Accommodation Times Institute of Real Estate
Management
and
THE SOCIETY OF INDIAN LAW FIRMS
WORKSHOP
On
Property laws
FDI and NRI Transactions and Taxation
By
Mr. Anil Harish, Advocate,
D.M. Harish & Co.
305-9, Neelkanth, 98 Marine Drive, Mumbai 400 002
Email: dmhco@dmharishco.com
Tel: 22817272, 22810517
A resident of India may:
•buy
•sell
•gift
•mortgage
•take on lease
•give on lease
•inherit
•bequeath
•trade in
•construct upon
immovable property.
Can a Non-Resident or a Person of Indian Origin
(PIO) or a Foreign Company do so?
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Foreign Exchange Control was
introduced in India w.e.f. 2nd Sept.
1939.
• FERA 1947
• FEMA 1973
• FEMA 1999 w.e.f. 1st June 2000
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FERA was, and FEMA is, a regulatory
Statute.
What does it seek to regulate?
It seeks to regulate transactions
involving currency and transnational
holdings and activities.
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Sec.3 – Dealing in Foreign Exchange etc.
a) Dealing in or transfer in foreign exchange or
foreign security.
b) Payments to or for the credit of any Non
Resident.
c) Receiving money from a Non Resident, except
through an authorized dealer.
d) Any financial transactions in India in
consideration for or in respect of any asset
outside India.
Sec.4 – Holding of foreign exchange or foreign
security or Immovable Property abroad.
Sec.5 – Current Account transactions permitted
unless restricted.
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Sec.6 – Capital Account transactions restricted
unless permitted
These include:
a) Transfer or issue of any foreign securities by respective persons;
b) Transfer or issue of any securities by Non Resident;
c) Transfer or issue of any security or foreign security by Indian branch
of Non Resident;
d) Borrowings or lending in foreign exchange;
e) Borrowings or lending in Rupees between resident and Non
resident;
f) Deposits between Resident and Non Residents;
g) Export, import or holding of currency or currency notes;
h) Transfer of Immovable Property abroad by resident persons;
i) Acquisition and Transfer of Immovable property in India by Non
Residents;
j) Guarantee or Security by a Resident to a Non Resident or by a Non
Resident.
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Can you provide hospitality to a
person resident outside India?
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Yes – under para 2(i) of Notification
No.Fema/16/RB-2000 dt.
3.5.2000.
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Some important concepts
I.
Resident
Non-Resident
PIO-Person of Indian Origin
Foreign Individual
OCB-Overseas Corporate Body
Foreign Company or entity
II. Repatriation
Non-Repatriation
III. Investment
Real Estate Business.
Construction & Development of built-up area and
serviced plots.
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S.2(v) of FEMA defines “Resident in
India”
S.2(w) of FEMA defines “Resident outside
India”.
Compare and contrast with section 6 of
I.T. Act.
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Repatriation & Non Repatriation
Circular dated 14.4.1982 of RBI provided for
Investments on repatriation and non-repatriation.
Immovable property was on Non-repatriation basis.
Since then, many changes – Convertibility on Current
Account – Entire current income, less tax (but not the
capital gain), minus the Income Tax can be remitted
out.
Convertibility on Capital Account –
Resident person $ 2,00,000/- p.a.
Resident person emigrating $ 1,00,000/Resident person remitting to close relatives $
1,00,000/- p.a.
Non Resident $ 1,000,000/- p.a.
ODI (Overseas Direct Investment Scheme)D.M.Harish & Co.
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Immovable Property in India – Investment
Into 2 residential houses – on repatriation basis,
i.e. As much Foreign Exchange as was remitted in
may be remitted out, after sale and after payment
of Income Tax.
Into any number of commercial premises – on
repatriation basis (i.e. Foreign Exchange remitted
in)
For own use or leasing (But not buying and selling
as a business).
Not Agricultural land or Plantations.
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In Law, as in life, don’t take things for granted.
Definition of PIO – Person of Indian Origin
PERSON OF INDIAN ORIGIN
1. Foreign Exchange Management (Deposits) Regulations, 2000
(Notification No.FEMA 5/2000-RB dated 3rd May 2000)
‘Person of Indian Origin’ means a citizen of any country other than Bangladesh
or Pakistan, if
a) he at any time held Indian passport ; or
b) he or either of his parents or any of his grand-parents was a citizen of India
by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of
1955); or
c) the person is a spouse of an Indian citizen or a person referred to in subclause (a) or (b).
2. Foreign Exchange Management (Acquisition and Transfer of
Immovable Property in India) Regulations, 2000 (Notification No. FEMA
21/2000-RB dated 3rd May 2000)
‘a Person of Indian Origin’ means an individual (not being a citizen of Pakistan
or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan),
d) who at any time, held Indian Passport; or
e) who or either of whose father or whose grandfather was a citizen of India by
virtue of the Constitution of India or the Citizenship Act, 1955( 57 of 1955).
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3. Foreign Exchange Management (Remittance of Assets) Regulations,
2000 (Notification No.FEMA 13/2000-RB dated 3rd May, 2000)
‘Person of Indian Origin (PIO)’ means a citizen of any country other than
Bangladesh or Pakistan, if
a) he at any time held Indian Passport; or
b) he or either of his parents or any of his grand-parents was a citizen of India
by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of
1955); or
c) the person is a spouse of an Indian citizen or a person referred to in subclause (a) or (b).
4. Foreign Exchange Management (Investment in Firm or Proprietary
Concern in India) Regulations, 2000 (Notification No.FEMA 24/2000-RB
dated 3rd May, 2000)
‘Person of Indian Origin’ means a citizen of any country other than Bangladesh
or Pakistan or Sri Lanka, if
d) he at any time held Indian Passport; or
e) he or either of his parents or any of his grand-parents was a citizen of India
by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of
1955); or
f) the person is a spouse of an Indian citizen or a person referred to in subclause (a) or (b).
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Explanation to Section 115 C (e) of the Income Tax Act,
1961
“Explanation: A person shall be deemed to be of Indian origin
if he, or either of his parents or any of his grand-parents, was
born in undivided India.”
Person of Indian Origin Card (PIO Card) Scheme 2002
“Who is eligible?
Any person:
• Who at any time held an Indian Passport; or
• He/she or either of his/her parents or grand parents or great
grand parents was born in or permanently resident in India as
defined in the Government of India Act, 1935 and other
territories that became part of India thereafter provided
neither was at any time a citizen of any country as may be
specified by the Central Government from time to time or;
• Who is a spouse of a citizen of India or a Person of Indian
Origin as mentioned above.”
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NRI & PIO can carry on construction and
development, but are not permitted to
merely buy and sell immovable property
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Construction by Proprietary concern or
partnership firm
Yes – on Non-repatriation basis.
No approval or declaration required.
Construction on Repatriation basis - only with
prior approval.
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Investment by NRI/PIO into Company
On repatriation basis.
Steps:
i. Remit funds;
ii. Company must obtain FIRC
iii. Inform RBI within 30 days of receipt of funds
and then must get allotment within 6 months
and fill form FC-GPR within 30 days
iv. Issue of shares within 6 months of receipt of
funds and file return of Allotment with ROC
within 30 days of allotment of shares.
Failure to do will result in compounding fees
having to be paid.
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FDI (Foreign Direct Investment) into Real
Estate
Press Note 2 of 2005
“Automatic” category
(Prior approval from FIPB not required).
Conditions for Foreign Investment.
i. Minimum US $ 5 million investment for Joint Venture,
or
Minimum US $ 10 million investment in WOS;
ii. Investment must come in within 6 months;
iii. Lock-in period for shares – 3 years;
iv. Minimum size of project – 50,000 sq.mt. of built-up
area or
10 hectares of service plots;
v. 50% of the project must be completed in 5 years.
Merely buying and selling or leasing is not permitted.
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FEM (Transfer or Issue of Security by a
Person Resident Outside India)
Regulation 2000.
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Taxation
Same rates as for Residents, i.e,
Individuals - max. 30.9%
Companies – 33.2175%
But TDS u/s.195 r.w.s. 197 on payments to Non
Residents.
Other facilities available:
U/s. 54: House to House.
U/s.54F: Other capital asset to House.
U/s.54EC: Rs.50 lakhs investment in Bonds of REC
or NHAI.
Also, s.56 is important for valuation.
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Structure of Law
Foreign Exchange Management Act, 1999.
6 sets of Rules:
• 22 sets of Regulations
• Notifications
• Circulars
• Press Notes
• Forms
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Important Websites :
www.rbi.org.in
www.dipp.gov.in
www.finmin.nic.in
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The Future of FEMA…………
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Disclaimer
The material contained herein is not
exhaustive, and contains certain
generalisations. The latest Provisions
and Notifications must be viewed.
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THANK YOU
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