Over the last decade, Indian residents have increasingly looked beyond domestic markets to invest in overseas real estate — apartments in Dubai, student housing in the UK, holiday homes in Europe, or rental assets in the US. From a commercial perspective, this makes sense. From a regulatory perspective, however, foreign real estate investment by Indian residents is governed by FEMA, and that reality is often overlooked until a bank, auditor, or regulator raises a question.
In practice, most FEMA issues in overseas real estate are not deliberate violations. They arise because people assume that personal investments abroad are unrestricted. But they are not. In this article, let us explore the finer nuances of foreign real estate transactions:
1. Can Indian Residents Invest in Real Estate Abroad?
Yes — Indian residents can invest in real estate abroad, but only through permitted routes under FEMA, and subject to specific conditions.
Unlike overseas financial assets, real estate abroad is not automatically covered under general investment freedoms. The route and purpose of remittance matter more than the asset itself.
2. Two FEMA Routes:
(a) Liberalized Remittance Scheme (LRS) — Most Common Route
Under the Liberalized Remittance Scheme, a resident individual may remit up to USD 250,000 per financial year for permitted capital and current account transactions.
Overseas real estate purchase is permitted under LRS, provided:
- The property is purchased in the individual’s own name
- Funds are remitted through an Authorised Dealer (AD) bank
- The investment is bona fide and not for prohibited purposes
Important practical points:
- Joint purchases using multiple family members’ LRS limits must be carefully structured
- Banks increasingly seek declarations and property details
- Source of funds must be resident income/savings
LRS is suitable for personal investment, not for structured or leveraged overseas real estate activity.
B. Overseas Direct Investment (ODI) — Limited Applicability
ODI rules apply when:
- An Indian entity invests abroad, or
- A resident individual invests in a foreign entity, not directly in property
Real estate is generally not a permitted core activity under ODI, except:
- Where the overseas entity is engaged in development, leasing, or management of real estate for business purposes, and
- The investment has clear commercial substance
For most individuals, ODI is not the appropriate route for buying property abroad.
3. Red Lines:
From FEMA enforcement experience, the following are high-risk or impermissible:
- Using foreign business entities to hold personal real estate
- Routing funds through relatives or overseas trusts
- Using crypto or informal channels for property payments
- Repeated, structured purchases resembling a real estate business
- Leveraging Indian funds through overseas loans without disclosure
Banks are now trained to identify patterns that suggest commercial activity disguised as personal investment.
4. Financing the Property:
A common misconception is that Indian residents can freely borrow abroad to buy property.
What is generally permitted:
- Purchase using own funds remitted under LRS
- Local mortgage from a foreign bank (subject to host country law), provided:
- The loan is serviced from overseas income, or
- Disclosed appropriately
What is restricted
- Creating charge on Indian assets for overseas property
- Using Indian loans to fund overseas real estate
- Undisclosed offshore borrowing
Undisclosed overseas borrowing can trigger FEMA violations under borrowing and lending regulations.
5. Rental Income and Sale Proceeds:
Once the property is acquired, FEMA also regulates inward flows.
Rental income
- Can be retained abroad
- Or repatriated to India through banking channels
- Must be disclosed under income-tax law
Sale proceeds
- Can be retained abroad
- Or repatriated to India
- Must follow banking channels with clear audit trail
What matters is traceability and disclosure, not mandatory repatriation.
6. Tax and FEMA is always Interlinked
FEMA compliance does not replace tax compliance.
Indian residents investing abroad must consider:
- Foreign income disclosure
- Capital gains taxation
- Foreign tax credit
- Schedule FA reporting
Many FEMA enquiries begin when tax disclosures and bank remittances do not align. Tax authorities know your digital financial footprints.
7. Common Pitfalls I See in Practice
- Assuming LRS is “automatic approval”
- Using multiple family members’ limits informally
- Buying through offshore structures without ODI compliance
- Ignoring loan and mortgage reporting
- Non-disclosure of overseas income and assets
- Treating repeated purchases as personal when they appear commercial
These issues typically surface during:
- Income-tax scrutiny
- Bank compliance reviews
- Net-worth certifications
- Succession planning
8. Enforcement Trends:
Regulators now rely on:
- Bank-level transaction monitoring
- Cross-border information exchange
- Data matching between RBI and tax authorities
The question regulators increasingly ask is not:
“Did you buy property abroad?”
But:
“How was it funded, structured, and disclosed?”
9. Practical Tips for Indians Investing Abroad
Based on current regulatory practice, Indian residents should:
- Use LRS transparently and conservatively
- Buy in individual capacity, not through opaque entities
- Maintain clear documentation — remittances, contracts, loan papers
- Avoid informal funding arrangements
- Disclose everything consistently — bank, FEMA, and tax
- Seek advice before scaling or leveraging
What works for a one-time apartment purchase may not work for a portfolio.
10. Concluding Thoughts — Overseas Property Is Allowed, Informality Is Not
India does not prohibit residents from owning property abroad. What FEMA insists on is discipline, transparency, and intent.
For individuals, overseas real estate should remain:
- a personal investment,
- funded transparently,
- reported consistently.
Once it starts looking like a business or a structure, FEMA scrutiny intensifies.
Handled correctly, overseas real estate diversifies wealth.
Handled casually, it becomes a long-term regulatory headache.
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In case you have any concern and queries or need any support under FEMA, FDI, ODI, GST and International Taxation, you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com
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