Acquisition & Transfer of Immovable Property under FEMA – IIBF Compliance in Banks

This long-form article provides a structured explanation of every regulatory aspect – from eligibility and documentation to repatriation and taxation.

1. Legal Basis: FEMA & RBI Framework

The Foreign Exchange Management Act (FEMA), 1999 empowers the Reserve Bank of India (RBI) to regulate all capital account transactions. Since property purchase and sale involve inflow and outflow of foreign exchange, these fall under capital account transactions. The relevant provisions are outlined under Section 6 of FEMA and detailed through the RBI’s notifications and circulars.

The purpose of these regulations is to ensure that any acquisition or transfer of immovable property in India by persons resident outside India is carried out transparently, with legitimate sources of funds, and without affecting India’s balance of payments. Every bank handling such transactions acts as a gatekeeper for compliance.

2. Nature of Transaction: Debt vs Non-Debt

Property transactions are categorized as non-debt capital account transactions under FEMA. These include:

• Purchase or sale of immovable property by NRIs/OCIs in India.
• Purchase or sale of property abroad by residents of India.
• Transfer of property through gift or inheritance involving cross-border elements.

Bankers must check whether the transaction involves any inflow or outflow of foreign exchange. If yes, it must be routed through an authorized dealer (AD) Category-I bank using prescribed modes of payment.

3. NRI and OCI Property Purchase Rules

NRIs and OCIs are allowed to purchase residential and commercial properties in India under general permission, subject to certain restrictions. Key rules include:

• They cannot purchase agricultural land, plantation property, or farmhouses.
• Payment should be made through normal banking channels or via NRE/FCNR(B)/NRO accounts.
• Payments in cash or foreign currency notes are strictly prohibited.
• Joint ownership is allowed with another NRI/OCI, but not with a foreign national.
• Banks must ensure that the property title is clear and funds are legitimately sourced.

From a compliance standpoint, the banker’s due diligence must ensure that all payments are made from permitted accounts and that the property type is within the permissible category.

4. Gift, Inheritance, and Joint Ownership

NRIs and OCIs can acquire property by way of:

• Gift: They can receive property as a gift from a resident, NRI, or OCI. The property, however, must not be agricultural or plantation land.
• Inheritance: They can inherit any immovable property from a person resident in India, provided the original acquisition was in accordance with FEMA or earlier laws.
• Joint Ownership: An NRI or OCI can jointly purchase property with a resident spouse, provided the payment is made through permitted channels and the property type is eligible.

5. Long-Term Visa (LTV) Holders – Rules & Documentation

Foreign nationals residing in India under a Long-Term Visa (LTV) may be treated as residents under FEMA if they stay in India for more than 182 days during the preceding financial year. Such individuals can acquire residential property with government approval. However, they cannot purchase agricultural or plantation land.

Documents required:

• Copy of valid Long-Term Visa.
• Residential permit or FRRO registration.
• PAN card and proof of income.
• Self-declaration confirming the source of funds in Indian rupees.

Banks must ensure funds are sourced through local earnings or balances in resident accounts. Foreign remittance cannot be used for LTV-based purchases without RBI permission.

6. Diplomatic Missions, Embassies, and Consulates

Diplomatic entities can acquire or lease property in India with prior approval from the Ministry of External Affairs and intimation to the RBI. The property must be used for official purposes only. Sale or transfer of such property requires similar permissions. Banks should verify the diplomatic status, ensure ownership by the mission (not individuals), and maintain documentation for compliance review.

7. Foreign Branches, Liaison & Project Offices

Foreign companies may set up branches or project offices (POs) in India for executing specific contracts. These offices can acquire property required for business operations under automatic route. However, liaison offices are prohibited from acquiring immovable property and can only lease premises for up to five years.

For Indian companies acquiring property abroad, permission is governed by the Overseas Investment Rules, 2022. Banks must verify board approvals, ensure compliance with the Liberalised Remittance Scheme (LRS), and maintain transaction records.

8. Repatriation of Sale Proceeds

When NRIs or OCIs sell their property in India, the repatriation of funds abroad is subject to limits and conditions:

• Maximum repatriation allowed: USD 1 million per financial year (April–March).
• Property must have been held for a minimum of three years.
• Repatriation is permitted only from the NRO account after payment of applicable taxes.
• Supporting documents: Sale deed, proof of inheritance (if applicable), tax deduction certificate, and Form 15CA/15CB for remittance.

9. Prohibited Nationals & Restricted Transactions

Certain nationals (citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan) cannot acquire or transfer property in India without prior RBI approval. Even leasing property beyond five years by such individuals requires clearance.

Banks should screen all foreign customers against this restricted list and record the transaction approval details in compliance files.

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10. Lease, Mortgage, and Sale on Default

Foreign nationals can take property on lease in India for up to five years without RBI permission. For mortgages involving non-residents:

• Loans can be granted to NRIs/OCIs against property in India by authorized banks.
• If property is sold on default, the proceeds must be credited to the borrower’s NRO account.
• Sale proceeds cannot be remitted abroad without compliance with repatriation norms.
• Banks should obtain NOC from concerned authorities before transferring or disposing of property.

11. Resident Definition and Mode of Payment

The classification of a person as “resident” or “non-resident” determines which FEMA provisions apply. Under FEMA:

• A resident is someone who has stayed in India for more than 182 days during the previous financial year and intends to stay indefinitely.
• A non-resident is someone residing outside India or staying temporarily for employment, studies, or other reasons.

Permitted payment methods for property purchase: inward remittance through banking channels, debit to NRE/FCNR(B)/NRO accounts. Payments through cash, travellers’ cheques, or foreign currency notes are strictly prohibited.

12. Taxation, Stamp Duty, and Other Charges

While FEMA regulates foreign exchange aspects, taxation falls under the Income Tax Act and state stamp duty laws. Key points include:

• Capital Gains Tax applies on sale of property – short-term or long-term depending on holding period.
• TDS must be deducted by the buyer when paying an NRI/OCI seller.
• Stamp duty and registration fees are governed by the respective state laws.
• Before remitting funds abroad, banks must ensure that all tax dues are cleared and certificates are submitted.

13. Compliance Checklist for Banks

Every compliance officer or banker should verify the following:

• Residential status and citizenship category of buyer/seller.
• Type of property and whether it falls under permissible category.
• Proper routing of funds through authorized channels.
• Verification of ownership, title, and registration details.
• Availability of RBI/MEA approvals wherever required.
• Adherence to repatriation limits and tax compliance norms.
• Maintenance of transaction records for audit and reporting.

14. Importance for IIBF Compliance in Banks Aspirants

This topic frequently appears in IIBF exams like Compliance in Banks, CCP, and BFM. Candidates should focus on:

• Understanding difference between resident and non-resident transactions.
• Rules for NRI/OCI property purchase and sale.
• Repatriation limits and documentation requirements.
• Approval conditions for restricted nationals and diplomatic entities.
• Bank’s role in verifying and reporting transactions to RBI.

To reinforce your learning, watch the **IIBF Compliance in Banks FEMA Property Rules Video** where these points are explained in bilingual format with real-life case studies.

Conclusion

Mastering FEMA regulations on the acquisition and transfer of immovable property is a crucial skill for every banker and compliance professional. It ensures adherence to India’s foreign exchange laws and prevents regulatory violations.
For aspirants, this topic bridges theory with practical compliance – making it indispensable for both examination success and career growth.

Don’t forget to explore the **FEMA Property Transaction YouTube Session**, download the study PDF, and enroll in the complete course to stay ahead in your IIBF journey.