Can NRIs Buy Agricultural Land in India?

Delve into the legal framework surrounding the purchase of agricultural land by NRIs in India.
May 10, 2024
4
min read
nri-agriculture-land-in-india

Many Non-Resident Indians (NRIs), including Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs), have aspirations of retiring amid verdant farmlands and living the life of a farmer.

But the road to fulfilling this desire is not without its challenges, chief among which is whether non-resident Indians (NRIs) can purchase agricultural land in India.

Let's take a closer look at the complexities of being an NRI and purchasing agricultural land in India.

The Aspiration to Be a Farm Owner

Owning agricultural land in India is typically the goal of non-resident Indians (NRIs) who want to get back in touch with their heritage, support the growth of their home country, or just enjoy the quiet of rural living.

Having lived outside for most of their lives, a lot of NRIs view buying farmland in India as a means of diversifying their holdings and keeping ties to their origin.

Land Classification and Zoning

In India, local governments classify land using scientific methods to monitor the use and growth of real estate in certain areas. Residential, commercial, industrial, agricultural, recreational, public usage and infrastructural development are among the classifications.

An important feature of India's terrain, agricultural land has a lot of promise for people looking for a rural getaway or investment opportunities.

Can Foreign Nationals Purchase Farmland in India?

International trade, remittances, NRI transactions, and the development of India's foreign exchange market are all governed under the Foreign Exchange Management Act (FEMA) of 1999.

A noteworthy restriction enforced by FEMA concerns the purchase of agricultural land by non-resident individuals.

NRIs are typically not allowed to purchase agricultural land directly in India. If they try, the government may seize the land and penalize the person and send a notification from FEMA authorities.

The objective behind the stringent ban on non-resident Indians purchasing agricultural land in India is to protect the country's agricultural resources and avoid speculative activities that could drive up land prices.

NRIs are not entirely prohibited from working with agricultural land in India, but; there are some circumstances in which they are permitted to do so.

1. NRIs's Inheritance of Agricultural Land

According to the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, and the Foreign Exchange Management Act, NRIs or OCIs cannot directly purchase farmhouses, plantation properties, and agricultural land in India.

Nonetheless, resident Indians may leave them with such properties. NRIs can now own an interest in agricultural land through inheritance as long as they follow certain rules and have special clearance from the Reserve Bank of India (RBI).

2. Documents Needed for Purchase

Purchasing agricultural land in India as an NRI requires a lengthy documentation process. A copy of the sale deed or other title documents, proof of the source of funds, a statement that the land is not intended for restricted uses, and proof that the land is not for commercial or speculation use are all necessary documents.

The applicants must also submit a copy of the title documents to the state government in where the land is located.

3. RBI Special Permissions

Yes, NRIs can purchase agricultural land with special approval from the RBI, but it's a complicated process that needs to be carefully considered.

The Chief General Manager of the RBI must receive all requests from those outside of India or foreign citizens seeking to purchase farmland, plantation property, or farmhouses.

The RBI assesses these requests individually, considering the reason for the purchase, the source of funding, and compliance with regional laws.

4. NRIs' Taxation on Agricultural Land

There are differences in taxes on selling agricultural land in rural and urban locations. There is no capital gains tax on rural agricultural lands because they are not regarded as capital assets.

However, capital gains tax is due when selling agricultural land in an urban location. To maintain compliance with Indian tax rules, non-resident individuals (NRIs) engaging in agricultural land transactions must understand the tax ramifications.

5. Gift Exchanges and NRIs' Sales of Agricultural Land

NRIs cannot buy agricultural land directly, but they can sell it to others as gifts under certain circumstances. Resident Indians may gift agricultural land to Non-Resident Indians (NRIs) but are not allowed to give such properties as gifts.

Non-resident Indians (NRIs) can sell agricultural land, but the sales must follow the rules. Sales transactions require special authorization, and the money received from the sale has to be placed into the non-resident ordinary (NRO) account of the non-resident.

6. Benami Transactions and Additional Points to Take

In the Benami Act, purchasing real estate in someone else's name or doing a "Benami transaction" is prohibited. Property purchased by Non-Resident Indians (NRIs) under the names of other individuals is restricted to spouses, siblings, descendants, and descendants alone.

NRIS must comprehend and abide by Benami regulations when navigating the intricate process of purchasing agricultural land in India.

Conclusion

In summary, the process for non-resident Indians (NRIs) wishing to purchase agricultural land in India is complex and controlled by a complex network of laws, permits, and limitations.

NRIs can still work with agricultural land through inheritance, special RBI approvals, and following the law, even when direct acquisition is prohibited. For NRIs navigating this complicated world, proper paperwork, legal guidance, and a sophisticated awareness of local legislation are essential.

To fulfill their desire to own farmland in their native country, NRIs must stay informed and seek professional advice as India's land acquisition rules change and evolve.

FAQs

Q1. What are the restrictions on NRIs buying agricultural land in India?

As per FEMA guidelines, NRIs are restricted from purchasing agricultural land, plantations, and farmhouses in India. They can, however, inherit such properties or receive them as gifts. The restrictions are in place to protect the agricultural sector and maintain land availability for farming purposes.

Q2. Why are NRIs prohibited from purchasing agricultural land in India?

The prohibition aims to preserve agricultural land for farming and prevent speculative investments that could drive up land prices, making it unaffordable for local farmers. This policy is part of broader efforts to ensure food security and sustain the agricultural livelihoods that form the backbone of the rural economy.

Q3. What are the reasons behind the government's barring NRIs from buying agricultural land?

The government's policy is rooted in the need to protect the agricultural sector from being overtaken by non-agricultural investments and preserve the land for actual farming activities. It also prevents a spike in land prices, which could negatively impact land affordability for local farmers, thereby safeguarding the interests of the primary stakeholders in agriculture.

Q4. Are there any exceptions or special circumstances where NRIs can buy agricultural land in India?

There are no direct exceptions allowing NRIs to purchase agricultural land in India. However, they can inherit such land or acquire it as a gift. Additionally, NRIs can explore corporate routes to invest in the agricultural sector, albeit under strict regulatory guidelines.

Q5. How do these restrictions impact NRIs looking to invest in Indian agriculture?

The restrictions limit direct land ownership opportunities for NRIs in the agricultural sector but also open up alternative investment avenues. NRIs can invest in agribusiness companies or engage in agricultural projects through corporate entities, allowing them to contribute to India's agricultural development while adhering to the legal framework.

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