- An NRI buying agricultural land contravenes FEMA.
- Penalties under Section 13 of FEMA can be up to three times the sum involved where it can be quantified.
- The contravention can often be compounded with RBI on payment of a sum.
- State laws may separately affect the sale; get advice on both.
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Penalty for NRI buying agricultural land in India under FEMA
Under Section 13 of the Foreign Exchange Management Act, 1999, a contravention can attract a penalty of up to three times the sum involved where it is quantifiable, or up to a fixed amount where it is not, with further penalties for continuing contraventions. The authority can also order confiscation in some cases.
Can a FEMA violation be compounded with RBI?
Many contraventions can be compounded: the person admits the contravention and pays a compounding amount fixed by RBI, which closes the matter. RBI follows the compounding rules and its directions, and the amount depends on the sum involved and the period. Compounding is usually far better than waiting to be found.
State land law consequences
Several states restrict who can buy agricultural land, for example by limiting purchases to agriculturists. A sale that breaches such a law may be void or lead to action by the revenue authorities. The answer depends on the state; take advice on the specific law.
How do you put it right?
- Get advice on both FEMA and the state law.
- Decide whether to sell the land to a resident Indian citizen.
- Apply to RBI for compounding with the details of the purchase.
- Regularise the land records as advised.
How do these purchases usually happen?
Most NRIs who end up holding farmland in breach did not set out to break the law. Common routes are buying land through a relative, signing up for a 'farm plot' scheme, buying land shortly after moving abroad without realising the status change, or receiving land as a gift that FEMA does not allow. Each needs a slightly different fix.
Documents needed for compounding
- Details of the purchase: deed, dates and amounts.
- Proof of residential status at the time.
- Source of funds and bank records.
- An explanation of how the contravention occurred.
Selling to cure the breach
Selling the land to a resident Indian citizen ends the continuing contravention. Compounding with RBI deals with the past breach. Doing both, with advice, usually closes the matter; check the state law on who may buy before agreeing a sale.
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Founder and Managing Partner, VIVS Legal. BLS, LL.B, LL.M, PGDBM, JAIIB.
