Property Ownership in the Gulf’s Cosmopolitan Hub? Don’t Forget Your FEMA

Dreaming of Property Ownership in the Gulf’s Cosmopolitan Hub? Don’t Forget Your FEMA

Foreign exchange regulations can make buying property in Dubai a bureaucratic quagmire for Indians. Offers of simple payment plans with annual installments may be in violation of the Foreign Exchange Management Act (FEMA). FEMA regulations provide that people are only permitted to transact financial assets outside of India with the Reserve Bank of India’s (RBI) consent, either generally or specifically. Due to the foreign exchange responsibilities involved, purchasing immovable property on a deferred payment basis is not allowed without prior approval from the RBI.

Many Indian citizens want to buy property in Dubai, frequently without realising that doing so would violate FEMA regulations. They begin by entering into agreements that require only a 15–20% down payment of the property worth, with payments to be made in installments.

Apanning 4 to 8 years. However, many fail to realize they might be breaching FEMA since this type of transaction are present in the  grey area, as is the inherent quality of every legal regulation.

The transactions are carried out by the Individual Residents for the purchase of this type of property are ideally considered under LRS (Liberalised Remittance Scheme), Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

The permissible capital account transactions by an individual under LRS are: 9ac per FED Master Direction No. 7/2015-16)

i) opening of foreign currency account abroad with a bank;
ii) purchase of property abroad;
iii) making investments abroad;
iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;
v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

The ideal notion being LRS limit for Financial year is USD 2,50,000 and limit gets reinstated the next FY to the same amount. However here lies the grey area which is being missed by the individuals. Under FEMA, a resident can enter into a financial transaction in respect of a transaction involving an asset outside India only with general or specific permission of the Reserve Bank of India (RBI). The transaction involving purchase of immovable property on deferred payment basis is not permitted without prior approval of RBI as it creates obligation in foreign exchange.