The Foreign Exchange Management (Overseas Investment, or OI) Rules, notified by the Reserve Bank of India (RBI) on 22 August 2022, supersedes the erstwhile provisions governing acquisition of immovable property overseas by a resident individual.
As per these rules, no person resident in India shall acquire or transfer any immovable property situated outside the country without the RBI’s permission, except as provided in the rules. Therefore, it is pertinent to know these rules before acquiring or transferring such assets. This article covers the various permissible modes of acquisition of immovable property overseas, conditions specified, etc.
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Acquisition from a resident Indian: A resident Indian can acquire immovable property outside India by way of inheritance or gift or purchase from another resident Indian, provided such resident Indian has acquired the property as per the law in force at the time of such acquisition.
Acquisition from a non-resident: A resident Indian may acquire immovable property outside India from a non-resident:
a. By way of inheritance.
b. By way of purchase out of foreign exchange held in a resident foreign currency account (RFC), which is a savings account maintained in foreign currency for Non-Resident Indians, who have returned to India and hold funds in foreign currency.
c. By way of purchase out of the remittances sent under the Liberalised Remittance Scheme (LRS) that allows remittances by resident individuals up to $250,000 per financial year for any permitted current or capital account transaction or a combination of both.
d. Jointly with a relative who is a person resident outside India.
e. Out-of-income or sale proceeds of assets outside India (other than Overseas Direct Investment or ODI).
Comparison of changes
• Under the erstwhile regulations, a resident Indian was allowed to jointly acquire, with a relative, immovable property outside India, provided there was no outflow of funds from India. Under OI Rules 2022, no such restriction is placed on fund outflow. Further, the definition of “relative” is now linked to the definition under Companies Act, 2013.
• It is specified that a resident Indian who has acquired overseas immovable property in accordance with the foreign exchange provisions can transfer such property by way of a gift to another eligible resident Indian. Thus, a resident Indian can acquire overseas immovable property by way of gift from another resident Indian but not from a non-resident.
• Income or sale proceeds of the assets, other than ODI, acquired overseas can also be used to acquire immovable property outside India. Therefore, such income can also be reinvested to buy immovable property outside India.
Other points to be noted
• In case of a returning Indian, if a person acquires an overseas immovable property when he was a resident outside India, he can continue to hold, own, or transfer such immovable property.
• If the income from the overseas immovable property acquired such as rent, sale proceeds etc. is not reinvested, it should be brought back to India within a period of 180 days from the date of such receipt.
• It is specified under the LRS that banks should not extend any kind of credit facilities to resident individuals to facilitate capital account remittances. Therefore, it may not be possible for the resident individual to borrow funds from a bank and remit the same for acquiring overseas immovable property.
• The overseas immovable property held by the resident individual should be reported in his income-tax return under the schedule of foreign assets. The income from such immovable property such as rent, sale proceeds, etc., would also be taxable in India as a resident would be subject to tax on his global income.
Concluding remarks
If a resident Indian is acquiring immovable property outside India from another resident Indian, the same can be done through inheritance or gift or purchase of the said property. If the resident Indian is acquiring immovable property outside India from a non-resident, the same can be through inheritance or out of LRS or RFC account funds or jointly with a relative who is an NRI or out of income from assets outside India (other than ODI). It is advisable to interact with one’s bank before proceeding with any purchase of overseas immovable property.
Mukesh Kumar M is partner, Swetha A is a senior manager and Karan Surana is an assistant manager at M2K Advisors LLP