Tax
Indian Buyers of Dubai Properties via Crypto, Hawala Face I-T Scrutiny
DUBAI : The Diwali season may lose some of its charm for certain affluent Indians, as the Income Tax (I-T) department’s Foreign Asset Investigation Unit (FAIU) recently issued notices regarding unreported property holdings in Dubai. Over the past week, approximately 100 notices have been sent out, following information provided by the United Arab Emirates (UAE) on real estate owned by Indian passport holders who have spent less than 90 days in the country. This data, a source familiar with the situation told Economic Times, includes details on property purchases by individuals who may not qualify for tax benefits available to UAE residents.
While jurisdictions typically share information on foreign bank accounts, stock investments, and trusts, comprehensive records of real estate transactions are rare. However, Dubai’s real estate market, known for its attractive payment plans, has attracted Indian buyers, prompting the FAIU to probe the legitimacy and tax compliance of these investments.
Confirming Legitimate Funds and Disclosure in I-T Returns
In recent days, many Indian passport holders have been asked to verify that their Dubai property purchases were made using legal funds and disclosed correctly in their income tax (I-T) filings. The authorities aim to ensure these acquisitions align with the Foreign Asset (FA) schedule in I-T returns, confirming taxed income sources. Those who can verify legitimate funds, even without prior disclosure, may avoid penalties under India’s Black Money Act. However, individuals unable to prove the origin of funds could face substantial fines, potentially exceeding the value of their assets, said Rajesh P. Shah, a partner at CA firm Jayantilal Thakkar & Company.
For Indian citizens who reside in the UAE for more than 90 days, the benefits of residency may apply, while stays exceeding 181 days could qualify for treaty provisions that reduce tax liabilities under the India-UAE tax agreement. UAE authorities may be less inclined to disclose data on individuals who hold residency status under these treaties.
Investment Trends and Liberalised Remittance Scheme (LRS) Constraints
Dubai real estate developers have actively marketed properties to Indian buyers, often requiring only a 10% down payment, with the remainder payable over several years. Many investors seek to profit from resale before taking possession. However, the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), which permits up to $250,000 in annual overseas investments, has led to debate about whether certain real estate investments align with these regulations. As LRS is the only permissible avenue for residents to invest abroad, these transactions warrant careful examination.
Some Indian passport holders who received notices may still qualify as Non-Resident Indians (NRIs), underscoring the need for further investigation into the basis on which UAE authorities shared this information with India, according to Siddharth Banwat, partner at S Banwat & Associates LLP.
International Information Exchange Agreements and Real Estate Data
Real estate ownership information is generally exempt from automatic information-sharing agreements under the Common Reporting Standard, which focuses on financial accounts. Dubai’s booming market for affordable properties, like studio apartments and 1-BHK units, has appealed to middle-income investors for personal use and investment purposes.
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