Purchase Of House Property Outside India

Purchase of House Property outside India Query : Your query in respect of purchase of house property in UK is as follows :1) Whether the House Property to be purchased in UK should be taken in the personal name or in the name of company registered in UK. 2) What are the permission required to be obtained for purchase of such house property & also for raising loan in UK for purchase of such property. Reply : To reply the above query we need to discuss the restrictions in the Foreign Exchange Management Act regarding the acquisition of immovable property outside India by a resident in India or by a Wholly Owned Subsidiary of resident in India & restrictions regarding borrowing in foreign Exchange by a resident in India or by a Wholly Owned Subsidiary of resident in India. First we will discuss the restrictions in the FEMA regarding the acquisition of immovable property outside India & borrowing in UK for purchase of such property by a resident in India i.e. if the property is purchased in personal name. Foreign Exchange Management ( Acquisition and transfer of immovable property outside India) Regulations, 2000 prescribes the rules regarding the acquisition and transfer of immovable property outside India. It provides that no person resident in India shall acquire or transfer any immovable property situated outside India without special or general permission of Reserve Bank. It further prescribes that a resident in India may acquire immovable property outside India out of Resident Foreign Currency Account maintained in accordance with Foreign Exchange Management ( Foreign Currency accounts by a person resident in India ) Regulations, 2000. Foreign Exchange Management (Borrowing or lending in foreign exchange) regulations, 2000 prescribes the regulations regarding borrowing or lending in foreign exchange by a person resident in India. It provides that save as otherwise provided in the Act, Rules or Regulations made thereunder, no person resident in India shall borrow in foreign exchange from a person resident in or outside India. It further provides that a person resident in India may borrow, whether by of loan or overdraft or any other credit facility, from a bank situated outside India, for execution outside India of a turnkey project or civil construction contract or in connection with exports on deferred payments terms, provided the terms and conditions stipulated by the authority which has granted the approval to the project or contract or export in accordance with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. however the aggregate amount of loans outstanding at any point of should not exceed US dollar 3 million.

These rules further prescribes that a person resident in India who desires to raise foreign currency loans of the nature or for the purposes specified in the schedule and who satisfies the eligibility and other conditions specified in the schedule, may apply to the Reserve Bank for approval to raise such loans. The Reserve Bank may grant such its approval subject to such terms and conditions as it may consider necessary, Provided that while granting its approval it will take into account overall limit stipulated by it, in consultation with the Central Government, for availment of such loans by the person resident in India. Any other foreign currency loan, which falls outside the scope of the schedule shall require the prior approval of the Central Government. Relevant extracts of the schedule mentioned above is as follows: Schedule The application for the approval of Reserve Bank shall be made under in Form ECB. The borrower shall not utilize the funds borrowed under any of these schemes for investment in stock market or in real estate business. Borrowing under US dollar 5 million scheme Borrowing in foreign exchange upto US dollor 5 million by an Indian entity ( i.e. a company or a body corporate or a firm in India) for general corporate purposes at a simple minimum maturity of three years. Borrowing under US dollar 10 million scheme Borrowing in foreign exchange not exceeding US Dollar 10 million by an Indian entity for the following purposes: a) Borrowing for financing of infrastructure projects i) Borrowing in order to finance equity investment in a subsidiary / joint venture company promoted by the Indian entity for implementing infrastructure projects, provided that the minimum average maturity of loan is three years. In case the loan is to be raised by more than one promoter entity for a single project, the agreegate of loan by all promoters should not exceed US Dollar 10 million. ii) Foreign currency loans raised by an Indian entity for financing infrastructure project, provided that the minimum average maturity of loan is not less than three years. b) Borrowings by Exporter / Foreign Exchange Earner – Borrowing in foreign exchange by an exporter / foreign exchange earner upto three times of average amount of his annual foreign exchange earnings during the previous three years subject to a maximum of US Dollar 10 million or its equivalent, with a minimum average maturity of three years.

c) Long term borrowings – Borrowing for general corporate purposes at the minimum average maturity of eight years. So from the reading of above provisions it is clear that borrowings in UK for purchase of house property if the property is purchased in the personal name will require the approval of Central Government. However there are no such restrictions, either regarding purchase of immovable property outside India or regarding loan in foreign currency to be raised for purchase of such property, imposed in the Foreign Exchange Management Act if the House Property is purchased in the name of company. So in my opinion it will be better if we purchase the house property in the name of company incorporated in UK. We may show it as guest house for business purposes in the UK which will also enable us to claim the interest on loan & maintenance expenditures as business expenses. The contribution which we will be required to invest for purchase of house property can be remitted by way of capital enhancement or by way of loan to WOS abroad within the limit of US Dollar 100 million or 50 % of the networth of Indian party as on the date of last audited Balance Sheet. However raising the capital will require the prior approval of RBI.