FDI in Real Estate - A complete discussion

Foreign Investment || Real Estate
CA. Sudha G. Bhushan || 17th June 2020

Maximum Reforms
❖ The Real Estate (Regulation and
Development) Act, 2016
❖ Status of Financial Creditors to home
buyers
❖ Tightning of provisions of Income Tax
provisions from the black money
prespective
❖ Change in the definition of Real estate
as per FDI policy over a period of time
❖ Others – like government stimulus
package etc.

Foreign
Investment
Foreign
Borrowings
Indian
Investment
outside India
Investment
from Non
resident
Indians

CA. Sudha G. Bhushan
FEMA 1999
- Replaced the draconian Foreign Exchange Regulation Act 1973
- Appointed date 1 June 2000
Aims of FEMA
- Facilitate external trade and payments
- Promotion of foreign exchange markets
- FEMA Rules / Regulations
- Rules notified by the Central Government and
- Regulations notified by the RBI
- Consultation betn. Government and RBI
RBI website (www.rbi.org.in)
- AP (Dir Series) - issued from time to time
- Master Directions - updated now periodically
- FAQS
• Every Transaction either Current (generally permissible unless
prohibited) or Capital Account - (only if and as permitted)
• Several powers /responsibilities delegated to the AD / Banker
by RBI - their role / concurrence critical but primary
responsibility is of constituents and their role is compliance &
monitoring
- Borrowing and Lending in Foreign Currency or
Rupees between R/NR is a Capital Account
Transaction - permissible only as stipulated.
- Framework:
o Section 6 of FEMA 1999
o Relevant RBI Regulations: FEMA 1, FEMA 3(R),
FEMA 5(R), FEMA 8 (as amended from time to time)
o RBI'S A.P. DIR Circulars issued from time to time
o RBI Master Direction (updated from time to time) and
RBI Master Circulars issued earlier
o External Commercial Borrowings (ECB) Policy -
New ECB Framework dated 16 January 2019
o RBI FAQs (updated from time to time)
o Other items - Monthly ECB Data on RBI Website
FEMA - An Overview

On October 15, 2019, The Ministry of Finance, had proposed certain amendments to Foreign
Exchange Management Act, 1999
These amendments resulted in a power shift from the RBI to the Central Government (CG),
enhancing the CG involvement in the foreign exchange transactions a bifurcation of instruments
into debt instruments and non-debt instruments has been introduced
The Central Government notified the Foreign Exchange Management (Non-Debt Instruments)
Rules, 2019 ("NDI Rules") on October 17, 2019 superseding the erstwhile Foreign Exchange
Management (Transfer of Issue of Security by a Person Resident outside India) Regulations,
2017 ("TISPRO") and the Foreign Exchange Management (Acquisition and Transfer of
Immovable Property in India) Regulations, 2018
The RBI also notified the Foreign Exchange Management (Debt Instruments)
Regulations, 2019 superseding TISPRO, and the Foreign Exchange Management (Mode
of Payment and Reporting of Non-Debt Instruments) Regulations, 2019
The Central Government has also Further notified the Foreign Exchange Management
(Non-Debt Instruments) (Amendment) Rules, 2019 ("Amendment Rules") on
December 5, 2019 primarily incorporates the provisions of the Press Note 4 of 2019,
recently announced by the Department for Promotion of Industry and Internal Trade
("PN4"), which were not reflected in the NDI Rules

Sectors prohibited for FDI
➢ Lottery business including Government or private lottery, online lotteries, etc.
➢ Gambling and betting including casinos, etc.
➢ Chit funds
➢ Nidhi company
➢ Trading in Transferable Development Rights
➢ Real estate business or construction of farm houses
Explanation: For the purpose of this rule, 'real estate business shall not include development of townships,
construction of residential or commercial premises, roads or bridges and Real Estate Investment Trusts (REITs)
registered and regulated under the SEBI (REITS) Regulations, 2014.

Sectors prohibited for FDI
➢ Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
➢ Activities or sectors not open to private sector investment e.g. (1) Atomic energy and (II) Railway operations (other than
permitted activities mentioned in paragraph (3) of Schedule I)
➢ Foreign technology collaborations in any form including licensing for franchise, trademark, brand name, management
contract is also prohibited for lottery business and gambling and betting activities.

Construction Development
Townships, Housing, Build-up Infrastructure
Sector/ Activity
% % of
Equity/
FDI Cap
Entry Route
Construction-development projects (which would
include development of townships, construction of
residential/commercial premises, roads or bridges,
hotels, resorts, hospitals, educational institutions,
recreational, facilities, city and regional levels
infrastructure, townships)
100% Automatic

Other Conditions
a. Each phase of the construction development project shall be considered as a separate project.
b. The investor shall be permitted to exit on completion of the project or after development of trunk infrastructure i.e. roads,
water supply, street lighting, drainage and sewerage.
c. Notwithstanding anything contained at (b) above, a person resident outside India shall be permitted to exit and repatriate
foreign investment before the completion of project under automatic route, provided that a lock-inperiod of three years,
calculated with reference to each tranche of foreign investment has been completed. Further, transfer of stake from a
person resident outside India to another person resident outside India, without repatriation of foreign investment will
neither be subject to any lock-in period nor to any government approval.
d. The project shall conform to the norms and standards, including land use requirements and provision of community
amenities and common facilities, as laid down in the applicable building control regulations, byelaws, rules, and other
regulations of the State Government or Municipal or Local Body concerned.
e. The Indian investee company shall be permitted to sell only developed plots. For the purposes of this policy "developed
plots" shall mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage, have
been made available.

Other Conditions
b. The investor shall be permitted to exit on completion of the project or after development of trunk infrastructure i.e.
roads, water supply, street lighting, drainage and sewerage.

Other Conditions
c. Notwithstanding anything contained at (b) above, a person resident outside India shall be permitted to exit and
repatriate foreign investment before the completion of project under automatic route, provided that a lock-
inperiod of three years, calculated with reference to each tranche of foreign investment has been completed.
Further, transfer of stake from a person resident outside India to another person resident outside India, without repatriation
of foreign investment will neither be subject to any lock-in period nor to any government approval.

Other Conditions
person resident outside India to another person resident outside India, without repatriation of foreign investment
will neither be subject to any lock-in period nor to any government approval.

Other Conditions
d. The project shall conform to the norms and standards, including land use requirements and provision of
community amenities and common facilities, as laid down in the applicable building control regulations, byelaws,
rules, and other regulations of the State Government or Municipal or Local Body concerned.
e. The Indian investee company shall be permitted to sell only developed plots. For the purposes of this policy
"developed plots" shall mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage
and sewerage, have been made available.

Other Conditions
f. The Indian investee company shall be responsible for obtaining all necessary approvals, including those of the
building or layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of
development, external development and other charges and complying with all other requirements as prescribed
under applicable rules/ bye-Laws/ regulations of the State Government or Municipal or Local Body concerned.
g. The State Government or Municipal or Local Body concerned, which approves the building or development plans, shall
monitor compliance of the above conditions by the developer.
Note:
➢ Foreign investment is not permitted in an entity which is engaged or proposes to engage in real estate business,
construction of farm houses and trading in transferable development rights (TDRs).
➢ Condition of lock-in period shall not apply to Hotels and Tourist Resorts, Hospitals, Special Economic Zones (SEZs),
Educational Institutions, Old Age Homes and investment by NRIs or OCIs.
➢ Completion of the project shall be determined as per the local bye-laws/ rules and other regulations of State Governments.
➢ Foreign investment up to 100 percent under automatic route is permitted in completed projects for operating and managing
townships, malls/ shopping complexes and business centres. Consequent to such foreign investment, transfer of ownership
and/ or control of the investee company from persons resident in India to persons resident outside India is also permitted,
however, there shall be a lock-in-period of three years, calculated with reference to each tranche of foreign investment and
transfer of immovable property or part thereof is not permitted during this period.

Other Conditions
➢ "Transfer", in relation to this sector, includes,—
• the sale, exchange or relinquishment of the asset; or
• the extinguishment of any rights therein; or
• the compulsory acquisition thereof under any law; or
• any transaction involving the allowing of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ;
or
e. any transaction, by acquiring capital instruments in a company or by way of any agreement or any arrangement or in any
other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property.
(6) Real estate business’ means dealing in land and immovable property with a view to earning profit therefrom and
does not include development of townships, construction of residential/ commercial premises, roads or bridges,
educational institutions, recreational facilities, city and regional level infrastructure, townships;
Explanation: —
• Investment in units of Real Estate Investment Trusts (REITs) registered and regulated under the Securities and
Exchange Board of India (REITs) regulations 2014 shall also be excluded from the definition of “real estate
business”.
• Earning of rent income on lease of the property, not amounting to transfer, shall not amount to real estate business.

Other Conditions
• Transfer in relation to real estate includes,
➢ the sale, exchange or relinquishment of the asset; or
➢ the extinguishment of any rights therein; or
➢ the compulsory acquisition thereof under any law; or
➢ any transaction involving the allowing of the possession of any immovable property to be taken or retained in
part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4
of 1882); or
➢ any transaction, by acquiring capital instruments in a company or by way of any agreement or any
arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the
enjoyment of, any immovable property.
“Real estate broking services shall be excluded from the definition of “real estate business” and 100% foreign investment is
allowed in real estate broking services under automatic route.

External Commercial Borrowings

FCY denominated ECB INR denominated ECB
➢ All entities eligible to receive FDI
➢ Further, following entities are also eligible to raise
ECB:
• Port Trusts
• Units In SEZ
• SIDBI
• EXIM Bank
➢ All entities eligible to receive FDI
➢ Further, following entities are also eligible to raise
ECB:
• Port Trusts
• Units In SEZ
• SIDBI
• EXIM Bank and
• Registered entities engaged in micro finance
activities, viz., registered Not for Profit
companies, registered societies / trusts /
cooperatives and Non Government
Organizations (this category permitted only to
raise INR ECB).
Eligible Borrowers

➢ The lender should be resident of FATF or IOSCO compliant country, including on transfer of ECBs.
➢ Additionally, the following are also recognised lenders:
• Multilateral and Regional Financial Institutions where India is a member country
• Individuals can only be permitted if they are foreign equity holders or far subscription to bonds / debentures
listed abroad; and
• Foreign branches / subsidiaries of Indian banks only for FCY ECB (except FCCBs and FCEBS)
Recognised Lenders

100%
70% Outside India
India
F Co. 3
I Co. 1
F Co. 1
Foreign Equity Holder: It means
• direct foreign equity holder with minimum 25% direct
equity holding in the borrowing entity,
• indirect equity holder with minimum indirect equity
holding of 51%, or
• group company with common overseas parent.
Recognised Lenders

Regulation 2(xiv)
- FEMA 3R "Restricted End Uses" shall mean end uses where borrowed funds cannot
be deployed and shall include the following:
a) In the business of chit fund or Nidhi Company;
b) Investment in capital market including margin trading and derivatives;
c) Agricultural or plantation activities;
d) Real estate activity or construction of farm houses, and
e) Trading in Transferrable Development Rights (TDR), where TDR shall have
the meaning as assigned to it in the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2015.
Note: The above will apply to ECB as well all borrowing / lending in Rupees
End-Use

a) Real estate activities
b) Investment in capital
market.
c) Equity investment.
d) Working capital
purposes, except in case of
ECB satisfying the
conditions
e) General corporate
purposes, except in case of
ECB satisfying the
conditions
f) Repayment of Rupee
loans, except in case of
ECB satisfying the
conditions
g) On-lending to entities
for the above activities,
except in case of ECB
satisfying the conditions
The negative list, for which the ECB proceeds cannot be utilised, would include the following
End-Use ||As RBI's Master Direction (ECB)

Real Estate - FEMA 3R
"Real Estate Activity" means any
activity involving
I. Own or leased property for
buying, selling and renting of
commercial and residential
properties or land; and also
includes
II. Activities either on a fee or
contract basis assigning real estate
agents for intermediating in
buying, selling, letting or
managing real estate.
As RBI's Master Direction
"Real Estate Activity" means
any activity involving
I. Own or leased property for
buying, selling and renting of
commercial and residential
properties or land; and also
includes
II. Activities either on a fee or
contract basis assigning real
estate agents for intermediating
in buying, selling, letting or
End-Use

Excluding:-
I. development of integrated township,
II. Purchase/ long term leasing of industrial land
as part of new project/ modernization or
expansion of existing units; or
III. Any activity under 'infrastructure sub-sectors'
as given in the HM List of Infrastructure
subsectors approved by the Government of
India vide Notification F. No. 13/06/2009-
INF, as amended/ updated from time to time
Excluding:-
I. Construction / development of industrial parks /
integrated township / SEZ
II. purchase/ long term leasing of industrial land as
part of new project/ modernization or expansion
of existing units or
III. Any activity under 'infrastructure definition
1.12. Infrastructure Sector: It has the same meaning
as given in the Harmonised Master List of
Infrastructure sub-sectors, approved by Government
of India vide Notification F. No. 13/06/2009-INF, as
amended / updated from time to time. For the
purpose of ECB, “Exploration, Mining and Refinery”
sectors will be deemed as in the infrastructure sector.
End-Use
Real Estate - FEMA 3R As RBI's Master Direction

Real Estate Activities: Any real estate activity involving own or leased property, for buying, selling
and renting of commercial and residential properties or land and also includes activities either on a
fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or
However, this would not include;
• construction/development of industrial parks/integrated townships/SEZ
• purchase/long term leasing of industrial land as part of new project/modernisation of expansion of
existing units and
• any activity under ‘infrastructure sector’ definition.
Real Estate Activities

Real Estate Activities: Any real estate activity involving own or leased property, for buying,
selling and renting of commercial and residential properties or land and also includes activities
either on a fee or contract basis assigning real estate agents for intermediating in buying,
selling, letting or managing real estate.
However, this would not include:
• construction/development of industrial parks/integrated townships/SEZ
• purchase/long term leasing of industrial land as part of new project/modernisation of expansion of
existing units and
• any activity under ‘infrastructure sector’ definition.

Real Estate Activities: Any real estate activity involving own or leased property, for buying, selling
and renting of commercial and residential properties or land and also includes activities either on a
fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or
However, this would not include
(i) construction/development of industrial parks/integrated townships/SEZ
(ii) purchase/long term leasing of industrial land as part of new project/modernisation of
expansion of existing units and
(iii) any activity under ‘infrastructure sector’ definition.

• Co. intends to avail ECB from its holding F Co. for
acquiring non agricultural land for purpose of using it
as industrial land in new project. Is this permissible?
• Whether I Co. can use ECB proceeds for acquiring
agricultural land and then converting into non
agricultural land for an industrial project?

Can the housing finance companies raise ECB for on-lending to individual borrowers exclusively for
flats/units in the affordable housing projects as defined in Harmonized Master List of Infrastructure Sub-
sectors notified by Government of India?

➢ An entity which is under a restructuring scheme/ corporate insolvency resolution process can raise ECB only if
specifically permitted under the resolution plan.
➢ Eligible corporate borrowers who have availed Rupee loans domestically for capital expenditure in manufacturing
and infrastructure sector and which have been classified as SMA-2 or NPA can avail ECB for repayment of these
loans under any one time settlement with lenders. Lender banks are also permitted to sell, through assignment, such
loans to eligible ECB lenders, provided, the resultant external commercial borrowing complies with all-in-cost,
minimum average maturity period and other relevant norms of the ECB framework. Foreign branches/ overseas
subsidiaries of Indian banks are not eligible to lend for the above purposes. The applicable MAMP will have to be
strictly complied with under all circumstances.
➢ Eligible borrowers under the ECB framework, who are participating in the Corporate Insolvency Resolution Process
under Insolvency and Bankruptcy Code, 2016 as resolution applicants, can raise ECB from all recognised lenders,
except foreign branches/subsidiaries of Indian banks, for repayment of Rupee term loans of the target company. Such
ECB will be considered under the approval route, procedure of which is given at paragraph No. 5 above.
ECB by entities under restructuring/ ECB
facility for refinancing stressed assets:

Prohibitions
• Indian Parties are prohibited from making investment (or financial commitment) in foreign entity engaged in
real estate (meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs)
but does not include development of townships, construction of residential/commercial premises, roads or
bridges) or banking business, without the prior approval of the Reserve Bank.
• An overseas entity, having direct or indirect equity participation by an Indian Party, shall not offer financial
products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates,
stock indices linked to Indian market, etc.) without the specific approval of the Reserve Bank. Any incidence
of such product facilitation would be treated as a contravention of the extant FEMA regulations and would
consequently attract action under the relevant provisions of FEMA, 1999.
• "Real estate business" means buying and selling of real estate or trading in Transferable Development Rights
(TDRs) but does not include development of townships, construction of residential/commercial premises,
roads or bridges;
Prohibitions

• Portfolio investments by listed Indian companies
• Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on the date of the last audited
balance sheet in (i) shares and (ii) bonds / fixed income securities, rated not below investment grade by accredited /
registered credit rating agencies, issued by listed overseas companies.
• Investment by Mutual Funds
• Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of USD 7 billion in:
✓ ADRs / GDRs of the Indian and foreign companies;
✓ equity of overseas companies listed on recognized stock exchanges overseas
✓ initial and follow on public offerings for listing at recognized stock exchanges overseas;
✓ foreign debt securities in the countries with fully convertible currencies, short- term as well as long-term debt
instruments with rating not below investment grade by accredited/registered credit agencies;
Investment in equity of companies registered
overseas / rated debt instruments

Investment in equity of companies registered
overseas / rated debt instruments
• money market instruments rated not below investment grade;
• repos in the form of investment, where the counter party is rated not below investment grade. The repos should not,
however, involve any borrowing of funds by mutual funds;
• government securities where the countries are rated not below investment grade;
• derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as
securities;
• short-term deposits with banks overseas where the issuer is rated not below investment grade; and
• units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in (a)
aforesaid securities, (b) Real Estate Investment Trusts (REITS) listed on recognized stock exchanges overseas, or (c)
unlisted overseas securities (not exceeding 10 per cent of their net assets).
• Investments made by listed Indian companies and Mutual Funds in accordance with para (1) and (2) above, are to be
reported online on a monthly basis by the AD banks in the format as prescribed by the Reserve Bank from time to time

➢As defined under SEBI (REIT) Regulations ‘REIT’ or ‘Real Estate Investment Trust’ shall mean a
trust registered as such under SEBI (REIT) Regulations;
➢ “REIT assets” means real estate assets and any other assets owned by the REIT whether directly or
through a special purpose vehicle;
➢While SEBI introduced Real Estate Investment Trust, Infrastructure Investment Trusts and
Alternative Investment fund (together referred as 'Investment Vehicles') on 26 September 2014
vide respective regulations, the Reserve Bank of India (RBI) allowed foreign investment in
Investment Vehicles vide notification No. FEMA. 355/2015-RB dated November 16, 2015.
Real Estate Investment Trust

Investment by a person resident outside India in an Investment Vehicle
➢ A person resident outside India (other than a citizen of Pakistan or Bangladesh)or an entity incorporated outside India
(other than an entity incorporated in Pakistan or Bangladesh) may invest in units of Investment Vehicles.
➢ A person resident outside India who has acquired or purchased units in accordance with this Schedule may sell or transfer
in any manner or redeem the units as per regulations framed by the Securities and Exchange Board of India or directions
issued by the Reserve Bank.
➢ An Investment vehicle may issue its units to a person resident outside India against swap of equity instruments of a Special
Purpose Vehicle (SPV) proposed to be acquired by such Investment Vehicle.
➢ Investment made by an Investment Vehicle into an Indian entity shall be reckoned as indirect foreign investment for the
investee Indian entity if the Sponsor or the Manager or the Investment Manager.
• is not owned and not controlled by resident Indian citizens or
• is owned or controlled by persons resident outside India.
Provided that for sponsors or managers or investment managers organised in a form other than companies or LLPs, Securities
and Exchange Board of India shall determine whether the sponsor or manager or investment manager is foreign owned and
controlled.

Investment by a person resident outside India in an Investment Vehicle
Provided that for sponsors or managers or investment managers organised in a form other than companies or LLPs, Securities
and Exchange Board of India shall determine whether the sponsor or manager or investment manager is foreign owned and
controlled.
Explanation: “Control” of the AIF should be in the hands of “sponsors” and “managers or investment managers”, with the
general exclusion to others. In case the “sponsors” and “managers or investment managers” of the AIF are individuals, for the
treatment of downstream investment by such AIF as domestic, “sponsors” and “manager or investment managers” should be
resident Indian citizens.
➢ An Alternative Investment Fund Category III which has received any foreign investment shall make portfolio investment
in only those securities or instruments in which a FPI is allowed to invest under the Act or rules or regulations made
thereunder.
➢ The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be specified by the
Reserve Bank .

Investors
Sponsors
Managers
REIT
SPV
Real Estate
Assets
Real Estate
Assets
Trustees
Structure

Downstream
Investment
Holding of
Immovable
property
Remittance
outside India
Investment
from Non
resident
Indians

Investment by Non Resident Indians

Investment
by NRI
Bank Accounts
Foreign Exchange Management (Deposit) Regulations, 2016
Investment in Immovable property
Foreign Exchange Management (Acquisition and Transfer of
Immovable Property India) Regulations, 2015
Amended now
Foreign Exchange Management ( Non debt instruments) Rules, 2019
Investment in Share and other
securities
Foreign Exchange Management (Transfer or issue of security by a
person resident outside India) Regulations, 2000
Amended now
Foreign Exchange Management ( Non debt instruments) Rules, 2019
Borrowing and lending by NRI
Foreign Exchange Management (Borrowing and lending in rupees)
Regulations, 2000 or Foreign Exchange Management (Borrowing and
lending in Foreign Exchange) Regulations, 2000.
Capital contribution in any proprietary
or partnership concern in India
Foreign Exchange Management (Investment in firm or proprietary
concern in India) Regulations, 2000 vide Notification No. FEMA 24
/2000-RB dated 3rd May 2000
Remittance of Assets
Foreign Exchange Management (Remittance of Assets) Regulations,
2016

A NRI or an OCI may -
❑ acquire immovable property in India other than an agricultural land or farm house or plantation property following
consideration, if any, for transfer, shall be made out of :
• funds received in India through banking channels in form of inward remittance from any place outside India ; or
• funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations
framed thereunder. Further, no payment for any transfer of immovable property shall be made either by traveller’s cheque
or by foreign currency notes or by any other mode other than those specifically permitted under this clause;
❑ acquire any immovable property in India other than agricultural land or farm house or plantation property by way of gift from
a person resident in India or from an NRI or from an OCI, who in any case is a relative as defined in clause (77) of section 2
of the Companies Act, 2013;
❑ acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such
property:-
• in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions
of these rules ;or
• from a person resident in India;
❑ transfer any immovable property in India to a person resident in India;
❑ transfer any immovable property other than agricultural land or farm house or plantation property to an NRI or an OCI.
Acquisition and transfer of property in India by a
NRI or an OCI

❑acquire immovable property in India other than an agricultural land or farm house or plantation property
following consideration, if any, for transfer, shall be made out of :
❑acquire any immovable property in India other than agricultural land or farm house or plantation property by
way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as
defined in clause (77) of section 2 of the Companies Act, 2013;
❑acquire any immovable property in India by way of inheritance from a person resident outside India who had
acquired such property:-
of these rules ;or
❑transfer any immovable property in India to a person resident in India;
❑transfer any immovable property other than agricultural land or farm house or plantation property to an NRI or
an OCI.
Acquisition and transfer of property in India
by a NRI or an OCI

way of gift from a person resident in India or from an NRI or from an OCI, who is a relative as defined in
clause (77) of section 2 of the Companies Act, 2013;
of these rules ;or
❑transfer any immovable property other than agricultural land or farm house or plantation property to an NRI or
an OCI.
Acquisition and transfer of property in India
by a NRI or an OCI

way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as
defined in clause (77) of section 2 of the Companies Act, 2013;
of these rules ;or
❑transfer any immovable property other than agricultural land or farm house or plantation property to an NRI
or an OCI.
Acquisition and transfer of property in India by a
NRI or an OCI

A person resident outside India, not being an NRI or an OCI, who is a spouse of an NRI or an OCI may
acquire one immovable property (other than agricultural land or farm house or plantation property), jointly
with his or her NRI or OCI spouse :
• Provided that –
• consideration for transfer, shall be made out of –
✓ funds received in India through banking channels by way of inward remittance from any place outside India;
or
✓ funds held in any non-resident account maintained in accordance with the provisions of the Act and the
regulations made by the Reserve Bank;
❑the marriage has been registered and subsisted for a continuous period of not less than two years
immediately preceding the acquisition of such property.
❑the non-resident spouse is not otherwise prohibited from such acquisition.
Joint acquisition by the spouse of a NRI or an
OCI

❑A person resident outside India who has established in India in accordance with the Foreign Exchange
Management (Establishment in India of a Branch office or a liaison office or a project office or any other
place of business) Regulations, 2016, as amended from time to time, a branch, office or other place of
business for carrying on in India any activity, excluding a liaison office, may –
(a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity:
Provided that,-
• all applicable laws, rules, regulations, for the time being in force are duly complied with; and
• the person files with the Reserve Bank a declaration in the Form IPI as specified by the Reserve Bank from time to
time, not later than ninety days from the date of such acquisition;
(b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property
acquired in pursuance of clause (a) of rule 26:
Provided that no person of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong or
Macau or Nepal or Bhutan or Democratic People’s Republic of Korea (DPRK) shall acquire immovable property,
other than on lease not exceeding five years, without prior approval of the Reserve Bank.
Acquisition of immovable property for
carrying on a permitted activity

❑A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in
those countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians who is residing in India and
has been granted a Long Term Visa (LTV) by the Central Government may purchase only one residential
immovable property in India as dwelling unit for self-occupation and only one immovable property for
carrying out self-employment subject to the following conditions, namely :-
• the property shall not be located in and around restricted or protected areas so notified by the Central Government
and cantonment areas;
• the person submits a declaration to the Revenue Authority of the district where the property is located, specifying
the source of funds and that he or she is residing in India on LTV;
• the registration documents of the property shall mention the nationality and the fact that such person is on LTV;
• the property of such person may be attached or confiscated in the event of his or her indulgence in anti-India
activities;
• a copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of Police
(DCP) or Foreigners Registration Office (FRO) or Foreigners Regional Registration Office (FRRO) concerned
and to the Ministry of Home Affairs (Foreigners Division);
• such person shall be eligible to sell the property only after acquiring Indian citizenship, however, transfer of the
property before acquiring Indian citizenship shall require prior approval of DCP or FRO or FRRO concerned.
Acquisition by a long-term visa holder

❑ A person referred to in sub-section (5) of section 6 of the Act, or his successor shall not, except with the
general or specific permission of the Reserve Bank, repatriate outside India the sale proceeds of any
immovable property referred to in that sub- section.
❑In the event of sale of immovable property other than agricultural land or farm house or plantation property
in India by an NRI or an OCI, the authorised dealer may allow repatriation of the sale proceeds outside
India, provided the following conditions are satisfied, namely:-
• the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law
in force at the time of acquisition or the provisions of these rules;
• the amount for acquisition of the immovable property was paid in foreign exchange received through banking
channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held in Non-Resident
External Account;
• in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such
properties.
Repatriation of sale proceeds

• A Builder company has taken advance against flat booking from NRI in foreign exchange now the NRI
customer wants to cancel the flat booking, can the builder refund the booking amount in Foreign
Exchange?
Query

• A Builder company has taken advance against flat bookin from NRI in foreign exchange now the
NRI customer wants to cancel the flat booking, can the builder refund the booking amount in
Foreign Exchange?
• Refund of application//earnest money//purchase consideration made by the house building agencies//seller
on account of non-allotment of flat//plot//cancellation of bookings//deals for purchase of
residential//commercial property, together with interest, if any (net of income tax payable thereon) may be
allowed by the Authorised Dealers by way of credit to NRE/FCNR(B) account, provided the original
payment was made out of NRE//FCNR(B) account of the account holder or remittance from outside India
through normal banking channels and the Authorised Dealer is satisfied about the bona fides of the
transaction.
Query

IndianCo.B.
InIndia
OutsideIndia
IndianCo.A.
WOS/JVofIndian
Co.
Structures
IndianCo.B.
InIndia
Outside India
IndianCo.A.
WOS/JV of Indian
Co.
SDS

• Can an Indian Party (IP) set up a step down subsidiary /joint venture in India through its foreign
entity (WOS/JV), directly or indirectly through step-down subsidiary of the foreign entity?
• Ans - No, the provisions of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended
from time to time, dealing with transfer and issue of any foreign security to Residents do not
permit an IP to set up Indian subsidiary(ies) through its foreign WOS or JV nor do the provisions
permit an IP to acquire a WOS or invest in JV that already has direct/indirect investment in India
under the automatic route.
• However, in such cases, IPs can approach the Reserve Bank for prior approval through their
Authorised Dealer Banks which will be considered on a case to case basis, depending on the
merits of the case.
FAQ

Holding of property outside India by a person
resident in India

Sub section 4
✓A person resident in India
✓ may hold, own, transfer or invest in
foreign currency, foreign security or any
immovable property
✓situated outside India
✓if such currency, security or property was
acquired, held or owned by such person
✓when he was resident outside India
✓or inherited from a person who was
resident outside India.
Sub section 5
✓A person resident outside India
✓may hold, own, transfer or invest in
Indian currency, security or any
immovable property situated in India if
such currency, security or property was
acquired, held or owned by such person
✓when he was resident in India
✓or inherited from a person who was
resident in India.
Section 6

Facts of the case:
Parties involved are as follows:
a) Nederlandse Financierings Maatschappiji Voor Ontwikkelingslandeo N.V. a Dutch corporation (Foreign
investor)
b) Vinca Developers Private Limited, an Indian company, involved in the construction development sector and
having an FDI eligible township project (Hold co)
c) Amazia Developers Private Limited (Amazia), wholly owned subsidiary of Vinca Developers
d) Rubix Trading Private Limited (Rubix), wholly owned subsidiary of Vinca Developers
e) Hubtown and individual promoters held the balance 90 percent shareholding in Vinca Developers
f) The IDBI Trusteeship services Ltd. was Debenture Trustee in regard to OCDs

Sequence of Events
1. Foreign Investor acquired 10% equity shares and Compulsorily Convertible Debentures (CCDs) issued by Hold Co. The
CCDs were convertible within a period of 60 months and upon conversion foreign investor would hold 99% of Hold Co
equity. Hubtown and individual promoters held the balance 90% shareholding in Hold co. which was to be diluted upon
conversion of the CCDs.
2. Hold Co. had contractually agreed that the investment by Foreign investor would be used to purchase Optionally
Convertible Debentures (OCDs) issued by Amazia and Rubix (together referred as 'subsidiaries'). In a manner, the amounts
invested by foreign investor was infused into subsidiaries as soon as it was received from foreign investor.
3. Holdco. invested in optionally convertible debentures (OCDs) issued by subsidiaries. The OCDs had a fixed interest rate of
14.5% per annum.
4. An Indian debenture trustee was appointed.
5. Hubtown issued a corporate guarantee to secure the liability arising under the OCDs. The Hubtown provided a guarantee in
favour of Holdco. for the performance of the obligations by the subsidiaries.
6. Subsequently, subsidiaries failed to make the payments on the OCDs, thereby the guarantee provided by Hubtown was
invoked.
7. Hubtown also could not honour the Guarantee.
8. Thereby the Debenture Trustee filed a petition for winding up Hubtown and also a summary suit for recovery of the dues which was sought
to be defended by Hubtown.

Pictorial representation of facts of the case:
The above facts were examined by court.
• The court took note of the fact that the agreements required the
Hold Co. to immediately pass the FDI received from foreign
investors to the subsidiaries against subscription of OCDs. Hold
Co. was not allowed to retain the FDI amount or to utilise the
same in any of its projects. Press Note 2 of 2005 which deals in
FDI in townships, housing, built up infrastructure and
construction development projects permits FDI investment in the
real estate sector only if it is for township/construction project. A
holding company structure was interposed only for the purpose of
FDI into downstream wholly owned subsidiaries through the
holding company as a channel only.
Outside India10% equity +
CCDs India
90%
equity
Guarantees in favour of Hold Co.
Investment in OCDs
Foreign Investor
Hubtown
Hold Co. DebentureTrustee
ofOCD'sissuedby
Subsidiaries
Subsidiaries

Pictorial representation of facts of the case:
• The Court also noted that the FDI regulations only permit FDI by
way of equity or compulsorily convertible instruments (CCDs) in
Indian companies. If foreign investor had invested directly in
CCDs bearing interest of subsidiaries, the amounts invested
would be compulsorily required to be converted into equity
shares of subsidiaries and the foreign investor could not have
required subsidiaries to repay the amounts invested and the
money would have blocked. Hence the structure of Hold co. was
used in between. The structure of Hold Co. was used to enable the
repayment of FDI and assured return which is not permitted under
the FDI Policy and FEMA Regulations.
Outside India10% equity +
CCDs India
90%
equity
Guarantees in favour of Hold Co.
Investment in OCDs
Foreign Investor
Hubtown
Hold Co. DebentureTrustee
ofOCD'sissuedby
Subsidiaries
Subsidiaries

Liberalized
RemittanceScheme

➢ Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up
to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a
combination of both.
➢ The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
➢ The Scheme is available to all resident individuals including minors.
➢ Remittances under the Scheme can be consolidated in respect of family members.
➢ Resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held
abroad under LRS.
➢ Release of foreign exchange exceeding USD 2,50,000 requires prior permission from the Reserve Bank of India.
Master Direction - Liberalised Remittance
Scheme (LRS)

• The LRS limit has been revised in stages consistent with prevailing macro and micro economic
conditions. During the period from February 4, 2004 till date, the LRS limit has been revised as
under:
(Amount in USD)
Date Feb 4, 2004 Dec 20, 2006 May 8, 2007 Sep 26, 2007 Aug 14, 2013 Jun 3, 2014 May 26, 2015
LRS limit
(USD)
25,000 50,000 1,00,000 2,00,000 75,000 1,25,000 2,50,000
Scheme (LRS)

➢ The Scheme is available to all resident individuals including minors. In case of remitter being a minor,the Form A2
must be countersigned by the minor’s natural guardian.
➢ Remittances under the Scheme can be consolidated in respect of family members subject to individual family members
complying with its terms and conditions. However, clubbing is not permitted by other family members for capital
account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-
partners of the overseas bank account/ investment/property.
➢ Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency
account held abroad under LRS.
Scheme (LRS)

➢ The Scheme is available to all resident individuals including minors. In case of remitter being a minor,the Form A2
must be countersigned by the minor’s natural guardian.
➢ Remittances under the Scheme can be consolidated in respect of family members subject to individual family
members complying with its terms and conditions. However, clubbing is not permitted by other family members
for capital account transactions such as opening a bank account/investment/purchase of property, if they are
not the co-owners/co-partners of the overseas bank account/ investment/property.
➢ Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency
account held abroad under LRS.
Scheme (LRS)

The permissible capital account transactions by an individual under LRS are:
❑ Opening of foreign currency account abroad with a bank;
❑ Purchase of property abroad;
❑ Making investments abroad - acquisition and holding shares of both listed and unlisted overseas company or debt instruments;
acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign
company towards professional services rendered or in lieu of Director’s remuneration; investment in units of Mutual Funds,
Venture Capital Funds, unrated debt securities, promissory notes;
❑ Setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide
business subject to the terms & conditions stipulated in Notification No FEMA.263/ RB-2013 dated March 5, 2013;
❑ Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies
Act, 2013.
❑ The limit of USD 2,50,000 per Financial Year (FY) under the Scheme also includes/subsumes remittances for current account
transactions (viz. private visit; gift/donation; going abroad on employment; emigration; maintenance of close relatives abroad;
business trip; medical treatment abroad; studies abroad) available to resident individuals under Para 1 of Schedule III to
Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015. Release of
foreign exchange exceeding USD 2,50,000 requires prior permission from the Reserve Bank of India.
Scheme (LRS)
Capital Account

Private visits
For private visits abroad, other than to Nepal and Bhutan, any resident individual can obtain foreign exchange up to an
aggregate amount of USD 2,50,000 irrespective of the number of visits undertaken during the year.
Gift/donation
Any resident individual may remit up-to USD 2,50,000 in one FY as gift to a person residing outside India or as donation
to an organization outside India.
Going abroad on employment
A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per FY from any AD in India.
Emigration
A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD Category II up to the amount
prescribed by the country of emigration or USD 250,000.
Scheme (LRS)
Current Account

Maintenance of close relatives abroad
A resident individual can remit up-to USD 2,50,000 per FY towards maintenance of close relatives [‘relative’ as defined
in Section 2(77) of the Companies Act, 2013] abroad.
Business trip
Visits by individuals in connection with attending of an international conference, seminar, specialized training, apprentice
training, etc., are treated as business visits. For business trips to foreign countries, resident individuals can avail of
foreign exchange up to USD 2,50,000 in a FY irrespective of the number of visits undertaken during the year.
Medical treatment abroad
AD may release foreign exchange up to an amount of USD 2,50,000 or its equivalent per FY without insisting on any
estimate from a hospital/doctor. In addition to the same, an amount up to USD 250,000 per financial year is allowed to a
person for accompanying as attendant to a patient going abroad for medical treatment/check-up.
Scheme (LRS)
Current Account

Facilities available to students for pursuing their studies abroad.
▪ AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000 or its equivalent to
resident individuals for studies abroad without insisting on any estimate from the foreign University.
▪ Remittances (without seeking prior approval of the Reserve Bank of India) exceeding USD 2,50,000 based on the
estimate received from the institution abroad.
▪ Individuals can also open, maintain and hold foreign currency accounts with a bank outside India for making
remittances under the Scheme without prior approval of the Reserve Bank.
▪ Banks should not extend any kind of credit facilities to resident individuals to facilitate capital account remittances
under the Scheme.
▪ The Scheme is not available for remittances for any purpose specifically prohibited under Schedule I or any item
restricted under Schedule II of Foreign Exchange Management (Current Account Transaction) Rules, 2000, dated May
3, 2000, as amended from time to time.
Scheme (LRS)
Current Account

▪ The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be
made.
▪ The resident individual seeking to make the remittance should furnish Form A2 for purchase of foreign exchange
under LRS.
▪ It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance
under the Scheme.
▪ Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. At present, the
resident individual is not required to repatriate the funds or income generated out of investments made under the
Scheme.
▪ A resident individual who has made overseas direct investment in the equity shares; compulsorily convertible
preference shares of a JV/WoS outside India, within the LRS limit, shall have to comply with the terms and conditions
prescribed by the overseas investment guidelines under Notification No. FEMA 263/RB-2013 dated March 5, 2013.
Scheme (LRS)
Documentation by remitters

▪ Resident individual is permitted to lend to a Non-resident Indian (NRI)/ Person of Indian Origin (PIO) close relative
by way of crossed cheque/ electronic transfer subject to the following conditions:
➢ the loan is free of interest and the minimum maturity of the loan is one year;
➢ the loan amount should be within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000
per financial year available for a resident individual;
➢ the loan shall be utilized for meeting the borrower’s personal requirements or for his own business purposes in
India;
➢ the loan shall not be utilized for any of the activities in which investment by persons resident outside India is
prohibited (business of chit fund, Nidhi Company, Agricultural or plantation activities or in real estate business,
or construction of farm houses, Trading in Transferable Development Rights (TDRs)).
➢ the loan amount should be credited to the NRO a/c of the NRI / PIO. Credit of such loan amount may be treated
as an eligible credit to NRO a/c;
Scheme (LRS)
Facilitiy to grant loan in rupees to NRI/ PIO close relatives

➢ the loan amount shall not be remitted outside India;
➢ Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to
the Non-resident Ordinary (NRO) / Non-resident External (NRE) / Foreign Currency Non-resident (FCNR)
account of the borrower or out of the sale proceeds of the shares or securities or immovable property against
which such loan was granted.
Scheme (LRS)
Facility to grant loan in rupees to NRI/ PIO close relatives

Rupee Gift
▪ A resident individual can make a rupee gift to a NRI/PIO who is a relative of the resident individual by
way of crossed cheque /electronic transfer.
▪ The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO
and credit of such gift amount may be treated as an eligible credit to NRO a/c.
▪ The gift amount would be within the overall limit of USD 250,000 per FY as permitted under the LRS for
a resident individual.
Scheme (LRS)
Facilitiy to grant loan in rupees to NRI/ PIO close relatives

LoanAgainstthe
Deposit

loan
In India
In INR
To the account
Holder
permitted
To third party Permitted
In Foreign
Currency
To the account
holder
Permitted
Outside India
To the account
holder
Permitted
Loan against deposit in NRE A/C

loan
In India
In INR
To the account
Holder permitted
In Foreign
Currency
To the account
holder Permitted
Outside India
To the account
holder Permitted
Loan against deposit in FCNR(B)

loan
In India
In INR
To the account
Holder
Permitted
subject to
extant Rules
To third party
Permitted
subject to
conditions
In Foreign
Currency
To the account
holder
Not
Permitted
To third party
Not
Permitted
Outside India
To the account
holder
Not
permitted
To third party
Not
Permitted
Loan against deposit in NRO A/C

• i) Personal purposes or for carrying on business activities*
• ii) Direct investment in India on non-repatriation basis by way of contribution to the capital of Indian
firms / companies
• iii) Acquisition of flat / house in India for his own residential use.
To the
Account
holder
• Fund based and / or non-fund based facilities for personal purposes or for carrying on business activities
*.
To
Third
Party
• Fund based and / or non-fund based facilities for bonafide purposes.Abroad
*The loans cannot be utilised for the purpose of on-lending or for carrying on agriculture or
plantation activities or for investment in real estate business.
PURPOSE OF LOAN –IN CASE OF NRE A/C AND FCNR (B)

• Personal requirement and / or business
purpose.*
To the account
holder
• Personal requirement and / or business purpose*To third party
Resident individual to lend to a Non-resident Indian (NRI)/ Person of Indian Origin
(PIO) close relative [means relative as defined in Section 6 of the Companies Act,
1956] by way of crossed cheque /electronic transfer.
The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such
loan amount may be treated as an eligible credit to NRO a/c;
* The loans cannot be
utilised for the
purpose of on-lending
or for carrying on
agriculture or
plantation activities or
for investment in real
estate business.
Purpose of loan – NRO Account

Sudha@taxpertpro.com || 9769033172

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