NRI Buying, Selling and Inheriting Agricultural Land in India

NRI Buying, Selling and Inheriting Agricultural Land in India

NRI Buying Agricultural Land in India

Foreigners cannot buy agricultural land in India. This is applicable everywhere in the country. No state in India lets foreigners buy this kind of land. Therefore, NRIs or non-resident Indians cannot buy agricultural land in India. Approval is required from the RBI or the Reserve Bank of India which one assumes is not easily available and depends on individual circumstances.

Furthermore, there are some state governments in India that have posted rules that let farmers buy agricultural land in their state, and only farmers. This restricts even Indian citizens from buying agricultural land.

As for the OCI holders who live in India, because of their status they are still regarded as foreign citizens. Therefore, they should realize that the OCI grants them a visa for them to stay and live in India. However, this does not provide them with Indian citizenship. They still hold foreign passports. Therefore, NRIs and foreign citizens of Indian origin cannot really acquire agricultural land by way of gift. They can only acquire agricultural land by the inheritance.

Can NRIs who have acquired foreign citizenship keep agricultural land in India?

Must NRIs with Foreign Citizenship sell the agricultural land that they owned previously? This is a concern that most non-residents ask, especially if they owned agricultural land before they even changed their status. NRIs who have also acquired the foreign citizenships are misled into thinking that they cannot keep holding agricultural land because foreigners cannot possess this in India. This is misinformation.

Foreigners cannot purchase agricultural land and NRIs who acquire foreign citizenship can also continue to hold agricultural land or any property that they own in India provided that they have acquired them legally before they even accept foreign citizenship. They must check with authorities before they are conned out of their possession. The money that is legally theirs can also be transferred legally abroad.

Warning for NRIs when buying reconverted agricultural land

As land prices escalate in India, there is the interest in purchasing agricultural land in India and this has increased over the last few years. There are non-resident Indians who have left India several years ago and are naturally interested in purchasing cheaper land in India. The purchase of agricultural land in India by non-resident Indians is one of the concerns that is often brought up.

While it may be a well-known fact to a number of NRIs that they cannot purchase agricultural land legally because of the regulations that are currently in India, the fact that everything is possible in India still persists in people’s minds. In fact, some people feel that the NRIs can and also do buy agricultural land in India, despite the restrictions posted above.

A new concept of selling farmland by some brokers residing in India is to inform the NRIs that the farmland can be re-converted to residential land in a snap of a finger once this has been purchased. Some may even let the NRI glance at the documents to show that the land has already been re-converted. The problem is, this may be true, but this can also be not true.

Here are a few things that NRIs must remember when thinking of buying agricultural land in India with the idea of getting it converted for business or residential use later:

  1. In order to legally acquire the agricultural land designated as residential is not a very easy process. This is because there are land brokers that impress upon the potential purchasers> While they do make those promises so that they can get the paperwork done for the buyer the minute the purchase has been made, it is still the decision of the buyer to take the words at face value.
  2. Every state has its own rule when it re-converts the agricultural land. Therefore, the NRI must check with the authorities before they even part with their money.
  3. If they are given the opportunity to purchase the land that has already been re-converted to something that is residential and what was originally agricultural land, they should also check the documentation not only at face value but with the appropriate municipal registration offices.
  4. Agricultural land that is converted cannot be sold normally for a period of time. The person who gets the land conversion must do this and the use of the converted land must become null and void within a specified period.

NRIs Selling Agricultural Land in India

Because of the recent boom in the real estate industry in India, this has prompted the NRIs or the Non-Resident Indians to sell their properties in India to take advantage of the hike in the land prices. However, NRIs must also take note of the special provisions of the Indian tax laws before selling the property in India. This is to ensure the smooth transaction and also avail the maximum benefits.

One Indian to Another

An NRI that sells commercial or residential property in India to another individual who resides in India or to a PIO or NRI is under general permission can sell the agricultural land, farm house and plantation property only to the person who is a resident of India and is also an Indian citizen.

An NRI can also transfer his or her commercial or residential property to an authorized dealer or the housing finance institution in India through mortgage.

AN NRI must not transfer through mortgage the commercial and residential property in India to a party abroad. For this purpose, the approval of the RBI or the Reserve Bank of India is required.

Tax Liabilities

As for the case of purchasing, selling property also attracts tax liabilities. For NRIs, these tax implications are a per the FEMA or the Foreign Exchange Management Act of 1999 for which the factors are needed to be considered and transferred date for determining the capital gains. The agreement value for calculating the profits and thereby the capital gains require the transfer charges to society as well as the legal charges and outstanding loans, if there are any.

If the NRI sells his or her house in a matter of 3 years from the date that the purchase and a profit has been made, then he or she is liable to pay the short-term capital gains tax at the normal rate applicable for every his or her tax bracket. If the sale occurs in a matter of three years from the date of purchase, then he or she has to pay the capital gains that is taxed at the flat rate of 20%.

After the sale of the property, the NRI can also repatriate the sale proceeds of the commercial and residential property in India. It must also be remembered that the repatriation of sales is limited to just two properties only. The repatriated amount can ideally cross the sum that is paid for acquiring the property whether in foreign exchange that is received from the banks or the non-resident account. It should overshoot the foreign currency equivalent as on the very day of the payment. Toda, the remittance of funds from the property sales is hassle and free and this is all because for the benefit of the NRI.

However, the NRI must also ensure that he or she is well guided by the legal expert in regards of the property sale in India and they must also be very wary of the fake property dealers. It is best that they hire authorized dealers so that the property and the sale is safely handled in an appropriate and safe manner.

Tips in Selling Properties in India

Can an NRI sell property in India? Absolutely. An NRI can sell commercial and residential property in India. In fact, he can sell to a person who is a resident in India, an NRI, and a person of Indian origin. The catch is that an NRI can sell agricultural, plantation land or farm house to a person who is a resident in India.

There are two scenarios that may arise when sales are made. First, the sale of the property that is purchased by the resident Indian will have the proceeds credited to the Non-Resident Ordinary or NRO account.

Second, the sale of the property purchased as a non-resident India will earn rupees and the home loan must be repaid by the relative who is a resident of India. The amount, therefore, will be credited in the NRO account.

In every other cases, there are limits to the repatriation. This is discussed in the next paragraph.

What are the rules of the repatriation of sales that proceed in the property being sold in India? If the property was purchased by the individual while he or she was a resident of India, then the sale proceeds can be credited to the NRO account. It is possible to repatriate up to 1 million dollars every calendar year from the NRO account. This includes all the capital transactions provided that all due taxes have been paid.

NRIs Inheriting Agriculture in India

Buying a property in India is a decision that a number of NRIs can take after weighing out the advantages and disadvantages of multiple tax and regulatory implications. Getting a property as inheritance is really not a choice, especially for the first generation PIOs or NRIs whose parents have already bequeathed these to them and are properly situated in India. When this happens, the non-resident Indians must be knowledgeable on how to deal with these kinds of inheritances.

Can an NRI inherit property in India?

Yes, it is possible for an NRI or a Non-Resident Indian or a foreign national of non-Indian origin or a PIO or Person of Indian Origin inherit and even hold property of India. This also includes the commercial and residential property, farm land and agricultural and plantation property.

From whom can an NRI inherit property?

An NRI, PIO or a foreign national mentioned in the previous paragraph can inherit property from:

  1. A resident in India
    2. A resident outside India

However, the person whom the property is inherited from must have acquired the same that followed the foreign exchange law as regulated by FEMA. It must also be applicable during the time that the property has been acquired.

Is there tax payable whenever property is inherited?

No income tax is payable at the period when property is inherited. However, the property can also be subjected to wealth tax. According to Wealth Tax Act, the tax is payable once the net value (the market value minus any of the loans has been taken to finance the assets). The assets of every individual must also exceed 30 rupees.

There are also exceptions when it comes to defining “assets:”

  1. Only one house.

If the individual owns one residential house, then wealth taxes must not be paid. After the inheritance, if this is the only property that is owned, then it is not enough to pay wealth tax on it.

  1. House given on rent for over 300 days

IF the property on rent has been in that situation for over 300 days during the financial year, then the owner does not have to pay wealth tax. If the net value of all the assets, which include the inherited property exceeds Rs 30 lakh, then wealth taxes will be charged per 1% of the amount that is of excess.

The purchase price for the calculation of the capital gains will be the purchase that has been paid by the person who bequeathed the property. The holding period is also determined if the gains are short term or long term and will also be completed depending on the date of purchase by the very person who bequeathed the property.

Double Taxation

The new owner must then look into the provisions of the countries that they are residing in, so that it is possible to determine the tax implications of properties that have been inherited. In the US, for example, individuals are subject to estate tax.

deepak administrator