What Property NRIs and OCIs Can Buy in India: The FEMA Rule Barring Agricultural Land, Plantations and Farmhouses

The single most misunderstood sentence in Indian exchange-control law for the diaspora is deceptively short. Under the Reserve Bank of India framework, a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) may acquire by way of purchase "any immovable property in India other than agricultural land, plantation property or farm house". That fourteen-word carve-out, codified in RBI Master Direction No. 12/2015-16 dated 1 January 2016 (last updated 1 September 2022), is the boundary line between what your foreign-earned money can and cannot buy back home.

The rule trips up thousands of returning professionals every year, because the restriction is on purchase only. The same Master Direction of 1 January 2016 permits an NRI or OCI to receive agricultural land, a plantation or a farmhouse through inheritance from a resident, and to receive any property as a gift from a relative as defined under the Companies Act. The distinction between a barred purchase and a permitted inheritance is where most disputes begin. This article walks through the FEMA position, the Indian tax consequences, the foreign-tax-credit interaction, and the repatriation mechanics, anchoring every figure to RBI Master Directions, the Income-tax Act 1961 and the relevant Double Taxation Avoidance Agreements.

FEMA / DTAA Position

The governing instrument is RBI Master Direction No. 12/2015-16 on Acquisition and Transfer of Immovable Property in India, issued 1 January 2016 and revised 1 September 2022. It permits an NRI or OCI to purchase residential and commercial property in India without any prior approval and without a ceiling on the number of units. The only purchase the Direction prohibits outright is the acquisition of agricultural land, plantation property or a farmhouse, a bar that has stood unchanged since the Direction first took effect on 1 January 2016.

The wider authority sits in the Foreign Exchange Management Act 1999. Section 6 of FEMA 1999, which governs capital-account transactions, makes the general position clear: a non-resident needs RBI permission for capital-account dealings unless the transaction is specifically permitted. The purchase of non-agricultural immovable property is one of the categories the RBI has generally permitted through the Master Direction, which is why no individual approval is required. Where the property is agricultural, no such general permission exists, and a fresh purchase remains barred regardless of consideration paid.

A second misconception concerns Power of Attorney transactions. A resident relative may hold a Power of Attorney to execute documents on an NRI buyer's behalf, but a Power of Attorney cannot convert a barred agricultural purchase into a valid one. The underlying transaction is tested against the 1 January 2016 Master Direction, not against the convenience of the signing arrangement. The table below summarises the position by property type.

Note that the Double Taxation Avoidance Agreement (DTAA) does not govern whether you may buy. DTAA is relevant only once the property generates income or is sold. Under every Indian DTAA, including the India-USA treaty effective 12 September 1991 and the India-UAE treaty effective 22 September 1993, India retains the right to tax capital gains on immovable property situated in India. Those gains are never "exempt" in the source country.

Tax Treatment in India

Once an NRI owns Indian property, three taxable events matter: rental income, capital gains on sale, and tax deducted at source. Rental income from house property is taxable in India under the Income-tax Act 1961 in the year it arises, and a tenant paying rent to an NRI landlord must deduct tax at source under Section 195. You can model the net position using the Oquilia NRI rental income tax calculator.

Capital gains on the sale of property follow the Budget 2024 regime that took effect on 23 July 2024. For property acquired on or after 23 July 2024, long-term capital gains are taxed at 12.5% without indexation. For property acquired before 23 July 2024, the seller may choose the grandfathered route of 20% with indexation, a choice that materially changes the liability on older holdings. The concept of a long-term capital gain and the indexation benefit are both explained in our glossary.

On top of the base tax, a surcharge applies on a graded scale: 10% where total income exceeds Rs 50 lakh up to Rs 1 crore, 15% from Rs 1 crore to Rs 2 crore, and 25% from Rs 2 crore to Rs 5 crore. Critically, the surcharge is capped at 25% in the new tax regime even where total income exceeds Rs 5 crore. A health and education cess of 4% then applies on the aggregate of tax and surcharge.

Tax deducted at source is the practical pressure point for property sales by NRIs. The buyer of property from an NRI seller must withhold tax under Section 195 of the Income-tax Act 1961. The brief governing principle is that withholding follows the DTAA rate or the Income-tax Act rate, whichever is lower, which is why a seller frequently applies for a lower or nil deduction certificate before completion. Our NRI tax calculator helps estimate the resident-versus-non-resident liability before you file. Stamp duty, charged by the state at registration, is a separate cost layered on the consideration; see the stamp duty glossary entry for how it is computed.

Tax Treatment Abroad

Because the same gain can be taxed in India as the source country and again in the country of residence, the DTAA's foreign-tax-credit mechanism is what prevents true double taxation. Under the India-USA DTAA effective 12 September 1991, Article 24 provides that a US resident may claim a foreign tax credit in the United States for tax paid in India. The credit relieves the double charge; it does not exempt the Indian gain, which India taxes at 12.5% on long-term immovable property.

The treaty rates differ by country, and the rate that matters for a property investor is the capital-gains position rather than the dividend or interest column. The table below sets out the headline figures from the three treaties most relevant to the Indian diaspora. In every case India retains its taxing right over Indian-situated capital gains at 12.5%.

The UAE position deserves a specific caution. The India-UAE DTAA effective 22 September 1993 requires a valid Tax Residency Certificate with proof of a UAE establishment before treaty benefits can be claimed, and the treaty expressly provides that capital gains on shares of an Indian company are taxable in India. For a Gulf-based NRI selling Indian property, the absence of UAE personal income tax does not make the Indian gain disappear; India taxes it at 12.5% under the Budget 2024 regime regardless of the resident jurisdiction.

For UK-resident sellers, the India-UK DTAA effective 26 October 1993 carries a tie-breaker rule in Article 4 for individuals who are dual residents, which determines the single country of residence before relief is computed. The DTAA glossary entry explains how the credit method operates in practice. The governing tax provisions can be read in full on the official Income Tax Department portal.

Repatriation Mechanics

Owning the property is one half of the problem; getting the sale proceeds out of India is the other. The route depends on the account the original funds came from. Where an NRI bought property out of an NRE or FCNR balance, the principal repatriation broadly tracks the original inward remittance, and rental income or sale proceeds flow through the rupee-denominated NRO account. The NRE account glossary entry sets out the difference between the repatriable NRE rupee account and the foreign-currency FCNR deposit.

The headline ceiling is the NRO repatriation cap. Under the FEMA framework, an NRI may repatriate up to USD 1 million per financial year out of balances held in NRO accounts, covering current income and the proceeds of asset sales, subject to payment of applicable Indian taxes and submission of the prescribed Chartered Accountant certification. The USD 1 million per financial year limit is the single most important number to plan a property exit around. Use the Oquilia repatriation calculator to sequence remittances across financial years.

A separate window applies to residents rather than non-residents. The Liberalised Remittance Scheme (LRS) permits a resident individual to remit up to USD 250,000 per financial year abroad. This matters for diaspora families because an NRI who returns to India and becomes a resident shifts from the NRO USD 1 million regime to the resident LRS USD 250,000 regime, changing how future outward transfers are sized. Confirm the current LRS position against the RBI Master Directions before any large transfer.

The practical sequence for a property exit is therefore: complete the sale, ensure the buyer's Section 195 withholding is correct or a lower-deduction certificate is in place, route proceeds to the NRO account, obtain the CA certification, and remit within the USD 1 million annual ceiling. Where the gain was taxed at 12.5% under the Budget 2024 rules, the post-tax balance is what counts against that USD 1 million limit.

FAQ

Can an NRI or OCI buy agricultural land in India?

No. RBI Master Direction No. 12/2015-16 dated 1 January 2016 bars an NRI or OCI from purchasing agricultural land, plantation property or a farmhouse. Such property can only be acquired by inheritance, or as a gift from a resident relative, never by fresh purchase.

Is there a limit on how many flats an NRI can buy?

No. The 1 January 2016 Master Direction places no ceiling on the number of residential or commercial units an NRI or OCI may purchase, and no prior RBI approval is required for non-agricultural property.

How is the gain taxed when an NRI sells Indian property?

Long-term gains on property acquired on or after 23 July 2024 are taxed at 12.5% without indexation. For property acquired before 23 July 2024, the seller may instead choose 20% with indexation under the Budget 2024 grandfathering rule.

Does my country of residence tax the same gain again?

Potentially, but the DTAA prevents double taxation through a foreign tax credit. Under the India-USA treaty effective 12 September 1991, Article 24 lets a US resident credit Indian tax paid against US liability. India still taxes the gain at 12.5%; it is never exempt.

How much can I repatriate after selling property?

Up to USD 1 million per financial year from NRO account balances, covering sale proceeds and current income, subject to Indian taxes being paid and a Chartered Accountant certificate being filed.

What tax does the buyer deduct when I sell?

The buyer must withhold tax at source under Section 195 of the Income-tax Act 1961. Withholding follows the DTAA rate or the Act's rate, whichever is lower, which is why many NRI sellers obtain a lower-deduction certificate first.

Does a Power of Attorney let me buy agricultural land?

No. A Power of Attorney only authorises someone to sign on your behalf. The underlying transaction is still tested against the 1 January 2016 Master Direction, and an agricultural-land purchase remains barred whoever signs.