The acquisition and transfer of immovable property (real estate) outside India by Indian residents and entities (including individuals and companies) are regulated under FEMA (Foreign Exchange Management Act, 1999), Income Tax Act, and various RBI (Reserve Bank of India) guidelines. These regulations aim to control foreign exchange transactions, ensuring compliance with India’s economic policies and promoting capital inflows while maintaining control over capital outflows.

1. Acquisition of Immovable Property Outside India by Indian Residents

Indian residents, including individuals and companies, are subject to specific rules when acquiring property outside India. The ability to purchase immovable property outside India depends on whether the buyer is an individual or an Indian company and the purpose for the acquisition.

Acquisition by Indian Individuals

• Indian citizens (residents) are permitted to acquire immovable property outside India subject to FEMA and RBI guidelines, with the following conditions:
  • The individual must have foreign exchange to fund the acquisition. This can be through:
    • Funds in a foreign currency account (FCNR or NRE).
    • External Commercial Borrowing (ECB) in certain cases.
    • Personal savings or funds remitted from India, which comply with FEMA guidelines for remittances abroad.
  • No Specific Restrictions: There are generally no restrictions on acquiring residential property abroad. However, acquiring agricultural land, plantations, or farmhouses may not be allowed in certain jurisdictions.
  • Currency Compliance: The purchase must be funded through legitimate means, and the funds must comply with India’s foreign exchange control regulations.

Acquisition by Indian Companies

• Indian companies are allowed to acquire immovable property abroad, subject to compliance with FEMA regulations. However, this is usually done for business purposes such as setting up a branch office, subsidiary, or for operational activities abroad.
  • Business Purpose: The property must be acquired for business needs (such as setting up a branch, manufacturing facility, or office). The property should be used for commercial purposes.
  • Approval: In some cases, prior approval from RBI or concerned authorities might be necessary.
  • Funding: The company must use its internal resources, foreign exchange remittances, or profits earned outside India for the purchase.

RBI Guidelines for Acquisition by Indian Residents

1. Remittance Limits: Under the Liberalized Remittance Scheme (LRS), Indian individuals are allowed to remit a certain amount of money (up to $250,000 per financial year) for specific purposes like buying property abroad. However, if the remittance exceeds this limit, special permission from the RBI may be required.
2. Form of Payment: All payments for the acquisition of immovable property must be made through normal banking channels in compliance with FEMA regulations.
3. Reporting Requirements: If an Indian resident buys property abroad, the Reserve Bank of India and the Income Tax Department require the individual or company to report the transaction.

2. Transfer of Immovable Property Outside India by Indian Residents

The transfer of immovable property abroad is also governed by FEMA and applicable tax laws in India and the country where the property is located. The sale or transfer of foreign property is subject to several compliance requirements.

Transfer by Indian Individuals

1. Capital Gains Tax:
   • Indian tax implications: If the individual transfers immovable property abroad, capital gains tax is applicable in India. The rate depends on whether the property is sold within 2 years (short-term) or after 2 years (long-term).
     • Short-Term Capital Gains: If the property is sold within 2 years of acquisition, it is subject to short-term capital gains tax at the rate applicable to the individual’s tax bracket (based on their total income).
     • Long-Term Capital Gains: If the property is held for more than 2 years, it is subject to long-term capital gains tax. The tax rate on long-term capital gains is typically 20% (with indexation benefit).
   • Foreign Tax Implications: Capital gains tax in the country where the property is located may also apply. However, Indian tax laws allow a credit for taxes paid abroad (through the Double Taxation Avoidance Agreement or DTAA) to avoid double taxation.
2. Repatriation of Sale Proceeds:
   • If the property is sold, and the proceeds need to be repatriated to India, the individual or company must comply with FEMA regulations. They are generally allowed to repatriate the proceeds from the sale of immovable property abroad, but specific procedural requirements must be met, such as:
     • The sale proceeds should be credited to a foreign currency account (such as an NRE or FCNR account).
     • The remittance must comply with the LRS and other guidelines set by the RBI.

Transfer by Indian Companies

1. Business Assets:
   • Indian companies may sell or transfer foreign immovable property if it is being used for business purposes (such as an office or factory). The transfer must be in compliance with the Foreign Direct Investment (FDI) policy.
2. Approval:
   • Depending on the nature of the transaction, the company may require RBI approval to repatriate the proceeds from the sale of property abroad. However, if the company has generated funds from business operations outside India, repatriation is usually allowed.
3. Tax Considerations:
   • Capital Gains Tax: Any profit or gain from the sale of immovable property abroad by an Indian company will be subject to Indian capital gains tax.
   • Foreign Tax Credit: Tax paid abroad on the capital gain may be eligible for a foreign tax credit to avoid double taxation under the DTAA.

3. Restrictions on Acquisition and Transfer of Immovable Property Outside India

1. Agricultural Land and Farmhouses:
   • Indian residents are generally prohibited from acquiring agricultural land, farmhouses, or plantations abroad, unless permitted by the laws of the foreign country.
2. Special Approval for Certain Countries:
   • In some countries, foreign ownership of property is restricted or limited. For instance, in some countries, there are limitations on property purchases by foreign nationals or companies. Indian residents must comply with the local laws of the country where they wish to acquire or transfer immovable property.
3. Use of Funds:
   • External Borrowings for the acquisition of immovable property abroad are typically not allowed unless the property is for the operational business of the company. Personal borrowings from foreign sources are also restricted.
4. Compliance with FEMA and Reporting:
   • Any Indian resident or company acquiring or transferring immovable property abroad must report the transaction to RBI and Income Tax Department and comply with the regulatory frameworks. This includes disclosing the nature of the transaction and the source of funds used.

Conclusion

The acquisition and transfer of immovable property outside India by Indian residents are subject to FEMA regulations, RBI guidelines, and tax implications under the Income Tax Act. While there are no broad prohibitions on acquiring property abroad, Indian individuals and companies must ensure they comply with foreign exchange control laws, obtain necessary approvals from the RBI where applicable, and adhere to local property laws in the foreign country. Additionally, taxation both in India and the foreign country where the property is located must be carefully managed to avoid double taxation. Compliance with all legal, financial, and reporting requirements is essential for a smooth acquisition and transfer process.