Owning agricultural land in India is a common aspiration among Non-Resident Indians (NRIs), driven by a desire to reconnect with their roots as well as tax planning. However, NRIs must navigate a complex web of regulations to purchase agricultural land. This blog provides a comprehensive guide on the legalities and compliance requirements for NRIs interested in agricultural land in India.

Can NRIs Buy Agricultural Land in India?

Under the Foreign Exchange Management Act (FEMA) 2000, NRIs are prohibited from directly purchasing agricultural land in India. This regulation is intended to protect agricultural resources and prevent speculative buying. However, NRIs can inherit agricultural land from relatives, provided they comply with Indian inheritance laws and regulations.

Inheriting Agricultural Land as an NRI

NRIs are allowed to inherit agricultural land, enabling them to maintain a connection with their heritage and potentially engage in agricultural activities. Key points to consider include:

• Eligibility: NRIs can inherit agricultural land from relatives.
• Compliance: The inherited land must comply with FEMA and other relevant laws, ensuring alignment with national policies.
• Reporting: Inheritance must be reported to the Reserve Bank of India (RBI) within a specified period, though RBI permission is not typically required.
• Usage and Transfer: Inherited agricultural land must be used solely for agricultural purposes and cannot be sold or transferred to ineligible parties.

Purchasing Agricultural Land: Special Permissions for NRIs

NRIs wishing to purchase agricultural land must seek special permission from the RBI. This process involves:

• Approval Requirement: NRIs need RBI approval for any agricultural land purchase.
• Purpose Justification: The purpose of the purchase must be clearly stated and intended for genuine agricultural use.
• Regulatory Compliance: The RBI evaluates the NRI's citizenship status, planned agricultural activity, and adherence to local land ownership laws.

Failing to obtain the necessary permissions can result in penalties, including land confiscation and fines.

Essential Legal Documentation

For NRIs acquiring agricultural land, whether through purchase (with RBI approval) or inheritance, the following legal documentation is essential:

• Ownership Proof: Sale deeds or inheritance papers must confirm rightful ownership.
• FEMA Compliance: Evidence of the source of funds for the purchase must be provided.
• Agricultural Use: Documentation must prove the land is designated for agricultural use and intended for such purposes.

Receiving and Selling Agricultural Land: Guidelines for NRIs

• Receiving Agricultural Land: Under FEMA guidelines, NRIs cannot receive agricultural land as a gift. However, they are allowed to inherit agricultural land from Indian residents, provided all local and national regulations are adhered to.
• Selling Agricultural Land: NRIs can sell inherited agricultural land only to Indian citizens residing in India. It is highly recommended to seek professional NRI tax consultancy to ensure compliance with tax laws and to understand the associated tax liabilities. The sale proceeds must be credited to the NRO account, subject to applicable repatriation limits and taxes.

Taxation and Compliance

• Capital Gains Tax: The sale of agricultural land by NRIs is subject to capital gains tax. Rural agricultural land is exempt from this tax, while urban agricultural land is taxed based on the duration of ownership.
• Repatriation: Sale proceeds can be repatriated up to USD 1 million per financial year, subject to tax compliance and necessary documentation.

The Benami Transactions (Prohibition) Amendment Act, 2016

This Act prohibits NRIs from purchasing property in someone else's name to prevent money laundering and ensure transparency. Exceptions include property purchased for immediate family members under specific conditions. Violations can lead to severe penalties, including property confiscation and imprisonment.

Selling Inherited Property

NRIs can sell inherited properties, including agricultural land, under certain conditions. This requires adherence to FEMA regulations and proper channelling of sale proceeds through designated bank accounts.

Conclusion

While NRIs face significant restrictions on directly purchasing agricultural land in India, alternative routes such as inheritance and RBI permissions provide viable options. Understanding and navigating the legal frameworks and compliance requirements are crucial for NRIs to manage these acquisitions effectively.

For further assistance, Dinesh Aarjav & Associates offers expert guidance on navigating the complexities of NRI agricultural land purchases. Connect with us to ensure your investment aligns with Indian legal standards and compliance requirements.