High-net-worth individuals, family offices and developers increasingly hold real estate in more than one jurisdiction. Every country regulates who may own land within its borders, what kind of land a foreigner may hold, and how the State taxes the transfer. A purchaser who ignores these rules risks more than a penalty. The transaction itself may fail, the title may stand void, or the proceeds may remain trapped in the host country. This article examines foreign real estate compliance laws from an Indian perspective, addresses agricultural land foreign investment regulations, and explains how the US withholding regime known as FIRPTA affects Indian investors who hold American property.
Exchange Control Governs Who May Buy in India
The Foreign Exchange Management Act, 1999 (FEMA) controls the acquisition of Indian immovable property by persons resident outside India. The Reserve Bank of India (RBI) implements the Act through regulations on the acquisition and transfer of immovable property, and those regulations draw a firm line between categories of non-resident buyers.
A Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) may acquire residential and commercial property in India without prior RBI approval. The buyer must route payment through banking channels, either by inward remittance or from an NRE, NRO or FCNR(B) account. Payment by foreign currency notes or travellers’ cheques does not satisfy the regulations.
A foreign national of non-Indian origin who resides abroad faces a stricter regime. Such a person generally may not purchase Indian immovable property and may take a lease only for a period not exceeding five years. Citizens of Pakistan, Afghanistan, Bangladesh, China, Iran, Nepal, Bhutan, Sri Lanka, Hong Kong, Macau and North Korea need the prior permission of the RBI to acquire or transfer immovable property in India, other than by a lease of up to five years. These non-resident property ownership restrictions reflect considerations of national security and capital control as much as taxation.
Agricultural Land Remains Largely Closed to Foreign Buyers
The agricultural land foreign investment regulations in India are among the strictest in the world. FEMA does not permit an NRI or OCI to purchase agricultural land, plantation property or a farmhouse. An NRI or OCI may inherit such property and may transfer it only to a person resident in India who is an Indian citizen. A foreign investor cannot lawfully purchase such land directly, and no corporate wrapper changes that position.
State legislation adds a second layer. Several States, including Karnataka and Maharashtra, restrict the transfer of agricultural land even among Indian residents, and some limit ownership to bona fide agriculturists. Buyers must therefore check the revenue records, the land-use classification and any conversion order before they commit funds.
Investors sometimes attempt to bypass these limits by placing the title in the name of an Indian friend or relative. The Benami Transactions (Prohibition) Act, 1988 treats such an arrangement as a criminal offence. The statute exposes the beneficial owner to rigorous imprisonment and a fine, and the authorities may confiscate the property. Counsel should advise clients to reject any nominee structure outright.
Indian Tax Consequences for Non-Resident Sellers
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. The statute now requires a buyer who purchases immovable property from a non-resident seller to deduct tax at source under section 393(2). The old section 195 performed the same function. The buyer deducts tax on the entire sale consideration, and the rate follows the character of the seller’s gain. Long-term gains on land and buildings currently attract tax at 12.5 per cent, plus applicable surcharge and cess, and short-term gains attract tax at the rates the Act prescribes. Investors should verify current rates before any transaction.
Because the withholding applies to the gross consideration rather than the profit, it can far exceed the actual tax liability. A non-resident seller can apply to the Assessing Officer for a lower or nil deduction certificate under section 395 before closing. The seller must in any case file an Indian income-tax return to claim a refund of any excess deduction. Where a double taxation avoidance agreement applies, the seller should obtain a Tax Residency Certificate from the home jurisdiction to support the claim for treaty relief.
Repatriation of the proceeds raises a separate FEMA question. An NRI or OCI may remit up to USD 1 million per financial year from NRO balances, including sale proceeds, subject to the conditions in the remittance regulations. Sellers must plan these remittances in advance, because the limit applies per financial year and not per transaction.
FIRPTA: The United States Looks at the Seller’s Passport
Many Indian families also hold property in the United States. The Foreign Investment in Real Property Tax Act, 1980 (FIRPTA) treats the disposal of a US real property interest by a foreign person as income connected with a US trade or business. Section 1445 of the Internal Revenue Code obliges the buyer to withhold 15 per cent of the amount realised on the sale. The rate falls to 10 per cent where the buyer acquires the property as a residence and the price exceeds USD 300,000 but does not exceed USD 1 million. No withholding applies where the buyer intends to use the property as a residence and the price does not exceed USD 300,000.
The FIRPTA withholding tax rules operate as an advance payment of tax and do not fix the final liability. A foreign seller may apply to the Internal Revenue Service for a withholding certificate on Form 8288-B to reduce or eliminate the withholding where the expected tax is lower than the amount withheld. The seller must then file a US tax return to settle the final liability or claim a refund. The India-US tax treaty generally allows the country where the property lies to tax the gain, and India then gives credit under its domestic law. An Indian resident must also report the gain in India.
Outbound Investment by Indian Residents
The same principles apply in reverse. A resident Indian individual may remit up to USD 250,000 per financial year under the Liberalised Remittance Scheme to acquire foreign real estate. The investor must declare the foreign asset in Schedule FA of the income-tax return. Failure to disclose exposes the taxpayer to penalty under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which prescribes a penalty of Rs. 10 lakh for non-disclosure of a foreign asset.
Planning Before Acquisition
Cross-border real estate rewards early planning. An investor should confirm the buyer’s eligibility category, the land classification, the source and route of funds, the withholding position and the exit and repatriation route before signing any agreement. Families that hold property through trusts, holding companies or family offices should obtain advice on how each structure interacts with FEMA, the Income-tax Act and the host country’s tax regime. A transaction that satisfies the law at purchase can still fail at sale if the owner overlooked the withholding and repatriation rules.