Indian residents who had earlier received notices from the Income Tax (I-T) Department for owning undeclared properties in Dubai are now being summoned by the Enforcement Directorate (ED). The ED is investigating fund transfer irregularities involving potential violations of the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA).
According to sources, most of these ED summons have been issued to residents in northern India. The individuals now must explain how they financed these overseas property deals without using formal banking channels, as required under RBI rules for capital account transactions.
Illegal remittance methods under scrutiny
Under Indian law, any overseas purchase of assets, including real estate, stocks, or fixed deposits with offshore banks, must be routed through an authorised dealer bank as part of the Liberalised Remittance Scheme (LRS). This process includes submitting prescribed forms and declarations.
Yet many residents have bypassed these rules. “ED is investigating cases where payments were made by transferring cryptocurrency to builders’ wallets, or where ultra-high-net-worth individuals used credit cards with no pre-set limits to buy properties or set up businesses in UAE free zones,” said Anup P. Shah, partner at legal and tax consultancy PPS & Co. “These clearly violate FEMA regulations,” he added.
Cryptocurrency, black money, and FEMA violations
Under LRS, an Indian resident can remit up to $250,000 per year. However, some individuals moved cryptos purchased in India to a UAE realtor’s wallet via blockchain, thus avoiding banks. While crypto-based real estate purchases are allowed under UAE law, such transactions are not compliant with FEMA if carried out outside formal remittance channels.
Some also used this route to avoid:
- High crypto taxes in India
- Banking fees and currency conversion charges
- LRS restrictions on foreign crypto exchange purchases
In many cases, the property acquisitions were not declared in income tax returns. This has now triggered legal action under both FEMA and the Black Money Act.
Penalties and legal implications
According to experts, tax penalties under the Black Money Act could total up to 120% of the property’s value. FEMA violations may attract penalties 1x to 3x the value of the funds transferred.
The situation is worse for those who used hawala routes. Such actions could result in prosecution under PMLA, as the properties may be considered “proceeds of crime.” Notably, PMLA offers no scope for compounding; one cannot plead guilty and simply pay a fine. If the I-T Department registers a case under the Black Money law, ED can then invoke PMLA as it qualifies as a scheduled offence.
UAE crypto property sales face Indian legal hurdles
Some leading UAE real estate developers have been accepting Bitcoin and Ethereum from foreign buyers. While these transactions meet local compliance checks in the UAE, they do not automatically comply with Indian law.
“Many Indian residents choose cryptos for their lower fees and fast processing times,” said Harshal Bhuta, partner at chartered accounting firm P. R. Bhuta & Co. “However, using cryptos to purchase foreign assets can lead to several FEMA violations, especially when failing to adhere to LRS remittance protocols.”
He added that while crypto transactions may be AML-compliant in the UAE, they are not immune to scrutiny under Indian regulations.
How the data reached India
Interestingly, sources believe the data on Dubai property ownership was not shared officially by the UAE. Instead, Indian authorities may have gathered it through informal channels, possibly with assistance from officials based in Dubai and third-country conduits.
While these methods raise questions, what matters now is that residents must prove the legality of their funds and property acquisitions.
