Kamal Ghorui
Owning overseas real estate, whether in Dubai, London or Singapore, has become an increasingly popular aspiration among Indian investors. But recent enforcement action has highlighted that foreign property purchases can invite regulatory scrutiny if Foreign Exchange Management Act (FEMA) rules are not followed carefully.Earlier this month, the Directorate of Enforcement conducted searches under FEMA, 1999 against high net-worth individuals who had acquired multiple properties in Dubai without corresponding outward remittances through authorised banking channels. As the foreign properties could not be seized directly, equivalent immovable assets in India worth Rs 27.83 crore were attached instead.
1. LRS limit is the first checkpoint
Under the Liberalised Remittance Scheme (LRS), resident individuals can remit up to USD 250,000 per financial year without prior RBI approval to acquire overseas immovable property, according to an ET report.The limit applies per individual and across all bank accounts. Splitting payments among family members or routing funds through multiple banks does not expand the cap. Experts caution that mis-declaring the purpose of remittance or booking property in another person’s name to bypass limits can trigger compliance inquiries.
2. Overseas borrowing is not allowed
FEMA prohibits residents from borrowing abroad to finance property purchases. Even informal arrangements can fall foul of rules.In some cases, buyers have asked relatives overseas to make payments with plans to reimburse them later. Such arrangements may be treated as overseas borrowing and classified as violations. Developer EMI schemes can also be interpreted as creating foreign borrowing obligations, prompting banks to block remittances.
3. Documentation and banking trail are critical
All payments must move through authorised dealer banks using the correct purpose codes. Transactions routed outside the banking system — commonly referred to as hawala — are illegal.However, risks are not limited to illegal transfers. Missing agreements, incorrect declarations, or lack of source-of-fund documentation can resurface years later, particularly when investors attempt to sell the property or repatriate funds. Banks typically require complete remittance records, tax proofs and transaction documents before allowing money to return to India.
4. FEMA compliance does not replace tax compliance
Another common misconception is that FEMA approval automatically ensures tax compliance. India taxes residents on global income, meaning rental earnings and capital gains from overseas property must be declared in Indian income tax returns.Failure to disclose foreign assets or income may invite action under the Black Money Act, which allows steep penalties and prosecution in serious cases.
5. Repatriation timelines matter
FEMA rules also govern what happens after purchase. Rental income or sale proceeds may be retained abroad only if reinvested. Otherwise, funds must generally be repatriated to India within prescribed timelines — typically 180 days.Holding funds overseas without reinvestment beyond this period may be treated as a violation.
Compliance continues after purchase
Owning foreign property brings ongoing obligations, including local tax filings, rental disclosures and ownership reporting requirements in the destination country. Non-compliance abroad can delay or block sale proceeds and create complications under Indian regulations.
