Can an NRI buy agricultural land in India?

Real estate investment is the topic which a lot of NRIs (Non-Resident Indians) have in their minds when they think about India. They usually ask about agricultural land buying. Although NRIs can buy residential and commercial properties in India without much restriction, buying agricultural land is regulated by different rules. Throughout this article, we shall dissect the regulations and situations associated with NRI transactions in agricultural land in India.

Under the Foreign Exchange Management Act (FEMA), no one except for resident Indian citizens is permitted for acquiring agricultural land, plantations, and farmhouses in India. NRIs and PIOs are prohibited by law from purchasing such assets. However, there are specific situations, like the case of inheritance of agricultural land by NRIs or acquisition of it through a gift from residents of India that provide for these exceptions.

NRIs can inherit agricultural land from a resident Indian. If an NRI receives agricultural land through inheritance, they become the legal owner of the property. The inherited property can be retained, or they can choose to sell it, subject to the regulations governing property transactions.

In some cases, NRIs might seek special permissions from the Reserve Bank of India (RBI) for acquiring agricultural land. However, fetching licenses to this effect is seldom and usually the decision is given case by case. Furthermore, the Central Bank carries out due to diligence on the purpose of land holding and panes out that such operations are win within the framework of rules set out by the RBI.

For NRIs to inherit or receive agricultural land as a gift, specific documents are required to complete the acquisition process. These documents typically include:

1. Proof of Inheritance or Gift Deed

Legal documentation confirming the transfer of property.

2. NRI Account Details

Bank account details in India, such as  NRE or NRO accounts, for financial transactions related to the property.

3. Identification Proof

Valid passport and visa details.

4. Title Deed

Original title deed of the property.

5. No-Objection Certificate (NOC)

NOC from the legal heirs, if applicable.

[Also Read: What is an NRI Account? Types, Opening Process & Benefits]

Non-Resident Indians (NRIs) can accept farmland through transfer of the afore mentioned properties as gifts by resident Indians, in case the property is not bought but gifted. In disposing of such land, NRIs must comply with specific criteria. The sales proceeds from an agricultural land sale can be remitted, but to the extent that the amount remitted is only the amount paid for it and with the permission of the RBI.

Taxation on agricultural land transactions for NRIs involves several aspects:

1. Capital Gains Tax

NRIs are subject to capital gains tax on the sale of agricultural land. The tax rate depends on the holding period of the property—short-term or long-term.

2. TDS (Tax Deducted at Source)

When an NRI sells agricultural land, the buyer must deduct TDS at the applicable rates before making the payment.

3. Double Taxation Avoidance Agreement (DTAA)

NRIs from countries with DTAA agreements with India can benefit from lower tax rates or tax exemptions on their transactions.

Benami transactions, where the property is held by one person but paid for by another, are illegal in India. NRIs engaging in such transactions can face severe legal consequences, including confiscation of property and legal penalties. It is crucial for NRIs to ensure all property transactions are transparent and comply with Indian laws to avoid legal issues.

Yes, NRIs can sell inherited agricultural property in India. The sale proceeds can be repatriated to their foreign accounts, subject to the RBI’s regulations and the applicable tax laws. It is essential to consult legal and tax advisors to ensure compliance with all regulatory requirements.

Therefore, NRIs cannot make the direct acquisition of agricultural land in India due to the restrictive trade provisions. At the same time, they can receive these properties through the inheritance or as a gift.

Selling inherited agricultural land is permissible, and NRIs must adhere to the tax and regulatory guidelines for such transactions. Understanding these regulations and seeking appropriate legal advice can help NRIs navigate the complexities of property transactions involving agricultural land in India.