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Since interest is charged by builders in case of installment purchase, it is considered as a financing arrangement.
Foreign exchange liability arising from installments disbursed in a particular year requires prior approval of RBI.
The trend of Indians buying property in Dubai is increasing, Indians have overtaken British citizens to buy property in Dubai in the second quarter of 2023.
Builders are allowed to pay 15 to 20 percent upfront and repay the remaining amount in installments over 4 to 8 years.
However, according to experts, resident Indians cannot buy property abroad by taking credit
The dream of owning property in Dubai, one of the most attractive and cosmopolitan cities of the Gulf, is a common dream among rich families of India. Such wealthy people were lured by frequent property fairs organized by Dubai builders, advertisements on Instagram and calls from brokers and even greedy offers of payment in easy installments if you want to buy property in Dubai. goes. However, the reality is that if you fall into such a temptation and buy property on installments, it is possible that you may come under the radar of the regulatory body for breaking the law.
Nowadays, many resident Indians fall into such temptation and buy property in Dubai by making an advance payment of 15 to 20 percent of the property value. The remaining payment has to be made in installments of 4 to 8 years. However, the wealthy who make such purchases may not be aware that they are unknowingly violating Forex laws, or may stand to suffer huge losses if they violate the law in the future.
The rule in this regard is very simple. Any resident Indian can individually pay up to $2.50 lakh per year to buy a home abroad. If family members buy the property jointly, each family member can pay an amount of $2.50 lakh. But if the purchase of a ready-to-move or under-construction property is made on the condition of paying installments for more than a year, then it can be questioned under the law. The reason for this is also very simple. Such installment purchases involve an element of leverage provided by law.
Commenting on this, an expert chartered accountant said that buying property on installments in Dubai lured by advertisements can prove costly for a resident, as by doing so they violate the provisions of the Foreign Exchange Management Act (FEMA). . Under FEMA, if a resident individual undertakes any financial transaction for the purchase of an asset outside India, it is mandatory to obtain general or specific permission from the Reserve Bank of India (RBI). Exemption is not given for purchase of such assets on deferred payment basis i.e. on installments without prior approval of RBI as such transactions give rise to liability in foreign currency.
However, some experts are not so aggressive about this relevant provision of the law considering the current situation. A senior official of a leading tax consultancy firm said no resident Indian can buy property abroad with borrowed money or money received on loan. Irrespective of whether the money received on such a loan is given by the lending company of the country or the loan is obtained from a foreign institution, there is no exemption on the purchase of such property. In case of property purchased on installments, ownership of the property vests completely upon completion of payment of all the installments. This means that the property has been purchased on credit. Resident Indians are not easily given loans to buy property abroad. If the property is purchased in installments, the interest charged by the developers proves that it is a financing arrangement. Therefore, such a deal is a violation of FEMA.
While another FEMA advisor believes that installment purchase deal may not carry any risk with respect to the under-construction property, the buyer should be aware of the terms and conditions of the agreement made with the builders while entering into such a contract. Needed deal. And the conditions should be mentioned in such a way that the provision is not violated.
However, all experts agree that resident Indians buying property in Dubai on installments are not aware of the fact that such deals may violate FEMA provisions and advertisements for Dubai properties do not highlight this fact .
It is noteworthy that in some areas of UAE, especially in the newly developing areas, property prices are lower than Mumbai. As a result, resident Indians are tempted to purchase such properties.