Indian Residents Owning Property in UAE Under ED Scanner for Source of Funds
The Enforcement Directorate (ED), acting on data shared by the Income Tax Department, has begun issuing notices to Indian residents who have purchased properties in the UAE. These notices seek an explanation regarding the source and mode of payment used for such overseas transactions.
The focus has intensified due to reports of Indian residents using cryptocurrencies, including those acquired with tax-paid earnings, to buy properties in the UAE. These transactions, often routed through blockchain networks and private wallets directly to UAE developers or brokers, bypass the formal banking system. Such conduct is seen as a possible violation of the Foreign Exchange Management Act (FEMA), since it sidesteps regulatory frameworks like the Liberalized Remittance Scheme (LRS), which mandates bank-mediated transfers.
Developers in the UAE have reportedly been accepting cryptocurrency payments, a practice now facing potential restriction under a new crypto regime that the Emirates is likely to implement. However, Indian residents, in attempts to avoid heavy crypto taxation, conserve LRS limits and cut currency conversion fees, have used crypto assets to invest in overseas real estate, often without declaring these transactions in their income tax returns.
These cases also come under the scrutiny of the Black Money Act, which governs undisclosed foreign assets. Any property acquired abroad with unaccounted money may attract a tax and penalty amounting to 120% of the property value. In addition, FEMA violations may result in financial penalties two to three times the amount involved.
A more serious consequence awaits those who may have moved funds to Dubai through illegal channels like the hawala network. In such instances, the Prevention of Money Laundering Act (PMLA) comes into play, classifying the properties as “proceeds of crime.” Once labelled as tainted, these assets face legal implications, as PMLA does not allow for compounding of offences. Officials have clarified that a PMLA probe is warranted when the I-T Department initiates a case under the Black Money Act, as it constitutes a scheduled offence.
The issue surfaced despite international information-sharing treaties generally excluding details of physical assets like real estate. The data used by Indian authorities is believed to have been collected from officials based in Dubai and routed back to India via a third country. Regardless of how the information was obtained, residents are now required to explain the funding trail behind their UAE property purchases.