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What is FEMA, and What NRI need to know about it

Among the many hindrances NRIs face when investing in real-estate is a regulation known as FEMA— Foreign Exchange Management Act governed by the Reserve Bank of India.

The main objective of the Foreign Exchange Management Act (1999) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also formulated to promote the orderly development and maintenance of foreign exchange market in India.

FEMA provides guidelines for the free flow of foreign exchange in India. It has brought a new management regime of foreign exchange consistent with the emerging frame work of the World Trade Organisation (WTO).

According to FEMA, NRIs can acquire real estate properties by way of purchase, any immovable property in India, other than agricultural land/plantation property/farm house. This is a permission that is issued by the Indian Government and by large is applicable to most NRIs. However, this is limited to NRIs who hold citizenship of the countires including Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, shall acquire or transfer immovable property in India. These citizens can lease a property for not more than five years, without prior permission of the Reserve Bank.

It is applicable all over India and even branches, offices and agencies located outside India, if it belongs to a person who is a resident of India.

While presently the Indian real estate is a very popular investment option for most NRIs, the complex legalities like FEMA deter them from engaging in a proper due diligence before risking their money.

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