6ranch or 'Cice or
other Place of 6usiness* %egulations/ 2DDD/ can acquire any
immovable property in India/ hich is necessary for or incidental to
carrying on such activity+ The payment for acquiring such a property
should be made by ay of foreign inard remittance through the
proper ban7ing channels+ A declaration in form IPI should be 1led
ith the %eserve 6an7 ithin ninety days from the date of acquiring
the property+ ,uch a property can also be mortgaged ith an
Authorised #ealer as a security for the purpose of borroings+ 'n
inding up of the business/ the sale proceeds of such property can be
repatriated only ith the prior approval of the %eserve 6an7+ "urther/
acquisition of immovable property by entities incorporated in
Pa7istan/ 6angladesh/ ,ri ;an7a/ Afghanistan/ :hina/ Iran/ &epal and
6hutan and ho have set up 6ranch 'Cices in India and ould
require prior approval of the %eserve 6an7+
6
>oever/ if the foreign company has established a ;iaison 'Cice in
India/ it cannot acquire immovable property+ In such cases/ ;iaison
'Cices can acquire property by ay of lease not e9ceeding $ years+
9.9. <an a N/I.PI5 ac3uire i''o2a+le 1ro1ert, in India +, *a,
o! gi!t; <ana !oreign national ac3uire i''o2a+le 1ro1ert, in
India +, *a, o! gi!t;
(ns. )a* ?es/ &%Is and PI's can freely acquire immovable property by
ay of gift either from
i* a person resident in IndiaE or
ii* an &%IE or
iii* a PI'+
>oever/ the property can only be commercial or residential in
nature+ Agricultural land / plantation property / farm house in India
cannot be acquired by ay of gift+
)b* A foreign national of non5Indian origin resident outside India
cannot acquire any immovable property in India by ay of gift+
9.10. <an a non-resident in"erit i''o2a+le 1ro1ert, in India;
(ns. ?es/ a person resident outside India i+e+ i* an &%IE ii* a PI'E and
iii* a foreign national of non5Indian origin can inherit and hold
immovable property in India from a person ho as resident in India+
9.11. #ro' *"o' can a non-resident 1erson in"erit i''o2a+le
1ro1ert,;
(ns. A person resident outside India )i+e+ &%I or PI' or foreign
national of non5Indian origin* can inherit immovable property from
7
)a* a person resident in India
)b* a person resident outside India
>oever/ the person from hom the property is inherited should have
acquired the same in accordance ith the foreign e9change la in
force or "-.A regulations/ applicable at the time of acquisition of the
property+
8
4rans!er o! i''o2a+le 1ro1ert, in India
(i) Transfer by way of sale
9.12. <an an N/I. PI5.!oreign national sell "is residential .
co''ercial 1ro1ert,;
(ns. )a* &%I can sell property in India to
i* a person resident in IndiaE or
ii* an &%IE or
iii* a PI'+
)b* PI' can sell property in India to
i* a person resident in IndiaE or
ii* an &%IE or
iii* a PI' *it" t"e 1rior a11ro2al o! t"e /eser2e 0an=
)c* "oreign national of non5Indian origin including a citi4en of Pa7istan
or 6angladesh or ,ri ;an7a or Afghanistan or :hina or Iran or &epal
or 6hutan can sell property in India ith prior approval of the %eserve
6an7 to
i* a person resident in India
ii* an &%I
iii* a PI'
9.13. <an a non-resident o*ning . "olding an agricultural land .
a 1lantation 1ro1ert, . a !ar' "ouse in India sell t"e said
1ro1ert,;
(ns. )a* &%I / PI' may sell agricultural land /plantation property/farm
house to a person resident in India ho is a citi4en of India+
)b* "oreign national of non5Indian origin resident outside India ould
need prior approval of the %eserve 6an7 to sell agricultural
land/plantation property/ farm house in India+
(ii) Transfer by way of gift
9
9.14. <an a non-resident gi!t "is residential . co''ercial
1ro1ert,;
(ns. ?es+
)a* &%I / PI' may gift residential / commercial property to
)i* person resident in India or
)ii* an &%I or
)iii* PI'+
)b* A foreign national of non5Indian origin requires the prior approval
of the %eserve 6an7 for gifting the residential / commercial property+
9.15. <an an N/I . PI5 . !oreign national "olding an
agricultural land . a 1lantation 1ro1ert, . a !ar' "ouse in India)
gi!t t"e sa'e;
(ns. )a* &%I / PI' can gift an agricultural land / a plantation
property / a farm house in India only to a person resident in India ho
is a citi4en of India+
)b* A foreign national of non5Indian origin ould require the prior
approval of the %eserve 6an7 to gift an agricultural land / a plantation
property / a farm house in India+
10
#oreign Airect In2est'ents
India started permitting outside investments only in the 100Ds+
"oreign investments are classi1ed into to categories=
"oreign direct investment )"#I* F
"oreign portfolio investment )"PI*+
All investments/ in hich an investor ta7es part in the day5to5day
management and operations of the company/ are treated as "#I/
hereas investments in shares ithout any control over management
and operations are treated as "PI+
"oreign entities and individuals can gain e9posure to Indian stoc7s
through institutional investors+ .any India5focused mutual funds are
becoming popular among retail investors+ Investments could also be
made through some of the oCshore instruments/ li7e participatory
notes )P&s* and depositary receipts/ such as American depositary
receipts )A#%s*/ global depositary receipts )B#%s*/ and e9change
traded funds )-T"s* and e9change5traded notes )-T&s*+
9uali-ed #oreign In2estor (9#I
Previously it has not been possible for foreigners to invest directly in
Indian stoc7s/ outside of an A#%+ This all changed on Ganuary 1/ 2D13
ith the introduction of Huali1ed "oreign Investor )H"I* status+
4o gain 9#I status ,ou 'ust +e resident o! a countr, t"at is a
'e'+er o! t"e #inancial (ction 4as= #orce (#(#4 and a
signator, to t"e I5S<5Bs &&5C *it" t"e Securities and
$%c"ange 0oard o! India (S$0I. 4"e CS 3uali-es on +ot"
counts.
H"I status allos you to invest directly in Indian companies via the
6ombay ,toc7 -9change )6,-* and the &ational ,toc7 -9change of
India )&,-*+ ?ou can also invest in Indian based mutual funds and
corporate bonds+
Indi2idual 9#Is are allo*ed to "old u1 to 5D o! t"e e3uit, o! an
Indian co'1an,. 4"e aggregate s"are"olding o! all t"e 9#Is in
an Indian co'1an, cannot e%ceed 10D. Eou can also in2est u1
to F1 +illion in +ot" Indian cor1orate +onds and 'utual !unds.
11
H"Is can only invest through a registered depository participant )#P*+
The depository participant acts as an intermediary beteen the
investor and the depository/ here your shares are held+ ?ou ill also
need to open a depository account/ 7non as a demat/ to trade ith
your #P+ -ach H"I is only alloed to open one trading account and
one demat+
As you can see there are quite a fe hoops to <ump through before
you can invest directly in Indian companies+ This is going to rule out
H"I status to most small investors/ the process is simply not going to
be orth it+ 6ut if youAre going to invest a si4eable amount of money
in India/ itAs orth going through the motions to obtain your PA&
number+
12
/egulations regarding Port!olio In2est'ents +,
N/Is.PI5s;
Non /esident Indian (N/Is and Persons o! Indian 5rigin
(PI5s can 1urc"ase.sell s"ares.con2erti+le de+entures o!
Indian co'1anies on stoc= e%c"anges under Port!olio
In2est'ent Sc"e'e. "or this purpose/ the &%I/PI' has to
apply to a designated branch of a ban7/ hich deals in Portfolio
Investment+ All sale/purchase transactions are to be routed
through the designated branch+
(n N/I or a PI5 can 1urc"ase s"ares u1 to 5D o! t"e 1aid
u1 ca1ital o! an Indian co'1an,. (ll N/Is.PI5s ta=en
toget"er cannot 1urc"ase 'ore t"an 10D o! t"e 1aid u1
2alue o! t"e co'1an,. )This limit can be increased by the
Indian company to 2!I by passing a Beneral 6ody resolution*+
The sale proceeds of the repatriable investments can be credited
to the &%-/&%' etc+ accounts of the &%I/PI' hereas the sale
proceeds of non5repatriable investment can be credited only to
&%' accounts+
The sale of shares ill be sub<ect to payment of applicable ta9es+
(s 1er t"e regulations.guidelines issued +, t"e /eser2e
0an= o! India.Go2ern'ent o! India) a !oreign in2estor can
in2est in s"ares issued +, an unlisted Indian co'1an,.
It has been speci1ed that in case of unlisted company/ the non5
resident investor shall be eligible to e9it from the investment in
equity shares of the investee company at a price not e9ceeding
that arrived at on the basis of %eturn on -quity )%o-* as per the
latest audited balance sheet+
( !oreigner cannot set u1 a 1artners"i1.1ro1rietors"i1
concern in India. 5nl, N/Is.PI5s are allo*ed to set u1
1artners"i1.1ro1rietors"i1 concerns in India on non-
re1atriation +asis.
There are no restrictions under "-.A for investment in %ights shares
issued at a discount by an Indian company/ provided the rights shares
so issued are being oCered at the same price to residents and non5
13
residents+ The oCer on right basis to the personAs resident outside
India shall be=
)a* in the case of shares of a company listed on a recogni4ed
stoc7 e9change in India/ at a price as determined by the
companyE and
)b* in the case of shares of a company not listed on a recogni4ed
stoc7 e9change in India/ at a price hich is not less than the
price at hich the oCer on right basis is made to resident
shareholders+
Source : RBI/FEMA Rules & Reul!"io#s
14
#oreign Airect In2est'ent in an Indian co'1an,
"oreign investment is rec7oned as "#I only if the investment is made
in equity shares/ fully and mandatorily convertible preference shares
and fully and mandatorily convertible debentures ith the pricing
being decided upfront as a 1gure or based on the formula that is
decided upfront+ Any foreign investment into an instrument issued by
an Indian company hich=
gives an option to the investor to convert or not to convert it into
equity or
does not involve upfront pricing of the instrument as a date
ould be rec7oned as -:6 and ould have to comply ith the
-:6 guidelines+
Investment Buidelines
Investment limit by a single &%I/PI'/':6 for purchase of
shares/debentures in a company through ,toc7 -9changes under
the portfolio investment scheme has been raised to $I+
Aggregate limit for all &%Is/PI's/':6s has been raised to 1DI+
)This aggregate limit as earlier a part of the aggregate ceiling
of 2!I for all "IIs/&%Is/PI's/':6s )hich could be raised upto
3DI by a 6oard/Beneral 6oard resolution*+
According to the liberali4ation announced/ the aggregate limit
for investment by &%Is/PI's/':6s can be enhanced to 2!I
sub<ect to Beneral 6ody %esolution of the company to that eCect+
The above ceiling is separate from the ceiling of 2!I/3DI
applicable to "oreign Institutional Investors )"IIs*+
Investment by &%Is/PI's in unlisted companies is no
permitted+ &orms and procedures described above ill be
applicable in these cases also+
The purchase has to be made through stoc7
e9change/designated branch of authori4ed dealer+ 'nly one such
branch can be designated for this purpose+ "or investment on
non5repatriation basis/ &%Is/PI's have to apply in form &%I and
':6s in form &%:+ &%I and ':6 in form &%:+ "or investment
15
on repatriation basis+ The forms ill be %PI and %P:
respectively+
The application has to be made through designated branch of
authori4ed dealers through the :entral oCice of the %eserve 6an7 of
India+
16
&odes o! 1a,'ent allo*ed !or recei2ing
#oreign Airect In2est'ent in an Indian
co'1an,
An Indian company issuing shares /convertible debentures under "#I
,cheme to a person resident outside India shall receive the amount of
consideration required to be paid for such shares /convertible
debentures by=
)i* inard remittance through normal ban7ing channels+
)ii* debit to &%- / ":&% account of a person concerned maintained
ith an A# category I ban7+
)iii* conversion of royalty / lump sum / technical 7no5ho fee due for
payment or conversion of -:6/ shall be treated as consideration for
issue of shares+
)iv* conversion of import payables / pre incorporation e9penses / share
sap can be treated as consideration for issue of shares ith the
approval of "IP6+
)v* debit to non5interest bearing -scro account in Indian %upees in
India hich is opened ith the approval from A# :ategory I ban7
and is maintained ith the A# :ategory I ban7 on behalf of residents
and non5residents toards payment of share purchase consideration+
If the shares or convertible debentures are not issued ithin 1JD days
from the date of receipt of the inard remittance or date of debit to
&%- / ":&% )6* / -scro account/ the amount shall be refunded+
"urther/ %eserve 6an7 may on an application made to it and for
suCicient reasons permit an Indian :ompany to refund / allot shares
for the amount of consideration received toards issue of security if
such amount is outstanding beyond the period of 1JD days from the
date of receipt+
17
Sectors 1ro"i+ited !or #AI in India
"#I is prohibited under the Bovernment %oute as ell as the
Automatic %oute in the folloing sectors=
i* (to'ic $nerg,
ii @otter, 0usiness
iii Ga'+ling and 0etting
i2 0usiness o! <"it #und
2 Nid"i <o'1an,
2i (gricultural )e9cluding "loriculture/ >orticulture/ #evelopment
of seeds/ Animal >usbandry/ Pisciculture and cultivation of
vegetables/ mushrooms/ etc+ under controlled conditions and services
related to agro and allied sectors* and Plantations activities )other
than Tea Plantations* (c.f. Notifcation No. FEMA 94/2003-RB dated
June 18 2003!.
vii* >ousing and /eal $state +usiness )e9cept development of
tonships/ construction of residential/commercial premises/ roads or
bridges to the e9tent speci1ed in Notifcation No. FEMA 13"/200#-RB
dated Ju$% 19 200#!.
viii* 4rading in 4rans!era+le Ae2elo1'ent /ig"ts (4A/s.
i9* &anu!acture o! cigars) c"eroots) cigarillos and cigarettes) o!
to+acco or o! to+acco su+stitutes.
18
Procedure
A to5stage reporting procedure has to be folloed =
5n recei1t o! s"are a11lication 'one,8
Kithin 3D days of receipt of share application money/amount of
consideration from the non5resident investor/ the Indian company is
required to report to the "oreign -9change #epartment/ %egional
'Cice concerned of the %eserve 6an7 of India/ under hose
<urisdiction its %egistered 'Cice is located/ the Advance %eporting
"orm/ containing the folloing details =
&ame and address of the foreign investor/sE
#ate of receipt of funds and the %upee equivalentE
&ame and address of the authorised dealer through hom the
funds have been receivedE
#etails of the Bovernment approval/ if anyE and
L?: report on the non5resident investor from the overseas ban7
remitting the amount of consideration+
The Indian company has to ensure that the shares are issued ithin
1JD days from the date of inard remittance hich otherise ould
result in the contravention / violation of the "-.A regulations+
C1on issue o! s"ares to N/IBs8
Kithin 3D days from the date of issue of shares/ a report in "orm ":5
BP%5 PA%T A together ith the folloing documents should be 1led
ith the "oreign -9change #epartment/ %egional 'Cice concerned of
the %eserve 6an7 of India+
:erti1cate from the :ompany ,ecretary of the company
accepting investment from persons resident outside India
certifying that=
The company has complied ith the procedure for issue of
shares as laid don under the "#I scheme as indicated in the
19
Noti-cation No. #$&( 20.2000-/0 dated 3rd &a, 2000) as
amended from time to time+
The investment is ithin the sectoral cap / statutory ceiling
permissible under the Automatic %oute of the %eserve 6an7 and
it ful1lls all the conditions laid don for investments under the
Automatic %oute/
'%
,hares have been issued in terms of ,IA/"IP6 approval &o+
555555555555555555555 dated 55555555555555555555 )enclosing the "IP6 approval
copy*
:erti1cate from ,tatutory Auditors/ ,-6I registered .erchant
6an7er / :hartered Accountant indicating the manner of arriving
at the price of the shares issued to the persons resident outside
India+
All foreign investments are freely repatriable )net of applicable ta9es*
e9cept in cases here=
the foreign investment is in a sector li7e :onstruction and
#evelopment Pro<ects and #efence herein the foreign
investment is sub<ect to a loc75in5periodE and
&%Is choose to invest speci1cally under non5repatriable
schemes+
"urther/ dividends )net of applicable ta9es* declared on foreign
investments can be remitted freely through an Authorised #ealer
ban7+
20