Dubai dreams under scanner as ED questions homebuyers: Report

India Today

2 days ago

The Enforcement Directorate (ED) has started questioning several Indian residents who purchased homes in Dubai, asking them to explain the source of funds used for the property deals, reported The Economic Times (ET). Many of these individuals are now under scrutiny as they failed to provide proper bank transaction records showing how the payments were made.This move follows notices issued last year by the Income Tax (I-T) department. The ED, which is now acting on information shared by the tax office, is investigating possible violations under the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA).Sources told ET that most of the recent ED summons were issued to residents in northern India.HOW THE LAW WORKSUnder Indian rules, any remittance for buying overseas property, investing in shares or making fixed deposits abroad must be done through authorised banking channels.This is covered under the Reserve Bank of India's Liberalised Remittance Scheme (LRS), which allows individuals to send up to $250,000 abroad in a financial year after proper documentation.However, many of the questioned transactions did not follow this route. The ED is said to be looking into deals where payments were made using cryptocurrencies like Bitcoin or Ethereum, or through high-limit credit cards issued abroad.CRYPTOS USED TO BUY DUBAI PROPERTYAnup P. Shah, a partner at tax and legal advisory firm PPS & Co., told ET that there are cases where Indian residents sent cryptocurrency directly from their digital wallets to the wallets of real estate developers in Dubai. 'This violates FEMA regulations,' he said, adding that such cross-border deals bypass authorised dealer banks and fall outside LRS rules.In some cases, buyers moved cryptos purchased overseas to settle payments. While these digital assets may have been bought with tax-paid money, moving them via blockchain to buy property abroad, without routing through a bank, can still be considered a violation of Indian exchange control laws.The reasons behind such methods vary. Some used crypto to avoid hefty currency conversion fees or India's crypto taxes. Others wanted to preserve their LRS limit or had earlier bought crypto through foreign platforms, which is generally not allowed under Indian rules.TAX TROUBLE LOOMSMany of these individuals did not declare the properties in their income tax returns. Most assumed that the Indian authorities would not find out about physical assets like homes, as countries typically exchange information about bank accounts and financial securities, not real estate.But ET reported that Indian officials may have independently gathered the Dubai property data from local sources, possibly with help from another country.This data has now put several people at risk of action under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act. If they fail to provide proof of legal fund transfers, they could face a tax demand and penalties of up to 120% of the property value.For those who used illegal means, like the hawala network, to send money abroad, the ED may pursue cases under PMLA, treating the properties as proceeds of crime. Once that happens, the assets can be attached or confiscated, and there is no option to settle the matter by paying a fine.'A probe under PMLA will come into play if the I-T department establishes a violation under the Black Money Act, which is a scheduled offence,' an official said as quoted in the report.DEVELOPERS ACCEPTED DIGITAL COINSDubai developers have long accepted cryptocurrencies for property purchases. Harshal Bhuta, partner at the CA firm P. R. Bhuta & Co, explained that developers there regularly accept popular cryptos like Bitcoin and Ethereum.'Indian buyers may prefer crypto for the speed and lower fees. These transactions do follow some checks under the anti-money laundering and KYC rules in the UAE. But what is legal under Dubai law isn't automatically allowed under FEMA,' Bhuta said.He warned that depending on the way the payment was structured, the buyer could end up violating several Indian rules, including the breach of LRS limits and use of unapproved cross-border payment modes. As investigations deepen, what was once seen as a convenient way to own a piece of luxury abroad may turn into a legal headache for many.- Ends
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