NRI's Guide to Buying Agricultural Land in India: Rules, Regulations, and Pitfalls

India, with its rich agricultural heritage, has always held a special allure for the NRI community. Many NRIs are keen on investing in agricultural land in India, but are often confused about the regulations and limitations surrounding such purchases. In this blog, we will explore everything you need to know about buying agricultural land in India as an NRI and shed light on the dos and don'ts of this endeavor. To help us understand the intricacies of these rules, we have invited Mr. Sriram Rao, a seasoned chartered accountant, to address all your queries on this topic.

Understanding Agricultural Land: What's Covered?

Before we delve into the regulations, it's essential to clarify what falls under the category of agricultural land. All types of agricultural land, including plantation properties and farmhouses, are covered under the Foreign Exchange Management Act (FEMA). This act governs all rules related to the acquisition, sale, or transfer of agricultural land by non-residents or citizens of India.

The Prohibition on NRI Buying of Agricultural Land

The most crucial point for NRIs to remember is that they cannot directly buy agricultural land in India. The FEMA strictly prohibits NRIs from acquiring agricultural land. The only exception is inheritance, where an NRI can receive agricultural land through succession from a deceased relative.

Inheritance - The Only Possibility

Inheritance is the only legal route through which an NRI can acquire agricultural land in India. If an NRI inherits agricultural land from a relative who was an Indian resident, it is allowed. However, this must have taken place after 1st June 2000, as FEMA's enactment on that date brought stricter regulations.

Loopholes and Legal Alternatives - A Word of Caution

While it's natural for people to seek alternatives, attempting to buy agricultural land indirectly or through devious methods is not advisable. For example, becoming a resident Indian for a short period to buy land and then returning to NRI status is not permitted. Additionally, gifting money to a relative to buy land on your behalf is also illegal.

Consequences of Violating the Rules

If an NRI is found to have violated the rules by buying agricultural land directly or indirectly, they may face severe penalties. These penalties can go up to 300% of the transaction amount. The best course of action is to stay on the right side of the law and avoid any illegal transactions.

Regularizing the Transactions

If an NRI has unknowingly violated the rules and purchased agricultural land, they should immediately take steps to regularize the transaction. This involves selling the land to a resident Indian and seeking compounding of the offense by pleading guilty to the authorities. However, it's essential to be transparent and honest in explaining the circumstances to avoid further penalties.

Repatriation of Funds

If an NRI has lawfully acquired agricultural land and subsequently wants to sell it, they can repatriate the funds outside of India after fulfilling certain conditions. This includes paying the necessary taxes and adhering to the liberalized remittance scheme or the prevailing regulations at the time of the transaction. However, if the property was acquired illegally, repatriation of funds is not allowed.

Conclusion

Buying agricultural land in India is a complex matter for NRIs, with strict regulations and severe consequences for violations. It is crucial for NRIs to understand and respect these rules to avoid legal complications. While the allure of owning agricultural land may be strong, it is always best to adhere to the law and explore legal investment opportunities in India.