Risks in Buying Overseas Property

Indian investors must watch out for FEMA violations, reporting gaps and repatriation pitfalls.

Owning a flat in Dubai or an apartment in London has become a real aspiration for many Indian investors. It offers a way to diversify, earn rental income in foreign currency, and hold a global asset. And the numbers support this trend, according to Knight Frank’s Wealth Report 2024, Indian HNIs are among the top five nationalities buying prime residential property in Dubai, London, and Singapore. In fact, LRS remittances for overseas property purchases crossed USD 400 million in FY2024 alone, marking a record high.

But as interest has grown, so has enforcement. Earlier this year, the Directorate of Enforcement carried out searches under the Foreign Exchange Management Act (FEMA), 1999. These involved high net worth individuals who had acquired multiple properties in Dubai without routing funds through authorized banking channels, no clear paper trail, no documented source of funds. As a result, eight immovable properties in India, worth ₹27.83 crore, were seized.

The takeaway is simple: buying property abroad is not just a financial move. It’s also a regulatory journey and most buyers underestimate that part.

The LRS Limit Is Stricter Than You Think

Under the Liberalized Remittance Scheme (LRS), Indian residents can remit up to USD 250,000 (around ₹2.2 crore) per financial year for overseas property purchases, without needing prior RBI approval. On the surface, this seems straightforward but in practice, it isn’t.

There are clear boundaries. You cannot borrow from overseas banks, individuals, or institutions directly or indirectly, to fund the purchase. Even developer-offered EMI schemes can sometimes be interpreted as overseas borrowing, and some banks may refuse to process such remittances as a result.

Then there are the shortcuts people try - booking property in a relative’s name to bypass limits, splitting payments across family members, or misdeclaring the purpose of remittance. These may seem convenient at the moment, but they often resurface as problems years later.

Even methods that feel ‘formal’ like using international credit or debit cards for bookings, or making partial cash payments may not qualify as compliant, since property acquisition is treated as a capital account transaction.

The Splitting Trap

A Mumbai-based couple planning to buy an ₹8 crore apartment in Dubai split the payment across four family members, each remitting just under the USD 250,000 annual cap. The bank flagged the coordinated transfers. Since the funds were linked to a single property transaction, the remittances were treated as a structured attempt to bypass LRS limits. All four accounts were placed under scrutiny and the transaction was frozen pending ED inquiry.

The Frozen Repatriation

A Bengaluru-based NRI sold her London flat after five years and attempted to repatriate the proceeds to India. The bank asked for the original LRS remittance records, sale deed, tax compliance certificate, and proof that rental income had been declared in Indian ITRs for all five years. She had declared for only two years. The transfer was held for over eight months while documentation gaps were resolved and penalties were levied for the undisclosed rental income.

Compliance Does Not End at Purchase

Buying the property is just the beginning. After that, a new set of responsibilities kicks in, local property taxes, vacancy levies, rental income reporting, and beneficial ownership disclosures.

In the UK, for instance, non-resident property owners must comply with specific tax filing and transparency requirements. These aren’t minor details, missing them can lead to fines, penalties, or even complications when you try to sell and transfer funds later.

Back in India, the obligations continue. Rental income from overseas property must be declared in your income tax return. Capital gains on sale must be reported. The foreign asset itself must also be disclosed. None of this is optional.

The 180-Day Rule Nobody Talks About

There’s one rule many buyers completely overlook: if rental income or sale proceeds from your overseas property are not reinvested abroad, they must be brought back to India within 180 days of receipt. Holding the funds overseas beyond this period without reinvesting can itself count as a FEMA violation.

There’s also a tax angle. Whether the money is reinvested abroad or brought back, Indian taxes still apply on global income. Rental income and capital gains must be reported, and the foreign asset must be disclosed.

Failure to do this can trigger action under the Black Money Act, 2015. The consequences are serious, undisclosed foreign assets are taxed at 30%, with an additional penalty of three times the tax amount. That’s effectively a 120% levy on the asset’s value. In cases of willful non-disclosure, civil imprisonment of up to ten years is also possible.

What the Penalties Actually Look Like: FEMA Violation Consequences

Violation	Consequence under FEMA
Unauthorized remittance for overseas property (amount unquantified)	Monetary penalty up to 3 times the amount involved under Section 13 of FEMA
Contravention where the amount cannot be quantified	Penalty up to ₹2 lakh, plus ₹5,000 per day for continuing violations
Acquisition of overseas property in violation of LRS rules	Authorities can confiscate or attach equivalent assets and/or impose financial penalties in India
Failure to pay penalty within 90 days of adjudication	Civil imprisonment of up to 3 years; amount may be deducted until compliance/payment
Unauthorized acquisition or transfer of foreign assets beyond permitted limits	Imprisonment up to 5 years, along with fine and other penalties, depending on the nature and scale of violation

Conclusion

Before committing to an overseas property, make sure you can tick all of the following:

Requirement	Details
Remittance Route	All payments must go through authorized banking channels under LRS, with the correct purpose code
Annual Limit	Total remittances must stay within USD 250,000 per financial year, per individual
No Overseas Borrowing	Avoid borrowing from overseas sources, directly or indirectly
Proper Documentation	Keep sale agreements, remittance proofs, bank declarations, and source of funds ready
Foreign Compliance	Understand local tax laws, rental rules, and ownership disclosures in the destination country
Indian Tax Reporting	Declare rental income, capital gains, and disclose the foreign asset annually
Repatriation Planning	If income isn't reinvested abroad, bring it back within 180 days

Global real estate can absolutely be part of a strong portfolio, but only if compliance is treated as part of the investment itself, not an afterthought.

Plan it from day one, or be prepared to deal with the consequences.

Disclaimer

This article is for general informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making investment decisions.

References

·        ET Wealth Feb 2026 Edition - Risks in buying overseas property

·        Knight Frank Wealth Report 2024

·        Directorate of Enforcement — Public Disclosures FY2023–24

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