Under India's Foreign Exchange Management Act (FEMA) and the Reserve Bank of India's Liberalised Remittance Scheme (LRS), resident individuals are allowed to buy property abroad, including in Dubai.

However, the purchase must follow specific rules related to remittances, funding sources and tax disclosures. Legal experts say understanding these regulations is essential before committing to overseas real estate investments.

LRS route commonly used

Most Indian residents use the Liberalised Remittance Scheme to buy property overseas. Under LRS, an individual can remit up to $250,000 per financial year (April-March) for permitted transactions, including purchasing foreign real estate.

"An Indian resident individual can legally purchase property in Dubai through remittances sent from India under the Liberalised Remittance Scheme, which is capped at $250,000 per person per financial year," said Himanshu Chahar, partner at Cyril Amarchand Mangaldas.

The remittance must be routed through authorised dealer banks using the appropriate purpose code. Buyers must also ensure that the funds being transferred are from legitimate and tax-paid sources. Family members can also combine their remittance limits to purchase property jointly.

"Resident family members may pool their LRS limits only if they are joint owners on the title deed," said Alay Razvi, managing partner at Accord Juris.

However, LRS is available only to resident individuals. Corporates, partnership firms, trusts, and Hindu Undivided Families (HUFs) cannot use this route to acquire overseas property.

"The LRS facility cannot be used by corporates, partnership firms, trusts or Hindu Undivided Families," said Shivank Arora, associate partner at Alpha Partners.

Tax disclosure requirements

Buying property abroad also brings tax and reporting obligations in India. Experts say the overseas property must be disclosed in the buyer's Indian Income Tax returns. Any income earned from the property - such as rent - or capital gains from its sale must also be reported.

"All funds routed through LRS must flow via an authorised dealer bank, and the property along with any rental or sale proceeds, must be disclosed in Indian tax filings," Chahar said.

Restrictions on foreign loans

Financing the purchase is another area where investors must exercise caution. Resident Indians are generally not allowed to take foreign loans or borrow from overseas lenders, including UAE banks or developers, to buy property abroad.

"Indian residents are not permitted to raise foreign loans or avail UAE bank or developer financing to acquire overseas property," Razvi said.

According to Tushar Kumar, advocate at the Supreme Court of India, borrowing in foreign currency for such purchases could violate FEMA rules governing overseas borrowing.

"A resident Indian is generally not permitted to avail a loan in foreign exchange from an overseas lender for acquiring immovable property abroad," he said.

Legal experts also note that Indian banks rarely offer housing loans for overseas real estate purchases, making self-funding through remittances the most common route.

Compliance crucial for investors

Regulations governing overseas property purchases cover multiple aspects, including remittance limits, financing restrictions, tax disclosures, and repatriation of funds. Failure to comply with FEMA provisions could attract financial penalties.

"If the transaction does not comply with FEMA provisions, monetary penalties under the law may apply," Kumar said.

Given the complexity of the rules, legal experts advise Indian investors to carefully structure transactions and seek professional advice before transferring funds for overseas property purchases.