NRI Property Purchase & FEMA Compliance

Under Rule 28(1) of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019, NRIs and OCI cardholders are expressly prohibited from acquiring by purchase any agricultural land, plantation property, or farmhouse in India — such acquisitions require prior approval of the Reserve Bank of India under Section 6(5) of FEMA 1999. However, Rule 28(2) of the NDI Rules 2019 permits NRIs and OCIs to acquire agricultural land, plantation property, or farmhouse by way of inheritance from a person resident in India. Once inherited, they may also receive it as a gift from a relative who is a resident Indian holding such property lawfully. Sale of inherited agricultural land by an NRI requires the buyer to be a resident Indian — the NRI cannot sell it to another NRI or foreign national. Proceeds from such sale must be credited to the NRI's NRO account and are repatriable within the USD 1 million per year ceiling after payment of applicable capital gains tax.

An NRI purchasing residential property in India using funds remitted from abroad or from their NRE/NRO account does not need to obtain prior RBI approval under Rule 28(1) of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 — the acquisition is a permissible capital account transaction. However, if payment is made through inward remittance, the authorised dealer bank (the NRI's Indian bank handling the remittance) is required to report the transaction to the RBI under the Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2016. No separate filing by the NRI purchaser to the RBI is required for residential or commercial property purchases, unlike foreign direct investment which requires FC-GPR filings. The NRI must ensure that payment is made only through banking channels — cash payments above ₹20,000 are prohibited under Section 269SS of the Income Tax Act 1961 and NRI-specific FEMA restrictions — and the purchase deed must clearly record the source of funds.

Capital gains on sale of residential property by an NRI are taxed under the Income Tax Act 1961 — if the property is held for more than 24 months, long-term capital gains (LTCG) arise and are taxed at 12.5% without indexation under Section 112 of the Income Tax Act 1961 as amended by the Finance Act 2024 (applicable from AY 2025-26 / FY 2024-25). Short-term capital gains (property held 24 months or less) are taxed at slab rates applicable to the NRI. The buyer (whether resident or non-resident) is required to deduct TDS at 20% (plus surcharge and cess, effectively ~22.88% for most NRIs) on the sale price under Section 195 of the Income Tax Act 1961, unless the NRI obtains a lower deduction certificate from the Assessing Officer under Section 197. The NRI must file Form 13 application to the jurisdictional AO before the sale to get the certificate; failure to do so results in excess TDS which must be reclaimed by filing an income tax return. The buyer must file Form 27Q quarterly TDS return for payments to non-residents.

Under the Foreign Exchange Management (Non-Debt Instruments) Rules 2019, there is no restriction on the number of residential or commercial properties an NRI or OCI can purchase in India — multiple properties may be acquired on the same terms as the first, subject to funds coming from permitted sources (inward remittance or NRE/NRO account balances). Renting out the property is not subject to FEMA restrictions; however, the rental income must be credited to the NRI's NRO account and taxed in India. The tenant is required to deduct TDS at 30% under Section 195 of the Income Tax Act 1961 on rent paid to an NRI, regardless of the amount — unlike the ₹2.4 lakh per year threshold for resident landlords under Section 194IB. Rental income is taxed under Section 22 of the Income Tax Act 1961 as Income from House Property, with a 30% standard deduction under Section 24(a) and deduction of home loan interest under Section 24(b) up to ₹2 lakh for a let-out property (no upper limit if actually let out).

Repatriation of property sale proceeds by an NRI is governed by FEMA Notification No. FEMA 5(R)/2016-RB and the RBI Master Direction on Deposits — the sale proceeds must first be credited to the seller's NRO account, and repatriation abroad is limited to USD 1 million per financial year (April to March) without RBI permission. To remit these funds to an overseas bank account, the NRI must approach their Indian authorised dealer bank and submit: Form 15CA (self-declaration uploaded on the Income Tax portal) and Form 15CB (CA certificate under Rule 37BB of the Income Tax Rules 1962) certifying that all taxes on the sale have been paid; the registered sale deed; and proof of the original acquisition cost and payment mode. The authorised dealer must also be satisfied that the property was acquired in compliance with FEMA regulations at the time of purchase. If the amount to be repatriated exceeds USD 1 million in a year, a specific application must be filed before the Reserve Bank of India through the authorised dealer, with documentary evidence of the acquisition and sale and confirmation of tax payment.