Thinking about selling your property in India after relocating abroad? Well, selling it is just part of the journey. The bigger question is whether you can freely transfer the money overseas. That depends on several factors, including the type of property, how it was acquired, and crucially, whether the sale proceeds go into an NRE or NRO account. Picking the wrong account could delay or even limit your ability to repatriate funds.
Here's what NRIs need to know about selecting the right bank account, FEMA rules, repatriation limits and the necessary documents before selling either residential or commercial property in India.
Should sale proceeds be credited to an NRE or an NRO account?
The bank account into which the sale proceeds are credited is important because it determines how easily the money can later be repatriated outside India.
“While an NRE (Non-Resident External) Account is freely repatriable, balances held in an NRO (Non-Resident Ordinary) Account are subject to the repatriation conditions prescribed under the RBI Master Direction – Remittance of Assets,” says Dutta.
| Particulars | NRE Account | NRO Account |
| Eligible Account Holders | NRIs and PIOs/ OCIs | Any person resident outside India (subject to certain exceptions) |
| Purpose | Holds overseas earnings remitted to India, and other repatriable income of NRIs/ PIOs/ OCIs. | Maintained for putting through bonafide transactions in Indian Rupees (INR). |
| Currency | Maintained in Indian Rupees (INR) | Maintained in Indian Rupees (INR) |
| Type of account | Savings, Current, Recurring, Fixed Deposit | Savings, Current, Recurring, Fixed Deposit |
| Repatriation | Repatriable | Not repatriable except for all current income.Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 million per FY (April-March) along with their other eligible assets. |
| Permissible Credits | Inward remittance from outside India, interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds of investments (if such investments were made from this account or through inward remittance), current income like rent, dividend, pension, interest etc. which have not lost repatriable character. | Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts. |
The key difference between the two accounts is repatriability. While funds in an NRE account can generally be remitted abroad without restriction (subject to FEMA), balances in an NRO account can be repatriated only by NRIs, PIOs and OCIs, and that too only up to USD 1 million per financial year, explains Khan.
Funds in NRO accounts may also be transferred to the NRE or Special Non-Resident Rupee (SNRR) account of the concerned NRI / PIO / OCI within this very USD 1 million limit, she adds.
Where should property sale proceeds be credited?
The repatriability of sale proceeds depends upon the nature of the property. According to Khan:
- If the property was acquired while the individual was resident in India or inherited from a resident, the sale proceeds are generally credited to the NRO account.
- The NRI may subsequently remit the money abroad, or transfer it to an NRE or SNRR account, under the USD 1 million annual repatriation facility.
- On the other hand, if the property was self-purchased by the NRI in India, other than agricultural land, plantation property, or a farmhouse, it is generally repatriable. Accordingly, the sale proceeds should be credited to the NRI's NRE Account.
FEMA rules governing the sale of property by NRIs
NRIs are generally allowed to sell immovable property lawfully acquired in India. However, the rules differ depending on the type of property, such as residential, commercial, agricultural, or inherited and the manner in which it was acquired.
The sale of immovable property by NRIs is governed by the Foreign Exchange Management Act (FEMA), 1999, read with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
“Under the FEMA, the transfer of immovable property by NRIs is principally governed by the Foreign Exchange Management (NDI) Rules, 2019 read with the Master Direction – Acquisition or Transfer of Immovable Property under Foreign Exchange Management Act, 1999 (Master Direction),” says Sadia Khan, Partner, Private Client Practice, Shardul Amarchand Mangaldas & Co.
According to Section 6(5) of FEMA, someone living outside India may hold, own, transfer or invest in any immovable property located in India if they acquired, held or owned it while they were living in India, or if the property was inherited from someone who was resident in India.
“This provision recognises that a subsequent change in residential status should not divest an individual of rights lawfully acquired while resident in India,” says Divi Dutta, Partner at Khaitan & Co.
Residential and commercial properties may be sold without prior approval of the RBI
An NRI may sell residential or commercial property in India to:
- A resident Indian
- Another NRI
- An Overseas Citizen of India (OCI)
According to Khan, rule 24(d) of the NDI Rules permits an NRI to transfer any immovable property in India to a person resident in India.
Rule 24(e) further permits an NRI to transfer any immovable property other than agricultural land, plantation property or a farmhouse to another NRI or OCI.
Accordingly, residential and commercial properties may be sold without any prior approval of the RBI, provided the property was acquired and is being transferred in compliance with FEMA.
However, a sale to a foreign national of non-Indian origin living outside India, or to a foreign entity not otherwise permitted to hold immovable property in India, falls outside the general permission and would need specific approval of the RBI, explains Dutta.
What documents are required to repatriate property sale proceeds?
Repatriation is not automatic. Before allowing funds to be remitted overseas, the Authorised Dealer (AD) bank verifies compliance with FEMA, RBI regulations and the Income-tax Act, 1961.
“Accordingly, the AD bank ordinarily verifies the seller's residential status, the nature and mode of acquisition of the property, the source of the original acquisition funds (where repatriation is sought under Paragraph 8.2 of the RBI Master Direction – Acquisition or Transfer of Immovable Property under FEMA), the amount eligible for repatriation, and compliance with the applicable tax obligations,” explains Dutta.
According to Sunil Kumar, Partner, Tax and Regulatory Services, EY India, NRIs typically have to submit:
Sale deed, original acquisition documents, inheritance-related documents (where applicable), evidence of the source and movement of funds, Form A2, applicable tax payment/withholding proofs, and the necessary declarations and undertakings.
Once the AD bank is satisfied that all FEMA and tax requirements have been complied with, it may permit outward remittance of the eligible sale proceeds.
It is worth noting that the RBI does not issue any instructions under FEMA clarifying tax issues.
