How Indians Can Legally Buy Property Overseas? LRS And Tax Implications Explained

According to data shared in Parliament by Kirti Vardhan Singh, Minister of State in the Ministry of External Affairs, there were approximately 17.17 million Non-Resident Indians (NRIs) and 17.18 million Persons of Indian Origin (PIOs living across the world as of January last year. As global migration has increased over time, so has Indians' interest in buying property abroad.

Why Do Indians Want To Buy Property Overseas?

There is no single reason. For many, purchasing property abroad is viewed as a smart long-term investment that can appreciate in value. Others see it as a retirement option, a comfortable home in a country they may eventually settle in. Some parents also choose to buy homes near universities where their children study, offering both convenience and long-term financial benefit.

Importantly, buying property overseas does not always require a large upfront investment. In some countries, fractional real estate ownership is gaining popularity. This allows investors to purchase small shares of high-value properties over time, making premium markets such as Dubai or parts of Europe more accessible to those with limited capital. Additionally, many affluent Indians are now investing in second or third homes abroad to generate rental income.

However, owning property abroad is not without challenges. It involves navigating financial regulations, tax implications, and legal compliance.

Let's take a closer look at the rules governing overseas property purchases by Indians, including key considerations and compliance requirements under the Foreign Exchange Management Act (FEMA).

Are There Restrictions On Buying Property Abroad?

Resident Indians are permitted to purchase residential or commercial property overseas under the Reserve Bank of India's Liberalised Remittance Scheme (LRS). Under this scheme, individuals can remit up to $250,000 per financial year for such investments. However, property investments in certain countries, including Pakistan, Bangladesh, North Korea, and Iran, require prior approval from the RBI.

Notably, to remit funds under LRS, individuals must complete Form A2 and provide a declaration specifying the purpose of remittance. A valid PAN is mandatory for all such transactions.

Is RBI Approval Needed?

RBI approval is generally not required for purchasing residential or commercial property abroad if the investment remains within the $250,000 annual LRS limit. However, approval becomes necessary in the following cases -

· The investment exceeds the LRS limit
· The property is agricultural or plantation land

Tax Implications Of Owning Property Abroad

If you earn rental income from overseas property or sell it later for a profit, the country where the property is located may tax that income. At the same time, Indian tax laws require residents to declare global income when filing their returns. This is where India's Double Taxation Avoidance Agreements (DTAA) come into play. These agreements help ensure that the same income is not taxed twice.

In addition to rental income, capital gains from selling overseas property may also be taxable in India. However, in certain cases, exemptions may be available, especially if the proceeds are reinvested in real estate within India.