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LEGAL CHAT
FEMA and property regulations
N.C.S RAGHAVAN ARAVIND RAGHAVAN
Rules matter: RBI regulates property transactions by investors
Continuing the discussion on property transactions under FEMA, the nature and scope of “capital account and current account transactions” and investments in immovable property in and outside the country by persons resident in India or outside and persons of Indian origin are highlighted here.
“Capital account transaction” means a transaction which alters the assets and liabilities (including contingent liabilities) outside India by a person resident in India.
It also means a transaction which alters the assets and liabilities (including contingent liabilities) in India of persons resident outside India.
“Current account transaction” is defined as a transaction other than a capital account transaction.
Certain specific transactions are indicated in section 2(j) of FEMA as current account transactions: payments due in connection with foreign trade, other current business, services and short-term banking and credit facilities in the ordinary course of business; payments due as interest on loans and as net income from investments; remittances for living expenses of parents, spouse and children residing abroad; and expenses in connection with foreign travel, education and medical care of parents, spouse and children.
FEMA provides that the Reserve Bank of India, in consultation with the Central Government, may specify any class or classes of capital account transactions which are permissible and may stipulate certain conditions and restrictions regarding the same.
The capital account transactions in relation to immovable property are discussed below.
Regulations
Section (3)(h)&(i) of FEMA provides powers and authority to the RBI through regulations framed for this purpose to prohibit, restrict, or regulate the transfer of immovable property situated out of India (other than the lease for a period not exceeding five years) by a person resident in India.
Similarly RBI has powers and authority to prohibit, restrict or regulate the acquisition of immovable property in India by a person resident outside India.
It is to be noted that there is no prohibition or restriction in the above cases for acquiring or transferring leases of immovable property for a period not exceeding five years in India or outside India.
By virtue of the aforesaid statutory powers and authority, the RBI has framed the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000.
Acquisition and transfer of property in India by a resident outside the country
A general permission has been given to:
Acquire any immovable property (other than agricultural/plantation property or farm house).
Transfer any immovable property in India to a person resident in India.
Transfer any immovable property (other than agricultural/plantation property or farm house) to an Indian citizen resident outside India or to a person of Indian origin.
There is a total prohibition in relation to agricultural or plantation property or farm house except that a transfer to a person resident in India is permitted. The prohibition is only in relation to acquisition and hence when an individual inherits an agricultural or plantation property or farmhouse through interstate or testamentary succession, then such an individual can own and hold such property.
(N.C.S. Raghavan is a chartered accountant and Arvind Raghavan, an advocate)
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