While immovable property generally refers to a property that is fixed to earth such as a house; an agricultural land usually refers to such a land which is devoted to agriculture, and the controlled and systematic rearing of livestock along with the production of crops, in order to produce food for humans. Thus, it is synonymous with cropland or farmland.

Which properties can an NRI purchase:

A citizen of India resident outside (NRI) can own commercial as well as the residential properties in India, and there are no restrictions on the number of immovable properties that he can purchase.  All the transaction relating to such an immovable property has to be done in Indian rupees (INR) and via the normal banking channels. The funds regulating the transaction have to be maintained in a non-resident account under Foreign Exchange Management Act (FEMA) and the RBI regulations.

However, one cannot purchase any agricultural land/ farm house or plantation land, and such property can only be inherited. In order to purchase such property, he has to take prior permission from Reserve Bank of India. Such a proposal would then be considered by RBI in consultation with the Government of India.

Transfer of Property by an NRI:

An NRI can transfer immovable properties (other than agricultural land) to:

  1. Any person who is a citizen of India, but resides outside its territory.
  2. Any person of Indian origin, residing outside.
  3. Any person residing in India.

Any Agricultural land/ farm house or plantation property that he has acquired in inheritance can only be transferred to Indian citizens who are permanently residing in India.

Tax Implications:

On purchase of immovable property by an NRI, he would be entitled to all tax benefits that a resident of India would be entitled to. NRIs have to pay TDS (Tax Deducted at Source) at the rate of 1% if the property being bought is worth more than Rs. 50 lakh.

In case the property is vacant, the wealth tax would be exempted. But this rule is only applicable to the first property. For subsequent vacant properties, tax at the rate of 1% the value in excess of Rs. 30 lakh will have to be paid.

When the property is being sold, capital gains tax as prescribed under Income Tax Act will have to be paid. Long-term capital gains benefits can be received if the property is held for over 36 months. Capital gains may be taxable in the country the NRI resides if they do not have a DTAA (Double Taxation Avoidance Agreement) with India.