Agricultural Land in India for NRIs/OCIs - Rules, Exceptions & Penalties

As an NRI, many of them dream about owning a farmland in their home country. Some of them want to reconnect to their roots, while others want to build a retirement retreat. Whatever your reason is, the reality is that you are not allowed to directly purchase agricultural land in India. Sad, right! Don't worry, we have come up with a few exceptions through which you can own agricultural land in India. 

As per the regulations of the Foreign Exchange Management Act, buying agricultural land, farmhouses, etc., in India for NRIs is totally off the table. There are some legal ways, such as inheritance, gifting, and special permissions, by which you can own agricultural land in India. 

In this guide, we have also explained the legal restrictions set up by FEMA, the penalties for non-compliance, and some of the legal alternatives. 

Legal Restrictions on Buying Agricultural Land for NRIs

It is one of the necessary regulations for the NRIs that they should be aware that they are legally not permitted to own agricultural land in India. This rule has been imposed by the Foreign Exchange Management Act, 2000 (FEMA).

Prohibitions Under FEMA, 2000

The FEMA completely prohibits NRIs from purchasing agricultural land in India. It also applies to plantation properties and farmhouses. These restrictions are implied to regulate the foreign exchange transactions, and they is also a part of the border strategy by the Indian government. It also manages the use of agricultural land to stay within the country itself. 

Consequences of Non-Compliance

If an NRI attempts to purchase agricultural land in India, then it will be a violation of FEMA regulations, and it can cause them some serious legal consequences. These include: 

• Penalties and Fines: There are major fines that can be imposed on the NRIs who break these rules of FEMA. The value of these fines can vary depending on the price of the land and the nature of the violation.
• Confiscation of the Land: The Government of India has the power to confiscate any agricultural land that is illegally acquired by an NRI. Its meaning is that the property can be taken back without any compensation.

NRIs Buying Agricultural Lands: Exceptions

Although NRIs are not permitted to buy any agricultural land in India, there are a few exceptions under which they can own agricultural land in India. Here are the ways:

By Inheriting and Gifting Agricultural Land

As you already know, direct purchasing of agricultural lands is off-limits for NRIs, but they can own them through the process of Inheritance. If the NRIs inherit agricultural land from their relative resident Indian, then they can own and retain this land. Also, if a resident Indian gifts agricultural land to an NRI, then they can own it. If an NRI wants to gift the land to another NRI, then it is not permitted by the Indian Laws.

Here are some important points to consider if NRIs inherit agricultural land:

• Authenticity of Inheritance: The process of inheritance should be properly documented and legitimate. There should be a clear legal will or succession certificate to ensure the ownership transfer.
• Supported Documents: It is important to include all the legal documents for the NRIs who are inheriting the agricultural land. This includes the legal heir certificate, will, and other documents that prove the legitimacy of the inheritance.
• Following the local laws: Even in the case of agricultural land inheritance, NRIs should follow all the local state rules regarding the ownership and usage of agricultural land. In India, each state has its own laws governing the agricultural lands.

By RBI's Permission

One more thing that NRIs can do is that get the special permission to own agricultural land, plantation property, or a farmhouse in India from the RBI. The process includes the submission of an application form and the submission of the required documents. You will also have to justify the reason for purchasing the land and make sure that the land will not be used for speculative purposes.

Here is the process of how you can seek permissions from the RBI: 

• Submitting the Application: The NRIs need to submit a detailed application to the Reserve Bank of India, mentioning the use of land, the purpose of acquisition, and the proof of compliance with the state laws. 
• Review and Verifying: Your application will be reviewed by the RBI officials, and then they may also ask for additional clarification or information. The process is very detailed, and it also includes the verification of the applicant's background and all the documents.
• Approval or Rejection: Based on your review, the permission to acquire the agricultural land will be approved or rejected. If it is approved, then you can own agricultural land in India under some specific conditions.

Necessary Documents for the Transaction of Properties

While taking part in the property transactions in India, it is very necessary to have the correct documents. It can help you in safeguarding your investments and avoiding any future disputes over the property. Here are the essential documents: 

• Mother Deed: It helps in tracing the history of ownership of the property.
• Sale Deed: It is the proof of sale and property transfer to the buyer.
• Legal Heir Certificate: It is required in cases of inheritance.
• Tax Receipts: It is the proof of the property tax payments.
• Compliance Certificates: They ensure that the property follows the local regulations. 
• Encumbrance Certificate: It makes sure that the property does not have any legal liabilities. 

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How Can I Inherit Agricultural Land?

If the NRIs inherit agricultural land or get it as a gift, eventually they might want to sell it. Here are some of the important things they must know: 

Whom to sell?

NRIs are permitted to sell inherited agricultural land in India, but the buyer should be an Indian citizen or reside in India. They are not permitted to sell to:

• A foreign national
• Another NRI
• A Person of Indian Origin (PIO)
• An OCI Cardholder

Tax Implications

The rural agricultural land is not considered a capital asset, and hence, the capital gains tax does not apply to it. If the agricultural land is determined as urban agricultural land, then you have to pay the capital gains tax on that. 

Taxation for the urban agricultural land: 

• If the land is held for more than 24 months, Long-term capital gains tax is applicable, that is, 12.5% without indexation. 
• If the land is held for less than 24 months, Short-term capital gains tax is applicable as per your income tax slab. 

TDS Deduction: 

When an NRI sells gifted or inherited agricultural land, it is necessary that the buyer deduct the TDS before making the payment. The rate of TDS can be different based on whether it is short-term capital gains or long-term capital gains.

DTAA Benefits: 

If the NRI belongs to a country that has signed a Double Taxation Avoidance Agreement (DTAA) with India, then they can avail its benefits and get lower tax rates. It can save you from getting taxed twice on the same income.

Repatriation of sale proceeds

You can repatriate the sale proceeds up to USD 1 million in a financial year, and you need to follow the tax compliance and the important documents. Firstly, the sale proceeds should be credited into your NRO account, and then you can repatriate them further.

Required documents for repatriation:

• Form 15CA: It is a declaration form by the buyer.
• Form 15CB: It is a certificate issued by a CA for amounts more than Rs 50 lakhs.
• Sale deeds
• Tax Payment Receipts
• Bank Certificate

Penalties for Buying Illegal Agricultural Land for NRIs

If you break the regulations of FEMA, then the consequences can be very severe and financially devastating. One of the common consequences of violating the FEMA rules is under Section 13. The NRIs can face penalties that can be three times the transaction amount or Rs 2 lakhs, whichever is higher. 

Legal Consequences

1. Property Confiscation: The authorities have the power to seize the land under the regulations of the Foreign Exchange Management Act (Adjudication Proceedings and Appeal), 2000. 
2. Void Transaction: If an NRI buys agricultural land without any approval, the transaction will be considered null and void. It means that you won't have any legal rights over the land. 
3. Criminal Prosecution: If the NRIs use fraudulent methods such as benami transactions, then they have to face the charges that can lead to criminal prosecution. It comes under the Benami Transactions (Prohibition) Act, 1988. 
4. Additional Penalties: You may have to pay heavy penalties imposed by the Enforcement Directorate. It can go up to 25% of the actual market value of the property and can initiate criminal proceedings, which can even lead to imprisonment. 

What to do in case of illegally bought land?

There are very limited options available for you to correct this situation: 

• You should sell agricultural land immediately to a resident Indian. 
• You can transfer the property to an indian resident relative.
• You can also apply for compounding that includes admitting the violation and paying the required penalties. 

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Buying Agricultural Land For NRIs: Alternatives

The direct purchase of agricultural land is prohibited for NRIs, but there are many other legal alternatives by which you can invest in the agricultural sector of India: 

1. Setting up an Agricultural Company

The NRIs are allowed to set up a Private Limited Company or an LLP in India. After that, if the company is related to agriculture and operates agribusiness operations, such as agricultural research facilities, organic farming ventures, etc., then you can buy agricultural land on its behalf. 

Requirements: 

• The activities of businesses must be related to agriculture.
• The company should be incorporated in India.
• You need to follow the FDI regulations.
• Maintaining compliance with the Companies Act is compulsory.

2. Leasing an Agricultural Land

As the NRIs are not allowed to buy agricultural land, leasing the land for agricultural purposes is permitted under some state laws. This can vary as per the region and some circumstances.

Advantages of leasing: 

• Investment in lower capital is required.
• No restrictions on ownership are applied.
• The flexible arrangements are implied. 
• You can generate income from farming operations.

3. Purchasing Converted Non-Agricultural Land

NRIs can purchase the land legally and convert it from agricultural to non-agricultural use. You can use this land for commercial development, industrial projects, or residential construction. 

Process: 

• Firstly, identify the agricultural land marked for the conversion.
• Then, wait for the official conversion by the state authorities. 
• Once it is converted to the Non-agricultural (NA), you can purchase freely.
• You can use it for the permitted non-agricultural purposes.

4. Investing in Agricultural Businesses

Here are the options in which you can invest: 

• In the agricultural real estate funds
• In food processing companies
• In Agritech startups via FDI-compliant routes
• In the manufacturing of Agricultural equipment

5. Waiting for the Policy Changes

Some states, such as Punjab and Kerala, have proposed changes in their laws regarding the NRI investments in agricultural land in India. Both of these states would likely advocate for some changes in the policies to benefit NRIs. These proposals were made in 2024, and they have not been implemented yet. You should regularly monitor the RBI guidelines and the state government announcements for updates.

Why Choose Visament?

As the law says that NRIs cannot buy any agricultural land in India under FEMA, they are not completely banned from owning a farmland in India. There are some legal routes, such as inheriting from family, receiving as a gift, or establishing a business structure, such as an agricultural company. If you have already bought the land, then there will be severe legal and financial penalties for non-compliance. You need to immediately take action, like selling or transferring the land to a resident Indian citizen. 

If you need any legal help, then you can contact the experts from Visament. They can help you in understanding all the laws regarding the agricultural land purchase and can guide you the right way to do so. They can also help you in case you have violated any regulations. You can also open your NRO account with Visament to repatriate your sale proceeds. Our services are very affordable, and the experts are available 24/7 on the platform to solve your queries.