Written by : AK Agrawal

An experiences Chartered Accountant and Techno-Functional consultant working in industry for over 10 years dealing with multinational corporate clients. He is loves reading latest trend of technology trend.

Why NRI Can Not Buy Agricultural Land In India?

AK Agrawal
AK Agrawal, Chartered Accountant

Jul 3, 2021 14:37

Land and real estate are seen as some of the world's safest investments. NRIs are interested in the Purchase of Agricultural Land in India because of the added investment security and excellent rates. However, people might have to face this question due to their dual citizenship or residence in an overseas country due to work.

Are you also an NRI wanting to invest in agricultural land in India? Do you want to own a farmhouse in India where you, your friends, and your family can relish some memorable time? Is it, however, legal for an NRI to buy agricultural land? Can you make turn such possibilities to actuality? Gotaxfile team is here to throw light on this realm.

As per the Foreign Exchange Management Act (FEMA) and the Foreign Exchange Management (Acquisition & Transfer of Immovable Property in India) Regulations, 2018, NRIs & OCIs can not buy agricultural land, property for planting, or farmhouses in India. They cannot make such an acquisition unless they obtain special permission from the Reserve Bank of India (RBI).

An NRI can buy property in India under Reserve Bank of India laws. They are not, however, entitled to purchase any form of property. In India, NRIs can only buy residential and commercial property. It is, however, possible under certain conditions, and taxes shall get levied on NRI property purchases in India. When the question concerning the purchase of agricultural land by a NRI (Non-Resident Indian), the response is apparently a NO.

However, there are some exceptions in this realm. In some scenarios, NRIs may be able to acquire property in India. Let's have a look at when such acquisition can be a possibility.

The NRI can Inherit Agricultural Land from an Indian Resident.

To many people, flats and apartments may not seem like the ideal places to call home. This group would rather construct their own home from the ground up, according to their liking. This is when the Purchase of Agricultural Land by NRI comes into play. Due to the decline in urban real estate and the promise of higher long-term profits, many NRI's are looking to invest in rural land.

Although NRIs cannot buy agricultural land, they can inherit it. Without any non-compliance with the RBI regulations, NRIs can inherit agricultural land, farmhouses, or planting property from a Resident Indian. To inherit such land, you must obtain special permissions through the RBI authorities.

Receiving agricultural land as a Gift

A number of regulations and rules control the choice of a property. Gifting is one of the alternatives through which NRIs might acquire agricultural land in India. Gifts are seen as expressions of appreciation, love, or affection that are often offered without the intention of receiving anything in return. When it comes to gifting, there will be no questions asked.

As a result, an Indian resident may provide agricultural land to an NRI as a gift. In this way, an NRI might possess property without really acquiring it. However, keep in mind that an NRI cannot give property to another NRI. Gifts from non-resident Indians are only authorized to be given to Indian residents.

For a clear understanding, refer to the table given below:

Gift of propertyPermissions
Indian resident gifting property to an NRIYes, it is permissible
NRI gifting property to NRINo, it is not permissible
NRI gifting property to an Indian ResidentYes, it is permissible

What can be done once the land has been acquired? Purchase of agricultural land by NRIs frequently results in either gifting it to another Indian citizen or selling it, if not acquired, for the purpose of retaining the same.

Sale of agricultural land by NRI

The majority of people or NRIs buy a property to sell it for a gain subsequently. However, the regulations are not that simple when it comes to dealing with property matters, especially as an NRI.

The property purchasing, selling, or exchanging can only occur between NRIs and Indian residents. In the case of land purchased with RBI clearance, one needs to adhere to certain processes before finalizing the sales transactions. There are also tax implications for NRIs when making a sale. If no taxes were paid during the purchase of such agricultural land, one needs to consider the repercussions during the sale.

The Non-resident individual has to transfer the profits from the sale of such property in an NRO account. The maximum amount that one can transfer from an NRO Account is US$ 1 Million. The repatriation procedure is the same as it is for forms 15CA and 15CB. In addition, documents like a will, a legal heir certificate, a death certificate (in the event of inheritance), and a selling agreement (in case of sale) are required.

Tax rules on agricultural land for NRI

As we said, real estate has proven to be a hot spot for NRI investment. However, it comes with certain implications. While selling land, one must consider the tax purview. However, the taxation of agricultural land sales differs between rural and urban regions.

Rural agricultural land does not fall under the definition of a capital asset under Income Tax Act, 1961 regulations. Hence, it is not subject to the levy of capital gains tax on it. However, because agricultural land is a capital asset, capital gains tax is applied in urban areas.

In some situations, if an NRI owns more than one self-occupied residential property, just one of the residences will be recognized as self-occupied, while the others get recognized as rented-out property. In such circumstances, a fictitious rent gets calculated and taxed as if the NRI individual has rented out the property.

From whom can you buy it?

Purchase of Agricultural Land by NRI is quite a hassle in India. An NRI cannot purchase property in another person's name unless that person is a brother, spouse, sister, or lineal ascendant or descendant. The Benami Act makes it unlawful to purchase property in the name of someone else.

It might be inconvenient to travel to India and do everything alone. This particular condition is for NRIs who would want to remain in their current location but do not want to miss the opportunity to invest in agricultural land. You may consider appointing a Power of Attorney (POA) to handle your investments on your behalf. A POA can make acquiring, managing, and selling real estate in India. However, when creating an ideal power of attorney, you must take precautions.

Land deals may be complicated. Various states have different rules. As an NRI who is not constantly present in India, it may be challenging to obtain up-to-date information. Purchase of Agricultural Land by NRI entails plenty of permits and requirements that must be met.

When purchasing land or property, you must investigate and comprehend elements like the legality of the land along with the compliances you have to mitigate.

Attain proficient consultation regarding regulations for property acquisition and sale for NRIs with Gotaxfile!

At Gotaxfile, we have a force of tax and legal maestros who can address your whimsical queries regarding property purchase and sale in India by NRIs. If you are looking into the possibility of acquisition of agricultural land or other capital assets in India, do consider the expert opinion from our team. Schedule a call with us now!

AK Agrawal
AK Agrawal, Chartered Accountant

Jul 3, 2021 14:37

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