Explained: Can NRIs Buy an Agricultural Land in India?

Real estate investment is often a top priority for Non-Resident Indians (NRIs) looking to retain strong financial ties to India. While they can freely purchase residential and commercial properties, agricultural land, plantations, and farmhouses remain off-limits for direct purchase. This blog breaks down the legalities, exceptions, and alternatives for NRIs interested in agricultural land in India.

Legal Framework: Can NRIs Buy Agricultural Land?

Under the Foreign Exchange Management Act (FEMA), 1999, NRIs are prohibited from purchasing agricultural land, plantation property, or farmhouses in India. The Reserve Bank of India (RBI) enforces this restriction to protect agricultural land from speculative investments.

Exceptions to the Rule

Although NRIs cannot buy agricultural land outright, there are two primary exceptions:

1. Inheritance: NRIs can inherit agricultural land from a resident Indian.
2. Gift from a Resident Indian: Agricultural land can be gifted to an NRI only by a resident Indian who is a relative, as defined under FEMA.

Inheritance of Agricultural Land by NRIs

If an NRI inherits agricultural land from a parent or relative, they become its legal owner. However, there are restrictions on how they can manage this land:

• Holding: NRIs can retain inherited agricultural land.
• Selling: NRIs can sell inherited agricultural land only to a resident Indian.
• Repatriation of Funds: The sale proceeds can be remitted abroad, subject to RBI regulations and tax compliance.

Special Permissions from the RBI

In rare cases, NRIs may apply to the Reserve Bank of India (RBI) for special approval to acquire agricultural land. However, these approvals are extremely limited and granted only under exceptional circumstances, usually for agricultural or community development purposes.

Documents Required for Inheritance or Gift Transactions

For an NRI to inherit or receive agricultural land as a gift, the following documents are essential:

• Legal Heir Certificate or Gift Deed: Proof of inheritance or gifting.
• NRI Bank Account Details: NRE/NRO account details for financial transactions.
• Identification Proof: Passport and visa details.
• Title Deed: Original property documents.
• No-Objection Certificate (NOC): Required in case of inheritance disputes.

Selling Agricultural Land as an NRI

If an NRI inherits agricultural land, they cannot sell it to another NRI or foreign national. The sale must be made only to an Indian citizen who is a resident. The funds from the sale can be repatriated abroad within RBI-set limits, and after paying applicable taxes.

Taxation on Agricultural Land Transactions for NRIs

When an NRI sells inherited or gifted agricultural land, they must adhere to Indian tax laws:

• Capital Gains Tax: If the land has been held for more than two years, it is subject to long-term capital gains tax (LTCG). The current LTCG is 12.5% without indexation benefits.
• TDS (Tax Deducted at Source): The buyer must deduct TDS before making payment to the NRI.
• DTAA Benefits: If the NRI is from a country that has a Double Taxation Avoidance Agreement (DTAA) with India, they may be eligible for lower tax rates.