Bought Dubai home? Non-disclosure may cost you 120% in tax, PMLA action

If you have invested in Dubai or other overseas properties, make sure your purchase was routed through authorized channels, declared in your income tax filings, and compliant with FEMA regulations.

A growing number of Indian residents and non-resident Indians (NRIs) who purchased luxury homes in Dubai are facing legal scrutiny from Indian authorities, including the Enforcement Directorate (ED) and Income Tax Department. The probe, first reported by The Economic Times, focuses on suspected violations of the Foreign Exchange Management Act (FEMA), the Black Money Act, and potential links to money laundering.

 

The ED has reportedly begun issuing summons to several individuals who acquired Dubai properties in recent years. Investigators allege that many of these transactions were executed using non-compliant payment channels, including cryptocurrency wallets, high-limit credit cards, or Free-Trade Zone shell companies — bypassing the RBI’s Liberalised Remittance Scheme (LRS), which caps annual overseas transfers at $250,000 per person.

 

 

The crackdown follows an internal review of real estate transactions in the UAE, obtained through non-conventional data sources and foreign intermediaries, said the ET report.  Indian authorities now believe that hundreds of high-value properties were bought without proper fund trail documentation or income tax disclosures.

 

 What's Under the Scanner

Authorities are currently examining:

 

• Crypto payments made directly to Dubai developers without routing through authorized banks
• Multiple family members splitting LRS quotas to collectively exceed the remittance ceiling
• Offshore Free-Trade Zone entities used to invest in Dubai without regulatory filings
• Non-disclosure of these assets in Indian income tax returns

 

In many cases, buyers were not even aware that using international credit cards with no preset limit or transferring crypto from Indian exchanges could breach foreign exchange laws.

 

"In India, crypto isn’t recognised as currency, it’s treated more like a digital asset. That means you can’t legally use it to make cross-border payments, especially not for buying property abroad. Under FEMA, if you’re sending money overseas for such a purchase, it must go through authorised banks under RBI’s Liberalised Remittance Scheme. So when someone pays a Dubai developer using crypto or even a credit card, they’re bypassing the legal route. This not only violates FEMA rules but also creates a trail of unaccounted transactions, which can attract serious scrutiny from enforcement agencies," explained Ekta Rai, Advocate, Delhi High Court.

 

 Since FEMA doesn’t recognise crypto as an authorised way to send money abroad, so even if someone thinks they’re just using ‘digital money’, the authorities see it as moving capital outside India without permission. Penalties can be steep. This means a person can be asked to pay up to three times the amount involved to facing investigations for money laundering if the source of funds isn’t clear.

 

 To put it simply, buyers can only use authorized channels such as Liberalized Remittance Scheme for any such cross-border purchased.

 

Legal Risks and Penalties

 

Several buyers may also have failed to declare the foreign asset in their tax returns — triggering provisions under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015.

 

"Any overseas property purchase, whether through cash, bank, or crypto, must be declared to Indian tax authorities. If someone has converted crypto to cash and then sent it legally under the LRS route, they need to submit the right forms and also disclose the property in their income tax filings under the ‘foreign assets’ schedule. But if crypto is directly used and not declared, it raises red flags. Non-disclosure can attract hefty fine," added Rai.

 

The consequences are serious. Under FEMA, violations can attract penalties of up to 3× the transaction value. The Black Money Act allows for tax and penalty up to 120% of the asset value if foreign property is found to be undisclosed. Worse, if the ED finds evidence of laundering, criminal prosecution under the Prevention of Money Laundering Act (PMLA) could follow — where compounding or settlement is not permitted.

 

Authorities are also using Artificial Intelligence-based tools to cross-link property ownership data with PAN records, overseas remittances, and crypto wallet activity.

 

"For any cross-border purchases the remittances must be made only through authorised channels within maximum limit allowed under the LRS or with the specific approval from RBI for any excess. In addition, such purchases must be disclosed under the Income Tax Act under Schedule – FA (Foreign Assets), wherein one is required to report their foreign assets such as foreign shares, properties, foreign company mutual funds, bank accounts, etc. Any failure to disclose may be treated as undisclosed foreign income or asset, leading to penalties under the Black Money Act. This requires a lot of attention to detail and it is essential to maintain all paper trail such as purchase agreements, and remittance records. Therefore, it is crucial to consult experienced legal advisors who can guide them through complex cross-jurisdictional legal compliances," said Vivekanandh, Managing Partner, SMV Chambers.

 

Dubai has long been a favourite among Indian high-net-worth individuals (HNIs) for its tax-free income, lifestyle perks, and proximity. But the message from Indian regulators is clear: offshore luxury must be financed through onshore legality.

 

Why some buyers didn't follow the rules

Some used non-traditional or unauthorized routes for these reasons:

 

• To avoid high banking or currency conversion charges
• To bypass India’s steep 30% tax on crypto transactions
• To preserve their $250,000 annual limit under RBI’s Liberalised Remittance Scheme (LRS)
• Because they had already bought cryptocurrency via foreign exchanges, which most Indian banks won’t allow under LRS. They later used that crypto to buy property abroad—but didn’t report the asset in their income tax return.

 

So, even if the funds originally came from legal income, the method of transfer may have violated FEMA (Foreign Exchange rules).

 

 Why they thought they were safe

Until now, many believed that Indian authorities wouldn’t find out, because:

 

Under global tax treaties, countries usually share banking and financial asset data, but not details of physical property like homes.As a result, people assumed their Dubai homes were under the radar. But that’s changed.

 

 How India Got the Data

The Indian tax department reportedly got hold of Dubai property ownership records through informal channels. It’s believed the data wasn’t officially provided by UAE authorities—but may have been collected by Indian officials based in Dubai and brought back via another country.

 

What Happens Now?

People who own these properties must now explain where the money came from, and prove that it was legally earned and transferred.

 

They face three major legal risks:

 

Black Money Act:

If the property wasn't declared in their income tax return, it’s treated as an “undisclosed foreign asset.”

 Penalty: Up to 120% of the property’s value, plus possible jail time.

 

FEMA Violation:

If the money wasn’t sent through authorized channels (like banks under RBI rules), it violates FEMA.

 Penalty: 1–3× the transaction amount.

 

PMLA (Prevention of Money Laundering Act):

If the money was sent via illegal means like hawala, the property may be labelled as “proceeds of crime.”

 Under PMLA, you can’t settle by paying a fine (no compounding allowed). A full investigation and possible prosecution follow.

 

Authorities say that if a case is made under the Black Money Act, it could automatically trigger a PMLA case as well—making the consequences even more serious.

 

"Any undeclared foreign assets may attract strict action under the Black Money and Imposition of Tax Act, along with penalties under FEMA, PMLA, and Income Tax laws, including asset confiscation and prosecution. Buyers must route transactions only through legal, authorised banking channels and declare foreign assets as per applicable tax laws," said CS Anupriya Saxena, Partner at CS Firm-JMJA & Associates LLP, Mumbai.