People approach this hoping for an exception and there is not one on the purchase side. What there is, and what a surprising number of NRIs do not realise they already have, is a route through inheritance.
Where the rule comes from
Acquisition and transfer of Indian immovable property by a person resident outside India is regulated under the Foreign Exchange Management Act, 1999. The Reserve Bank's Master Direction on the subject sets out its own source: the relevant sub-sections of the capital account transactions provision of the Act, read with the overseas investment rules and directions of 2022 and the non-debt instruments rules of 2019. Within that framework the Reserve Bank issues directions to authorised persons under the Act, and those directions are what your bank and your sub-registrar will actually follow.
What is and is not permitted
- Purchase. An NRI or an OCI may acquire by way of purchase any immovable property in India other than agricultural land, plantation property or a farm house. There is no exception for a small plot, for land intended to be converted, or for a purchase in a relative's name with your money.
- Gift. An NRI or an OCI may acquire by way of gift any immovable property other than agricultural land, plantation property or a farm house, from a person resident in India or from an NRI or OCI who is a relative as defined in the Companies Act, 2013. The same exclusion applies, so the restriction cannot be routed around by calling the transaction a gift.
- Inheritance. Here the restriction lifts. An NRI or an OCI may acquire any immovable property in India by way of inheritance from a person resident outside India who acquired it in accordance with the foreign exchange law in force at the time of acquisition, and may acquire any immovable property by inheritance from a person resident in India. So the family farm can come to you.
- Selling what you inherited. An NRI or an OCI may transfer any immovable property in India to a person resident in India, and may transfer property other than agricultural land, plantation property or a farm house to another NRI or OCI. The practical result is that inherited agricultural land can be sold, but only to a person resident in India.
- A spouse who is neither. A person resident outside India who is not an NRI or an OCI, being the spouse of one, may acquire one immovable property jointly with that spouse, and the same exclusion of agricultural land, farm house and plantation property applies.
The Master Direction says citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and the Democratic People's Republic of Korea cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India other than on a lease not exceeding five years, and that for this purpose citizen includes both natural persons and legal entities. That prohibition does not apply to an Overseas Citizen of India cardholder. If any buyer, seller or intended beneficiary in your transaction holds one of those citizenships, establish the position before anything is signed.
Two gates, not one
- Exchange control. The rules above, applied by your bank and by the registering officer. Payment for a permitted acquisition has to come from funds received in India through banking channels by inward remittance, or by debit to your non-resident external, foreign currency non-resident or non-resident ordinary account, and any transaction involving acquisition or transfer by a person resident outside India should be through banking channels in India.
- State land law. Entirely separate, and often the one that actually stops the transaction. Karnataka has its own law on who may hold agricultural land and it has changed in recent years, so the position has to be checked as at the date of your transaction rather than assumed from what was true when you left.
- Definitions do not travel. What counts as agricultural land under exchange control is not necessarily what counts under the revenue record or under the tax statute, which has its own definition for the purposes of deduction at source. Ask which sense is being used before relying on an assurance that a parcel is not agricultural.
- Verify before you commit. Classification in the revenue record, conversion orders, the encumbrance position and the chain of title all need checking, and our guide on the verification checklist before buying property sets out what to look at. Our guide on viewing the encumbrance certificate online in Karnataka shows how to pull part of it yourself from abroad.
If you already hold such land
Land you inherited, or land you bought while you were resident in India and kept after leaving, is lawfully held. The Act permits a person resident outside India to hold property acquired when he was resident here or inherited from a person who was. What changes is the exit. Sale proceeds of property in that category cannot be repatriated without Reserve Bank permission, though a person resident outside India may use the remittance of assets facility instead, and our guide on repatriating money from India as an NRI sets out how that facility works and what it is capped at.