The Indian legal system comprises civil law, customary and personal law, and common law. Real estate transactions are subject to central/state legislation, personal/religious laws, judicial precedents and subordinate legislation.

Real estate laws can be categorised as:

• laws applicable to the acquisition, transfer and registration of immovable properties, including the Transfer of Property Act 1882 (TOPA), the Registration Act 1908 (“Registration Act”), the Real Estate (Regulation and Development) Act 2016 (RERA), the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013, the Benami Transactions (Prohibition) Act 1988, the Indian Stamp Act 1899, state-specific stamp duty legislation and land revenue codes;
• exchange control regulations for foreign investors – primarily the Foreign Exchange Management Act 1999 and the rules thereunder (FEMA), including the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 (“Non-Debt Rules”) and the Foreign Exchange Management (Debt Instruments) Regulations 2019 (“Debt Regulations”);
• corporate laws, such as the Companies Act 2013 (“Companies Act”), if the transaction involves a company, and the Limited Liability Partnership Act 2008 (“LLP Act”), where a limited liability partnership firm (LLP) is involved; and
• personal/religious laws that determine title acquired through inheritance or succession.

The real estate sector has seen several deals involving industrial assets, warehousing assets and logistics assets. Investors have shown significant interest in logistics and warehousing assets outside Tier-1 cities and in “smart cities”. The government continues to emphasise development of infrastructure in Tier-2/Tier-3 cities, resulting in development and land value appreciation in these cities. There is increased demand for residential projects and integrated developments in such cities. As companies move towards working from office full-time, commercial real estate and office spaces will also see more leasing activity. Another important factor is the development of large global data/capability centres across India, driving up demand for commercial developments. The development of infrastructure continues to have a multiplier effect on the real estate sector, with increased focus on public-private partnership projects.

The government continues to emphasise development of affordable housing, with the 2025-26 budget including a second Special Window for Affordable and Mid-Income Housing (SWAMIH) fund, with an INR150 billion allocation.

Leasing documents have become significantly more sophisticated, and in several cases, facilities over 1 million sq ft have been taken on lease in single transactions. Some large commercial transactions include ANZ leasing over 600,000 sq ft in Manyata Tech Park, Bengaluru; Amazon leasing around 1 million sq ft on New Airport Road, Bengaluru; and Google leasing around 650,000 sq ft in Whitefield, Bengaluru.

In commercial leasing, India is also seeing the growth of serviced office space companies, as many businesses are opting for serviced office spaces, even when the space requirement is 30,000 sq ft and over, to minimise capital investments.

Inflation and increasing interest rates seem to have impacted certain segments of the residential market due to the increasing cost of acquisition. However, some announcements in the 2025-26 budget, including reducing income tax rates, will mitigate the impact thereof to some extent.

Real estate has been revolutionised by the adoption of disruptive technologies, notably blockchain and proptech. Proptech streamlines and connects the processes for participants in all stages of real estate transactions, including buyers, sellers, brokers, lenders and landlords.

The Andhra Pradesh government has partnered with a Swedish start-up to build its blockchain-based solution. NITIAayog has previously highlighted its efforts towards IndiaChain, a blockchain infrastructure for managing public records, which will also be used for maintaining land records. Many state governments are working to integrate blockchain-based ledgers into the digital land record system, and implementing measures to digitise records to make the process of land surveys and other procedural aspects (including payment of taxes) easier.

The sector is attracting debt investment from private credit funds where traditional bank financing is unavailable, especially in early development. Additionally, family offices have become significant investors in real estate and private credit.

A growing trend is the fractional ownership of commercial real estate, allowing retail investors to participate in a high-yield market. As per market data, the market size of fractional ownership properties in India is growing at an annualised rate of 10.5% and is expected to expand to USD8.9 million in 2025. The Securities and Exchange Board of India (SEBI) amended the SEBI (REIT) Regulations 2014 to introduce a framework for SM REITs on 8 March 2024, to regulate fractional ownership platforms.

The Reserve Bank of India has recently announced a cut in repo rates by 25 basis points, which is expected to reduce the interest burden for investors and home buyers.

The government has previously made certain amendments to FDI policy in real estate. While there are no significant indications from the government at time of writing, foreign investors are hopeful that the next step will be liberalising multi-brand retail trading. The government has announced various initiatives to increase investments in the warehousing and logistics sectors, development of sustainable and smart cities, and development of Tier-2 and Tier-3 cities. India’s National Logistics Policy and other steps taken to develop the logistics sector in India have in turn benefited the real estate sector.

Freehold

In a freehold, the owner acquires absolute right, title and interest (including undivided interest in flats/apartments) in property, with unfettered freedom and right to deal with the property.

Tenancy (Lease)

In a tenancy (lease), the lessee acquires limited interest and rights to property, with the right to possess, occupy and deal with the property in the manner contractually agreed. Indian law also recognises statutory tenants, who are protected under applicable rent control statute and can be evicted only on limited grounds. However, most modern developments leased to corporates are not affected by rent control legislation.

Since land is a state subject under the Indian Constitution, tenancy matters are governed by state-specific statutes; matters not covered by state legislation are governed by TOPA, a central legislation.

Additionally, the Model Tenancy Act 2021 aims to increase the efficacy and convenience in regulating the renting of premises in a transparent manner. States are at liberty to adopt this template with necessary changes or make changes to their existing tenancy and rent laws.

Licences and Easements

Licences are governed under the Indian Easements Act 1882; easements are also recognised separately. A licensee acquires the permission of the owner to use the property, and use is restricted to contractual terms without possession being granted to the licensee. On the other hand, an easement is a right that a person has, to compel the owner of another property to allow something to be done or to refrain from doing something on the property of that owner, for the benefit of the easement right-holder.

Generally, a person can acquire title to immovable property through:

• an act of the parties, including sale, gift, exchange or lease, governed by TOPA and RERA;
• succession governed by personal laws or the Indian Succession Act 1925; or
• allotment by government organisations/agencies.

Certain states prohibit companies/firms from purchasing/leasing agricultural land and prohibit people with income above a certain threshold or who are not already agriculturalists from purchasing agricultural land. Certain states also have land ceiling laws that restrict acquisition of land beyond specified limits.

To promote industries, state governments have introduced various schemes and formed nodal agencies to act as single points for providing various clearances for land acquisition and establishing industries.

Documents governing rights/transfer of title to immovable property are registered before the jurisdictional Sub-Registrar of Assurances (SRA). Registrations are mandatory for instruments evidencing transfer of title/interest in immovable property exceeding INR100 in value. Once registered, documents become part of the public record. Such transfers also require the payment of duties (stamp duty, registration fee and cess) and are recorded by the revenue departments. A will need not be registered under Indian law. Where transfer is effected through succession, revenue records (which are public) are updated to reflect the inheritance.

Insurance companies in India do offer title insurance, although establishing title is often complicated. Measures are being taken to simplify the way title can be verified, and governments are taking steps to digitise title records.

Tracing title to property is often complicated, as records are not centrally located and are maintained by different governmental departments. Antecedent documents in each state are often in vernacular. Typically, title due diligence for the preceding 30-40 years is conducted on properties proposed to be purchased.

When conducting due diligence, one may not discover all litigation (if the litigation is not entered in revenue records), mortgages by deposit of title deeds and unregistered contracts (which do not require registration under the Registration Act) that have a bearing on the title of the property, so it is important that litigation searches on the e-court websites and physical searches in the court records (wherever necessary) are also conducted.

Taking possession of original title deeds at the time of sale is also critical, as they can be used to mortgage/encumber a property. Where original title deeds are not available, one must ensure there has been no mortgage/encumbrance by deposit of title deeds by the sellers or their predecessor-in-interest.

Public notices in local papers inviting claims in respect of the property are often issued before proceeding with real estate transactions. Buyers can also conduct a survey of the land to confirm the measurement of the available land. For developed properties, in addition to title due diligence, buyers must also review various approvals, permissions, and compliance with laws (regarding development and usage of the properties) laid down by the respective states. Tax-paid receipts should also be checked.

Some companies offer the use of emerging technologies in title due diligence; however, given the difficulties in accurately tracing title, the use of such technologies may currently be limited.

Under TOPA, unless otherwise agreed between the parties, a seller is (a) bound to disclose any material defect in the property/seller’s title and (b) deemed to have represented that the interest which the seller professes to transfer to the buyer subsists and that the seller has power to transfer it. In most transactions, representations and warranties are comprehensive, except in “as is, where is”-basis transactions (which happens in case of distressed sales). Seller title warranties are unlimited in both duration and amount of damages. Lately, there have been a few instances where sellers have asked to limit their liability, though this is not market standard.

Customary remedies would be available to enforce indemnity claims through arbitration or litigation, with arbitration being preferred.

R&W insurance is slowly becoming more popular due to reduced premium costs; however, please see 2.3 Effecting Lawful and Proper Transfer regarding title insurance.

The most important areas of law for an investor to consider when purchasing real estate are:

• laws applicable to acquisition, transfer and registration of immovable property;
• building by-laws and zoning regulations;
• Indian exchange control laws for foreign investors;
• corporate laws;
• taxation laws; and
• succession and inheritance laws.

The buyer will not be deemed liable for soil pollution or environmental contamination if they can prove that they were not responsible for it. In most large transactions, buyers/investors conduct technical due diligence including soil testing to rule out such issues. The buyer is also indemnified against any action initiated by the government for contamination of a property prior to its purchase. Proceedings for environmental contamination are very infrequent, although this may change as environmental issues are attracting more recognition.

Approvals are issued with respect to the property and pass along with the property to the buyer. Presently, the seller/buyer has no disclosure obligations towards environmental authorities. However, the owner/developer of the property is required to submit periodic reports to authorities confirming compliance with environmental approvals and renew them periodically.

The buyer can ascertain permitted uses of property based on zoning regulations/maps issued pursuant to state-specific town and country planning statutes.

To aid the development of strategic areas, the government may allot land with certain obligations imposed on its development. Development agreements typically seen in the private sector are not common for lands owned by public authorities. In certain cases, governments award concession agreements for development of land for specific purposes.

The Indian Constitution no longer recognises the right to hold property as a fundamental right. However, Article 300(A) was included in the Constitution to affirm that no person would be deprived of their property except by authority of law.

State governments are authorised to acquire lands for public purposes. The current land acquisition statutes prescribe:

• payment of compensation up to four times the market value in rural areas and twice the market value in urban areas;
• safeguards for tribal communities/other disadvantaged groups, compensation for lost livelihood, caps on acquisition of multi-crop and agricultural land;
• return of unutilised land to landowners; and
• the requirement to obtain affected parties’ consent for land acquisition for companies, except where the acquired land is controlled by the government.

Land parcels acquired by state governments vest with the governments free of all encumbrances and any title defects.

Any transfer of property requires the payment of statutory duties, including stamp duty, cess and registration fees (which differ from state to state). Where the asset is under construction, GST is also paid by the seller, which can be recovered from the buyer by the seller.

In asset transfers, the buyer generally pays duties, unless otherwise agreed. Most stamp acts provide that where there is no agreement to the contrary, stamp duty will be paid by the purchaser on sale and by the lessee on lease.

For share transfer transactions, stamp duty at 0.015% of the consideration is payable. In some states, stamp duty at rates applicable to a sale is not paid if property is contributed into a partnership firm. However, any exit from the partnership by the original contributor will usually attract payment of stamp duty as if it is a conveyance.

Exemptions on payment of stamp duty and certain tax benefits are available to entities operating out of special economic zones (SEZs).       

Generally, capital gains tax would also be payable by the seller on transfer of property (directly or indirectly). For tax residents of India, the tax rate would range from 12.5% (plus surcharge and cess) for long-term capital gains to 30% (plus surcharge and cess) for short-term capital gains, depending on the period for which the asset being transferred is held. Unlisted shares or immovable property held for more than 24 months are considered as long-term capital assets. Depreciable property would generally be considered a short-term capital asset.

Persons resident outside India can acquire property or invest in real estate in India only in accordance with FEMA.

While foreign investment in construction and development has been liberalised significantly, certain restrictions remain, including that the investment must be locked in for three years, calculated with reference to each tranche of investment, unless the construction of “trunk infrastructure” is completed. Transfer of stake between persons resident outside India, without repatriation of foreign investment, is not subject to lock-in. The lock-in is also not applicable to construction of hotels and tourist resorts, hospitals, SEZs, educational institutions and old-age homes.

FDI is permitted in the operation and management of townships, malls/shopping complexes and business centres, with three years’ lock-in. Earning of rent/income on lease of property not amounting to transfer is not considered real estate business.

Exchange control laws regulate foreign investments in India by countries that have land borders with India. If the investing/acquiring entity or beneficial owner in an investing/acquiring entity is an entity set up in, or an individual resident in, such a country, the investing/acquiring entity would require prior government approval for its proposed investment (primary or secondary) in an Indian company. “Beneficial ownership” has not been defined but is typically linked to 10% of the shareholding being held by the beneficial owner in any investing/acquiring entity. This approval requirement will also be triggered in a transfer of ownership of any existing/future FDI in an Indian entity which directly/indirectly results in the beneficial ownership falling within the above restriction.

Certain additional conditions may apply, especially under any project-specific approvals obtained, lease documents, etc, if, for instance, a foreign entity is gaining control over an Indian investee entity, or if there is any reconstitution of the board of directors of the Indian investee entity, or where the Indian investee entity takes on additional debt and if any charge is created on the project land, etc.

Typical fundraising means for real estate companies include FDI, REITs, alternative investment funds (AIFs) and debt financing (loans/debt capital markets, external commercial borrowings (ECBs)).

FDI

The foreign exchange regime prohibits foreign investment into companies that are engaged purely in “real estate business”. FDI up to 100% is permitted under the automatic route for companies engaged in construction development and industrial park development, subject to certain limited conditions.

Entities engaged in real estate broking services are also permitted to receive up to 100% FDI under the automatic route. Earning of rental income is also not considered real estate business.

FDI may be through subscription to or purchase of equity/equity-linked instruments and must comply with pricing guidelines and reporting obligations prescribed by the Reserve Bank of India (RBI).

Each phase of a construction development project would be considered a separate project, so an investor can potentially exit before the completion of an entire project, subject to a lock-in period of three years, as mentioned above.

REITs

REITs in India are private trusts set up under the Indian Trusts Act 1882 and compulsorily registered with SEBI. The set-up of REITs would include the sponsor, manager and trustee (which must be a SEBI-registered debenture trustee that is not an associate of the sponsor or manager). The REIT regulations have been modified to permit, inter alia, REITs to issue debt securities for raising funds. Further, SEBI has amended the REIT regulations to introduce the concept of SM REITs, with a reduced size of qualifying assets between INR500 million and INR5,000 million. Non-SM REITs must have assets to the value of INR5,000 million for an initial public offering and a minimum initial offering size of INR2,500 million.

AIFs

AIFs are privately pooled investment vehicles that collect funds from investors (Indian or foreign) for investments and are regulated by the SEBI (AIFs) Regulations 2012. AIFs must be compulsorily registered with SEBI. AIFs may invest as private equity or debt funds, or both. The RBI has sought to prevent AIFs from being used by regulated entities (banks and non-banking financial companies (NBFCs)) to evergreen loans, by restricting the ability of AIFs to invest in securities (other than equity shares) of debtor entities of such regulated entities, if such regulated entities are also partners in the AIFs.

Debt Financing

The most common means of fundraising for real estate developers is by issuance of non-convertible debentures (NCDs) to lenders. Debt investments by banks are subject to certain prudential norms relating, inter alia, to bank exposure to such investments, as stipulated by the RBI. While previously a preferred means of raising funds, market conditions have affected investments by NBFCs lately. Real estate developers are required to obtain all the permissions required from the relevant government authorities for the project prior to funding by such NBFCs for the development of the project – this has restricted access to funds by real estate developers in the early stages of the project development from banks and NBFCs. Private credit funds invest in debt or hybrid securities issued by real estate developers for funding requirements.

ECBs

The RBI has eased the definition of beneficiaries eligible for ECBs to include all entities that can receive FDI. Funds borrowed under ECBs cannot generally be used, inter alia, for real estate activities, except for:

• construction/development of industrial parks/integrated townships/SEZs;
• purchase/long-term leasing of industrial land as part of a new project/modernisation of expansion of existing units; and
• “infrastructure sector” activity.

All eligible borrowers are now permitted to raise up to USD750 million or equivalent per financial year under the automatic route.

The types of security typically created or entered into by a commercial real estate investor that is borrowing funds to acquire or develop real estate include:

• mortgages;
• hypothecation/escrow of project receivables, cash flows (subject to compliance with RERA);
• pledge of the developer company’s shares, its parent and/or associate entities; and
• provision of corporate/personal guarantees, typically created in favour of a security/debenture trustee acting for the lenders’ benefit.

To create mortgages, a mortgage deed must be registered with the SRA. Where an equitable mortgage is created by the deposit of title deeds, recording of the deposit of deeds may need to be registered in certain states. The security interest created on such assets (tangible/intangible) must be registered with the Registrar of Companies and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a central database for all security interests established to check for fraudulent activity in secured loans.

FDI in Indian companies cannot be secured and, accordingly, FDI investors are not permitted to have assured returns at the time of exit.

However, investments in NCDs can be secured, including where issued to permitted foreign investors. Security in such cases is typically created in favour of a trustee. In ECBs, pledge over shares of an Indian company in favour of a foreign lender requires compliance with ECB guidelines and the approval of the authorised dealer bank. The creation of charge over assets situated in India in favour of a foreign lender will be subject to compliance with Non-Debt Rules and Debt Regulations, and approval from the authorised dealer bank.

Stamp duty is payable on documents, as per applicable central and state-specific statutes. Insufficiently stamped documents may be impounded and may not be admissible as evidence in Indian courts until the deficient stamp duty (with applicable penalties) has been paid. Some documents need to be registered under the Registration Act, with payment of the applicable registration fees.

Certain corporate authorisations are required under the Companies Act, such as board resolutions and shareholder resolutions. Any charge is required to be filed with the Registrar of Companies and, in case of non-compliance, such security interest would be held void against the liquidator and the other creditors of the company in the event of winding-up of the company, although the obligation for the repayment of money secured by the charge would continue to subsist.

RERA restricts the ability of companies and real estate developers to secure their borrowings.

Where the borrower in default is solvent, a lender can seek to enforce its security pursuant to the Insolvency and Bankruptcy Code 2016 (IBC).

Separately, banks and financial institutions that have lent monies are entitled to enforce their security interest without the intervention of a court/tribunal, subject to strict compliance with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI). The SARFAESI defines borrowers to mean any person who inter alia has been granted financial assistance by any bank or financial institution or created any mortgage/pledge as security for the financial assistance granted and includes a borrower of an asset reconstruction company consequent to the acquisition by it of any rights or interest of any lender in relation to such financial assistance.

However, action under the IBC and SARFAESI cannot be taken simultaneously, since a moratorium is declared upon the admission of an insolvency application under the IBC. Many lenders are successfully using proceedings under the IBC to enforce their rights under the loan documentation.

No pandemic-related restrictions on lenders’ ability to enforce security remain in force at time of writing.

Generally, where priority of security is not contractually agreed between parties, security created earlier in time will rank in priority to security created subsequently. A first-ranking charge will have priority over a second-ranking charge at the time of security enforcement. However, existing secured debts can become subordinated to new debts when an intercreditor agreement setting out ranking of debt or a subordination agreement is signed.

Typically, shareholder/promoter loans are unsecured and subordinated.

Lenders will not ordinarily incur liability under Indian environmental laws simply by holding a security interest. If a lender takes over management and control of the borrower after the enforcement of security, such lender may incur liability as the person in possession of a polluting premises, or as the person responsible for the conduct of the borrower’s business.

The ideal outcome of an insolvency application under the IBC is a successful corporate insolvency resolution process, failing which liquidation is commenced. There are also provisions for voluntary liquidation. Where a debtor goes into liquidation, the IBC provides the way secured debt will be discharged. Workmen’s (employees whose rights are protected under the Industrial Disputes Act 1947) dues are prioritised over dues to lenders that have relinquished their security interest to the liquidation process. Similarly, wages and dues owing to employees (other than workmen) are ranked pari passu with lenders that have relinquished their security to the liquidation estate.

As noted above, mortgage deeds need to be registered with the SRA to be enforceable. All lending documents need to be adequately stamped as per the stamp duty rates applicable in the relevant state in India.

Also as mentioned above, charges must be filed with the CERSAI subject to a nominal fee. Registration must be done within 30 days from the date of the transaction and is not required where (a) the creditor is not a bank, financial institution or asset reconstruction company, etc (referred to as a “secured creditor” in the SARFAESI); or (b) the security interest is in the nature of a lien on goods, pledges of movables, etc.

Apart from the above, there are no existing, pending or proposed rules, regulations or requirements mandating payment of any recording or similar taxes in connection with mortgage loans or mezzanine loans related to real estate.

Planning authorities are constituted for the implementation and governing of zoning regulations. Most states facilitate the updating/revising of an existing master plan at least once every ten years, by carrying out a fresh survey of the area within its jurisdiction, to indicate the manner in which development and improvement of the entire planning area is proposed.

Certain states facilitate the acquisition of lands by government organisations for industrial and residential developments. Developments in such areas are mainly governed by the rules and regulations framed by such government organisations.

Any usage of the property other than as prescribed under the zoning regulations will require prior consent of the state government.

Construction of new buildings and refurbishments in any state is governed by the National Building Code, applicable town and country planning statute, and applicable municipal law, including building by-laws framed by planning authorities. Building and development control regulations require various approvals to be obtained from different authorities for construction or refurbishment of buildings.

Zoning regulations sometimes have provisions for the protection and preservation of properties identified as heritage properties. Consents from the pollution control board, environmental department, fire department, airport authority, water supply and sewerage board, and electricity board are also required.

There is no single regulatory authority or statute to govern the entire real estate sector. The relevant authorities have been covered separately above.

To develop a new project, an application must be submitted to the jurisdictional municipal/planning authority along with all relevant title documents, plans/designs/drawings of the development and in-principle approvals from the relevant authorities.

The municipal/planning authority will provide consent once it is satisfied that the building, when constructed, would comply with building by-laws.

In some jurisdictions, a certificate is also issued by the municipal/planning authority after the pillars are constructed, confirming that the construction has commenced in compliance with the sanctioned plan.

After completion of development, the municipal/planning authority also issues a certificate confirming that the building is fit to be occupied. Although minor deviations may be compounded by paying a fee, major deviations in development may result in the project not being issued a completion/occupancy certificate.

Applicable town and country planning/municipal statutes prescribe timelines within which planning authorities are required to grant approval or reject plans for development of buildings.

Where a plan submitted for approval has been rejected or not expressly approved, the applicant may prefer an appeal to a higher authority, which is required to grant or reject the application within a prescribed time period. Where no response is received, the plan is often deemed to have been approved, though such deemed approval is not preferred, and developers still pursue written approvals.

In the event of any arbitrary action by a planning authority, the aggrieved party can approach a High Court, invoking its high prerogative writ jurisdiction.

Government entities enable parties to procure land for the development of strategic projects/areas by entering into:

• concession agreements;
• development agreements; and/or
• lease-cum-sale agreements.

The property is conveyed in favour of the allottee only upon compliance with the conditions in the agreements.

Where land is allotted by the government, approvals for implementation of the project can be quickly obtained. In some large projects, the developer may be required to lease/relinquish a small portion of the property in favour of the electricity supply company for the setting up of a power supply substation.

Authorities enforce the above-mentioned regulations and restrictions if the development is not in compliance with laws, and approvals such as the completion/occupancy certificate evidencing completion of the project will not be given. Further, the authorities may also initiate action in case of non-compliance or violation of applicable laws, including imposing high penalties or ordering the demolition of the buildings.

Real estate assets can be owned/held by private limited companies, public limited companies, LLPs and partnerships, as well as REITs.

Private and public limited companies must be incorporated under the Companies Act and must adopt charter documents setting out the objects and regulating the operations of the entity. LLPs are incorporated under the LLP Act. Foreign investment into LLPs engaged in construction development requires regulatory approval.

The costs for setting up companies or LLPs in India are about the same but the cost of operations for a company would likely be higher than the cost of operations for an LLP.

Partnerships can also hold land, but foreign investment in partnerships requires regulatory approval. It is relatively inexpensive to set up and register partnerships, but this may not be a preferred structure since the liability of the partners is not limited.

REITs are set up and operated in accordance with the SEBI (REIT) Regulations 2014.

Typically, foreign investors prefer private limited companies, while domestic investors prefer partnerships and LLPs for smaller holdings. LLPs are also increasingly preferred for smaller ownership of holiday/luxury rental real estate on a time-share basis or similar arrangements.

Companies are generally subject to corporate income tax at 22%, 25% or 30% (subject to applicable surcharge and cess), as may be applicable. LLPs are subject to income tax at the rate of 30% (plus applicable surcharge and cess).

REITs are granted limited pass-through status by a special income tax regime, due to which certain income is taxed directly in the hands of the investors. Interest and dividend income received from special purpose vehicles (SPVs) as well as rental income received from immovable property held directly by the REIT are subject to tax in the hands of the investors of the REITs, subject to conditions prescribed. Any income which has not been accorded a pass-through status would be subject to tax in the hands of the REIT and be exempt in the hands of the investors.

REITs can invest in land and any permanent improvements, leasehold or freehold, including any other assets incidental to the ownership of real estate. However, there have been a limited number of REITs since introduction of the SEBI (REIT) Regulations in 2014. REITs in India are only permitted to be publicly owned, ie, units of the REIT must be listed on stock exchanges. REITs can raise funds through an initial offer to the public and not private placements and subsequently through follow-on offers, rights issues and qualified institutional placements. REITs are mandated to distribute at least 90% of the net distributable cash flows to investors on a half-yearly basis and conduct full-fledged valuation of all REIT assets on a yearly basis through a registered valuer. The SEBI (REIT) Regulations do not prohibit investment in units by domestic or foreign investors. Investment in REIT units is exempted from the ambit of restrictions for FDI as well as foreign portfolio investment entities. The benefits of using a REIT include:

• unlocking invested capital for developers, especially in the commercial space;
• net worth and deposit requirements prescribed for sponsor and managers ensure that these platforms have sound and stable financial health;
• being regulated, these platforms provide more confidence to investors;
• limitations on number of investors and creation of SPVs applicable to private limited companies are not applicable to REITs; and
• mandatory listing of units provides for exit opportunity for investors.

Please see 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity regarding tax implications for REITs.

There are no minimum capital requirements for companies, LLPs or partnerships. REITs are required to comply with regulations relating to asset size and minimum offer.

Private limited companies need to have at least two directors on their board, while public limited companies need at least three directors. Public companies also have additional compliances, such as having independent directors on their board. Companies with paid-up capital over a prescribed threshold are also required to appoint a company secretary.

One-person companies can be incorporated by Indian citizens resident in India. It has been proposed that non-resident Indians should be allowed to incorporate one-person companies.

LLPs and partnerships are required to have at least two designated partners.

There has been increased attention to compliance with environmental, social and governance norms in India; thus, although not legally mandated, investors may require companies to undertake certain compliances in this regard. Directors of companies now need to pay heed to environmental issues, and some decisions of courts in recent years throw light on such obligations.

The costs for entity maintenance vary based on the type of entity involved. Annual compliance costs for a private limited company would typically be around USD20,000, and similar or lower costs can be anticipated for compliance by LLPs.

The law recognises leases and licences that permit a person to occupy and use real estate for a limited period without acquiring the absolute title to said real estate. The transaction is a lease if it transfers possession of the premises; it is a licence if it gives a right to a permissive user with no possession/interest in the premises.

The law does not differentiate between different types of commercial leases. Most commercial leases are based on a fixed rental and fixed term concept. There are triple-net leases, where the tenant bears the cost of the property tax, insurance and maintenance charges, and profit-sharing leases, where the rent is based on a percentage of lessee’s revenue, but these are not as common.

Rent or lease terms are freely negotiable in contracts entered into between parties, except states with rent-control statutes and properties where there are statutory tenants. Rent and lease terms largely depend on the city, location of the building and market rents for similar buildings.

Duration of Lease Term

There are no regulations governing the term of a lease. The initial term of a lease is generally three to five years. Tenants can opt for longer leases of ten years. It is common to have an agreement to lease for a longer period (paying nominal stamp duty) and to execute lease deeds thereunder, as such structuring can result in lower stamp duty.

Maintenance and Repair

Maintenance and repair of the actual premises occupied by the tenant are generally the tenant’s responsibility excluding major or structural repairs (that are not attributable to the tenant).

Frequency of Rent Payments

In most commercial leases, rents are payable on monthly basis in advance. For retail leases, malls, hotels, etc, lease rent or a portion thereof can be based on the turnover of the lessee’s revenue at the establishment. Where a furnished space is provided, rent may be payable on the furniture and fittings, until the cost of such furniture and fittings has been fully depreciated.

In a typical commercial lease, rent will escalate at the rate of 10%-15% every three years.

Rent review and escalation based on market rent are uncommon in Indian leases. Where a rent review is agreed to in a long-term lease, an independent expert determines the prevailing market rent. The determination of rent is typically subject to certain exclusions, including disregarding:

• goodwill attached to the premises by reason of the tenant’s business or occupation; and
• effect of tenant improvements.

VAT has been subsumed by GST, which is payable on leases of property/assets for commercial use and is borne by the tenant. Tenants can claim input tax credit, subject to conditions, on such tax paid. Also, tax on lease rent is deducted at source, as per the Income Tax Act 1961, by the tenant prior to paying rent to the landlord.

In most commercial leases, a tenant is required to pay the landlord an interest-free refundable security deposit (IFRSD), held by the landlord as security for the tenant’s obligations during the lease term. The quantum of IFRSD is commercially agreed, but the practice differs from state to state and it can vary between three and 12 months’ rent.

In addition to rent, tenants usually pay maintenance and parking charges. The landlord is generally responsible for maintenance and repair of common areas, the cost of which is charged back to tenants on a fixed-cost basis (with an agreed escalation) or on actual cost-plus basis, with the landlord receiving a management fee of 15%-20% of the cost incurred in providing the services.

All such payments (other than municipal taxes borne by the tenant) made to the landlord for use of the property are subject to withholding tax and GST. Any IFRSD is subject to the deduction of tax at source as rent.

Utilities (including power, back-up power, water) are paid by each tenant of the building based on actuals. Some landlords charge a mark-up for services such as diesel generators.

Typically, lessors are responsible for payment of property taxes except where the lessees take the land on lease and construct the building. In some cities, landlords require the tenant to bear property taxes under contracts.

Generally, landlords obtain a fire and perils policy covering loss of property. The cost of insurance is sometimes charged back to tenants as part of the maintenance charges.

Business interruption (BI) insurance is not sold standalone and can be taken only in conjunction with fire insurance/machinery/boiler explosion policy or as part of a package in products such as industrial all-risk insurance. It offers protection to the net profit, standing charges and an increase in the cost of working to maintain normal output/turnover.

The COVID-19 pandemic and consequent lockdown orders would not have triggered payments under such BI policies because they did not result in physical damage to the insured property.

The Supreme Court of India has consistently held that when interpreting insurance contracts, the terms of the policy will govern the contract between the parties and courts cannot interfere. Thus, it is unlikely that courts would interpret BI policies to cover the COVID-19 pandemic or lockdown, unless such situations are specifically covered by the policy.

The usage of a project/building is dependent on the zoning of the land and any conditions running with the land. At times, land is allotted to a landlord for a determined purpose, such as biotechnology or IT-related uses, and the landlord would impose the same restrictions on the tenants. Non-compliance with the usage conditions could result in termination of the lease.

Generally, a tenant is only permitted to perform non-structural alterations at the premises. The landlord may also require the tenant to reinstate the premises to the condition prior to the alteration upon expiry/termination of the lease.

Where a tenant takes land on long-term lease, the tenant would have the right to develop the land as they require, subject to applicable law. Upon expiry or termination of the lease, development on the land would revert to the landlord, at no cost or at an agreed cost.

Under Indian law, the owner of the land and the owner of the building constructed thereon can be different people. Any gain on a transfer of development rights in a property is subject to tax as income of the landlord. The transfer of development rights to the tenant for developing the land and for commercial exploitation is subject to GST in the hands of the tenant (under the “reverse charge mechanism”).

Laws relating to leases do not differentiate between residential, industrial, commercial or retail leases, but commercial treatment may differ from market to market.

No asset class distinctions relating to leases have been introduced due to the COVID-19 pandemic.

It is market practice to include a termination event in the lease triggered by tenant’s insolvency. However, where the tenant is under a corporate insolvency resolution process, upon admission of the insolvency application a moratorium is declared with the effect of, inter alia, prohibiting the recovery of any property by an owner/lessor where such property is occupied by or in possession of the tenant under insolvency.

If contractually permitted, the tenant may continue to occupy the premises as a monthly tenant after the expiry/termination of lease or if the landlord does not refund the IFRSD in time. In all other cases, the tenant would have to leave the premises on the date of the expiry/termination of the lease, failing which the landlord can approach the court to evict the tenant, who will be a trespasser. The landlord can also claim mesne profits from the tenant for such unauthorised occupation.

Under TOPA, a lessee may transfer absolutely, or by way of mortgage/sublease, whole or part of their interest in the property, and any transferee of such interest or part may again transfer it, subject to the lessee not ceasing any of the liabilities attached to the lease and there being no contract to the contrary. For statutory tenants, state legislation (such as the Maharashtra Rent Control Act 1999) also prescribes transfer restrictions. The sublessee must abide by the lease agreement executed.

In commercial leases, landlords generally permit assignment/subleasing to affiliates/group companies but not to unrelated third parties.

Events of default and termination rights are contractually agreed between parties, including granting a cure period following such an event of default. Such events would be standard events, such as breach of lease terms, failure to pay rent for over two rent cycles, force majeure events, failure of landlord to rectify structural damage/defects, any claims/governmental action resulting the tenant not being able to use or access the property, breach of sanctions laws/anti-bribery laws, etc.

Immovable property leases from year to year or for more than 12 months or reserving a yearly rent require mandatory registration at the SRA. The Registration Act requires the deed to be registered within four months of its execution. An additional four months’ discretionary extension may be granted by the SRA, by levying a penalty, if such non-registration was due to unavoidable circumstances. After registration, the lease is recorded in the local Registry of Deeds and becomes a public document.

Stamp duty is payable on the lease deed before it is registered, by the tenant, unless it is otherwise agreed to be shared between the parties.

Although licences are not normally required to be registered, certain states (such as Maharashtra; see the Maharashtra Rent Control Act) mandate it.

Where a tenant is in breach of the lease, the landlord would have to follow the procedure set out in the lease deed to evict the tenant, including giving the tenant an opportunity to cure the default. Thereafter, the landlord can issue a notice of termination and initiate legal action to recover the premises (and mesne profits) where the tenant remains in occupation. The process of tenant eviction may take three to seven years. In rent-controlled properties, evicting a tenant could take much longer.

A third party cannot terminate a lease unless contractually agreed. If a condemnation event by a government body occurs, the lease will stand terminated as the property will vest with the governmental authority concerned. Compensation for such acquisition is typically paid to the owner of the property unless the sharing of compensation is contractually agreed between the owner and lessee.

Remedies in the event of a tenant breach and lease termination are typically limited to the landlord claiming remaining rent and mesne profits. Such claims are also subject to limitation laws; claims may be made within three years of the breach pursuant to which the claim has arisen. In India, only direct damages can be claimed unless a party has undertaken to indemnify the counterparty for any specific kinds of losses. Typically, landlords collect an IFRSD to ensure that landlords have adequate remedies in case of the tenant’s breach. Landlords may also pursue arbitration or court proceedings depending on the terms of the lease deed.

Construction contracts are typically categorised as lump-sum turnkey fixed-price contracts, bill of quantities-based contracts (item-rate contracts), and work package-based contracts.

For projects where a detailed bill of quantities is possible, owners opt for an item-rate contract. For large infrastructure construction projects, lump-sum turnkey contracts and work package-based contracts are common.

Regardless of pricing structure, construction contracts incorporate detailed clauses to address eventualities which may impact completion time and contract price, including change in law, force majeure, change in scope/variation and suspension. Contracts typically provide for mechanisms to adjust contract price upon the occurrence of such eventualities. Contractually agreed price escalation clauses with thresholds are also negotiated, eg, escalation on account of change in price of a specified raw material.

Split structures and design-and-build structures are commonly used for risk allocation and rewards for construction projects.

Split structure (owners appoint an architect for design and a separate contractor for construction) is prevalent for construction of real estate or manufacturing units. Under this arrangement, the owner bears the sole responsibility for design risks, while the contractor is responsible for executing the construction. Contractors may seek to shift responsibility for construction failures onto design issues, leading to counterclaims.

For design-and-build structures, the owner enters into a lump-sum turnkey contract for the entire project. Owners have a right to review and certify the contractors’ compliance. Contractors are often responsible even after completion, during an agreed defects liability period.

Warranties as to quality, workmanship, structural stability, fitness for purpose and adherence to applicable laws, technical specifications and prudent industry practices are undertaken by contractors, subject to normal wear and tear, industry-specific and technical exceptions.

Contractors may be required to provide the owner with a corporate guarantee or a fund-based performance guarantee. The retention of payments is also common, and such guarantee/retention amount is released after completion of the defects liability period.

Indemnity for claims due to breach of contract/law, bodily injury, death, loss of property, gross negligence, wilful misconduct and fraud are prevalent in construction contracts. The overall limitation of liability typically varies between 50% and 100% of the contract price.

Contractors are also required to obtain and maintain adequate insurance, including contractor’s all-risk insurance, third-party liability insurance and workman insurance.

Time is of the essence in construction contacts, with fixed project schedules for key milestones and a target completion date. The project schedule is typically subject to extension of time clauses. In case of any delay, typically delay damages are levied at small percentage (0.1% to 0.5%) of the contract price per day/week, subject to a cap of around 5% to 10%. To ensure compliance with the time schedule, the owner may require the contractor to furnish a corporate or fund-based performance guarantee. Additionally, retention of payments is also common, as noted above.

The owner may, at the contractor’s cost, have the contract performed through a third party in case of non-performance by the contractor pursuant to the Specific Relief (Amendment) Act 2018.

As discussed above, corporate guarantees, performance bank guarantees and retention payments are typically sought from contractors to ensure performance. However, in cases where there is a perceived risk regarding the financial standing of the contractor, the owner may negotiate additional security, such as letters of credit, parent guarantees, performance bonds, escrow accounts or third-party sureties. Such additional security is typically required in large infrastructure projects developed under a PPP model.

It is also common to penalise delays in performance of work by requiring the contractor to pay damages/liquidated damages.

Typically, contractors/designers do not have lien on a property in the event of non-payment but delay in payment attracts penal interest. Non-payment beyond a certain threshold of time constitutes an event of default by the owner, leading to suspension of works and termination. The contract usually provides for a mechanism to address disputed payments, failing which dispute resolution may be invoked by the disputing party. However, in procurement contracts involving sale of goods, an unpaid seller has a lien under Indian law, on undelivered goods. Once delivered, the unpaid seller has the right to sue for the price of such goods.

In most states, a building comprising more than a prescribed number of floors can only be occupied after an occupancy/completion certificate has been obtained from the relevant planning authority. There are other approvals that may be required such as fire clearance certificates or permanent electricity connections from the utility company.

VAT has been subsumed by GST, which is payable on the leasing, licensing or transfer of development rights of land (at 18%), and on the transfer of under-construction property. Leasing of residential apartments for residential use is exempt from GST.

GST on transfer of under-construction property varies from 1% to 12% depending on the kind of property, with restrictions on the availability of input tax credit. GST is inapplicable on the sale of constructed property. The tax burden can be passed on to the buyer commercially.

In certain circumstances/structures, stamp duty on transfer of immovable property can be lower than typical stamp duty rates for conveyance, for instance where property is contributed by a partner into a partnership firm. However, such structures must be individually analysed.

Municipal taxes are calculated based on location, size, age, use and occupation of the property (self-occupied/tenanted). Sometimes, taxes are based on rents received. There are no exemptions for payment of property taxes, except for properties used for charitable purposes/religious institutions.

Tax consequences in India follow the residential status of the income-earning person, determined for every tax period.

An Indian citizen having India-sourced taxable income exceeding INR1.5 million during the tax year will be deemed to be India-resident if they are not liable to tax in any other country by reason of domicile/residence/other similar criteria.

A company is regarded as non-India-resident if it is a foreign company incorporated outside India and its place of effective management is not in India.

Any income of a non-resident from property situated in India is subject to tax in India, and withholding tax applies.

A foreign company’s income is usually taxed at 35% (plus applicable surcharge and cess). However, gains on the sale of real estate held as an investment are taxed at 12.5% (plus applicable surcharge and cess) or 35% (plus applicable surcharge and cess), depending on the period of holding. Where payment of consideration is for purchase of property from a person resident in India, such payment is also subject to withholding tax at 1%, subject to certain thresholds.

Where property value for the purpose of the payment of stamp duty as per local laws exceeds 110% of the consideration received on its transfer (whether capital asset or business asset), value of property for payment of stamp duty is deemed as consideration received for levy of income tax. Similarly, where consideration paid for acquisition of immovable property is less than 90% of property value for payment of stamp duty as per local laws, the difference between the value of the property for payment of stamp duty and consideration discharged is taxed as income of the purchaser, at applicable rates.

Tax on non-resident taxpayers may, however, be reduced if favourable tax treaty provisions apply.

Taxation of rental property has been covered above. Rental income also qualifies for the following deductions/rebates:

• deduction of 30% of rental income (allowance towards repairs and maintenance);
• property taxes paid to local authority; and
• interest paid on loans used to purchase the property.

However, set-off of loss arising from interest paid in excess of rental income is subject to certain limitations.

Structured Real Estate Transactions

Gains (long term) arising on sale of shares of an Indian company are generally taxable at 12.5% (plus applicable surcharge and cess) where the seller is a non-resident or foreign company.

Indian tax laws require transfer of shares to take place at a fair market value calculated in a prescribed manner.

It is mandatory for parties entering into a purchase or sale of immovable property to obtain and quote their Permanent Account Number allotted by the Indian tax authorities on the conveyance document.

Depreciation/other business expenses may be claimed as deductions only if the taxpayer is in the business of commercially letting out properties, or where plant and machinery, inseparable from the property, are let out with the property.