Can NRI Card Holders Legally Purchase Agricultural Land in India?

Can NRI Card Holders Legally Purchase Agricultural Land in India? – FEMA & RBI Guidelines Explained

Foreign investment in Indian real estate is a frequently discussed topic, especially when it comes to agricultural property. Many Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) card holders approach law firms seeking clarity on whether they can purchase agricultural land in India. The answer lies in the Foreign Exchange Management Act (FEMA), 1999 and the regulations framed by the Reserve Bank of India (RBI).

This article provides a comprehensive explanation of the legal position, restrictions, and exceptions regarding the acquisition of agricultural property in India by NRIs and OCI card holders.

Legal Framework: FEMA and RBI

1. Foreign Exchange Management Act, 1999 (FEMA):
   • FEMA governs cross-border financial transactions, including the purchase of immovable property by persons residing outside India.
   • Section 6 of FEMA empowers the RBI to regulate or prohibit transactions relating to immovable property.
2. RBI Regulations:
   • The Reserve Bank of India issues directions from time to time regarding the purchase or transfer of property by NRIs/OCI card holders.
   • These regulations are binding and carry legal consequences if violated.

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General Rule: NRIs/OCIs Cannot Buy Agricultural Land

Under FEMA and RBI rules:

• NRIs and OCI card holders are not permitted to purchase agricultural land, plantation property, or farmhouses in India.
• This restriction is aimed at preserving agricultural land for cultivation and protecting local agrarian interests.
• The prohibition applies irrespective of the place of residence, income, or Indian origin status of the individual.

Permitted Purchases by NRIs/OCIs:

• Residential property
• Commercial property

There is no cap on the number of residential or commercial properties an NRI/OCI can purchase in India.

Exceptions: When Can NRIs/OCIs Hold Agricultural Land?

Although fresh purchase is not allowed, there are limited exceptions where an NRI/OCI may hold agricultural land in India:

1. Inheritance:
   • If agricultural land is inherited from a person who was a resident of India, the NRI/OCI can continue to hold it.
   • Example: An OCI inherits farmland from their father who was an Indian resident.
2. Gift from a Resident Relative (subject to FEMA definition of relative):
   • Agricultural land can be acquired as a gift, but only from a person defined as a “relative” under Section 2(77) of the Companies Act, 2013.
   • This includes parents, siblings, and lineal ascendants/descendants.
3. Continuing Ownership Prior to FEMA:
   • If the agricultural land was acquired when the individual was a resident in India, they can continue to hold it even after becoming an NRI/OCI.

Sale of Agricultural Land by NRIs/OCIs

• An NRI/OCI who owns agricultural land (through inheritance or gift) can sell it only to:
  • A person resident in India who is also an Indian citizen.
  • Another NRI/OCI cannot buy agricultural land even from a fellow NRI/OCI.
• Repatriation of Sale Proceeds:
  • The money from the sale of agricultural property cannot be freely repatriated abroad.
  • Repatriation is subject to RBI guidelines and approval, and in many cases, the funds must remain in India.

Penalties for Violation

If an NRI/OCI attempts to purchase agricultural land in violation of FEMA/RBI rules:

• The transaction can be declared illegal and void.
• The Enforcement Directorate (ED) can impose penalties under Section 13 of FEMA, including monetary fines up to three times the amount involved.
• The land may even be confiscated.

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Practical Advice for NRIs/OCIs

• Do not invest in agricultural land directly without legal consultation.
• If you inherit such land, ensure proper compliance while selling or managing it.
• For real estate investments, focus on residential or commercial properties which are legally permitted.
• Always seek advice from a law firm specializing in FEMA and property laws to avoid litigation or penalties.

Conclusion

To summarize:

• Purchase of agricultural land, plantation property, or farmhouses by NRIs/OCI card holders is strictly prohibited under FEMA and RBI rules.
• Ownership is only possible through inheritance, gift, or prior ownership before becoming an NRI/OCI.
• Any attempt to bypass the law can lead to serious FEMA penalties.

As a law firm specializing in FEMA and property law, we assist NRIs/OCIs with:

• Reviewing property transactions
• Ensuring FEMA compliance
• Handling inheritance and succession matters involving agricultural land