Dubai, known for its ultramodern architecture and booming real estate market, attracts investors from around the globe, including a significant number from India. With its strategic location, tax-free living, and high standards of living, Dubai offers a plethora of opportunities for foreign investors in the real estate sector. But can an Indian resident actually purchase immovable property there? Let’s delve into the regulations, processes, and considerations that Indian investors should be aware of.
UAE Legal Framework
The United Arab Emirates (UAE) government allows foreigners, including Indian nationals, to own immovable property in designated areas known as “freehold areas.” This policy was introduced in 2002 when the Emirate of Dubai issued a new law permitting non-GCC nationals to buy, sell, and lease property in these zones without the need for any special permissions or local sponsorship.
India’s Regulations
The Reserve Bank of India (RBI), under FEMA, regulates Indian residents’ ability to acquire immovable property outside India.
Acquisition of Immovable Property outside India is regulated through Foreign Exchange Management (Overseas Investment) Rules 2022. An Indian resident can acquire an immovable property outside India either from an Indian resident or a resident outside India. In the two scenarios, the regulations are as follows:-
- Acquisition from a person resident in India
A person resident in India may acquire immovable property outside India from a person resident in India by way of:
- Inheritance or
- Gift or
- Purchase from a person resident in India who has acquired such property as per the foreign exchange provisions in force at the time of such acquisition;
II. Acquisition from a person resident outside India
A person resident in India may acquire immovable property outside India from a person resident outside India by way of:
- by way of inheritance
- by way of purchase out of foreign exchange held in RFC account
- by way of purchase out of the remittances sent under the Liberalised Remittance Scheme
- jointly with a relative who is a person resident outside India;
- out of the income or sale proceeds of the assets, other than ODI, acquired overseas under the provisions of the Act
Therefore a resident individual can remit upto the limit prescribed under Liberalised Remittance Scheme (LRS) i.e. USD 2,50,000 per financial year for purchase of immovable property. The said limit is for an individual. Therefore a family looking to buy a bigger property can remit the funds in larger amounts by utilizing their complete individual limits.
Can a resident borrow money in foreign exchange and use the funds for the purchase of immovable property?
In accordance with Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, an individual resident in India can borrow a sum not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank from time to time, from his/her relatives outside India and subject to such terms and conditions as specified by the Reserve Bank from time to time in consultation with the Government of India.
Otherwise, if a resident individual needs to secure a loan from a foreign bank or institution, he must obtain prior permission from the Reserve Bank of India.
Income Tax Impact
Tax Compliance: Section 5 of the Income Tax Act, 1961: This section defines the scope of total income. According to this section, residents of India are taxed on their global income, which means all income from a source inside or outside India is taxable for Indian residents.
Resident Individuals shall be required to pay income tax on any income generated from the property abroad, such as rental income. Such income should be reported in their Indian tax returns. In addition, the foreign assets, like overseas property, has to be declared in Schedule FA (Foreign Assets) of the Income Tax Return.
Conclusion
For Indian residents, purchasing immovable property in Dubai is permissible under FEMA, provided the investments are made within the limits and conditions of the LRS i.e USD 2,50,000 per financial year and other relevant regulations. Also, the resident individual is not allowed to borrow in foreign exchange to purchase an immovable property outside India.
