1. The RBI Liberalised Remittance Scheme (LRS) Ceiling and Mandatory Co-Ownership Rule
Under the Reserve Bank of India (RBI) Master Direction on the Liberalised Remittance Scheme (LRS), resident individuals in India are permitted to remit up to USD 250,000 per financial year (April 1 to March 31) across permissible current and capital account transactions, including the purchase of immovable property outside India.
While resident family members may consolidate ('club') their individual USD 250,000 annual LRS allowances toward the acquisition of a higher-value overseas residential property, statutory LRS provisions and RBI Master Directions require that such clubbing for capital account transactions is permissible only where the participating family members are bona fide legal co-owners or co-partners of the offshore property. Remitting funds from one family member's LRS allowance to acquire title solely in another individual's name is not permissible under standard LRS rules. Because Authorized Dealer (AD Category-I) banks enforce strict documentary scrutiny regarding title deed structuring and capital account permissions, family offices must obtain prior written sign-off from their AD bank and independent FEMA counsel before remitting consolidated funds.
- Annual Statutory Cap: USD 250,000 per resident individual per Indian financial year (April–March), subject to applicable Tax Collected at Source (TCS) rules under Section 206C of the Income-tax Act, 1961.
- Mandatory Co-Ownership Condition: Resident family members consolidating LRS allowances for property acquisition must be recorded as legal co-owners on the title deed or holding deed.
- Counsel & AD Bank Sign-off: Prior written clearance from the remitting Authorized Dealer (AD Category-I) bank and independent FEMA legal counsel is mandatory before contract execution.
- No Indirect Credit Bypass: LRS does not permit Authorised Dealer banks to extend credit facilities to resident individuals specifically to facilitate capital account remittances under the scheme.
2. The Offshore SPV Trap: FEMA Overseas Investment (OI) Rules, 2022 vs. Direct Ownership
In European, UK, or Mediterranean luxury real estate, aircraft, and superyacht transactions, foreign brokers routinely suggest that a buyer incorporate an offshore Special Purpose Vehicle (SPV) to hold title. However, for an Indian resident individual or Indian corporate entity, acquiring equity in a foreign company is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022 and Regulations, 2022 (notified August 22, 2022).
Under the 2022 Overseas Investment framework, Overseas Direct Investment (ODI) in a foreign entity engaged in 'real estate activity' (defined as buying and selling of real estate or trading in Transferable Development Rights, excluding development of townships or construction of residential/commercial premises) or 'financial services activity' is restricted under the automatic route for resident individuals, and foreign entities established merely as passive asset-holding shells without bona fide business operations face strict scrutiny from AD banks and the RBI.
- Direct Purchase vs. Foreign Entity Equity: Acquiring overseas immovable property directly in the name of resident individual(s) under LRS is legally distinct from subscribing to shares of a foreign property-holding SPV under the ODI rules.
- Operating vs. Passive Structures: Indian corporate family offices evaluating international hospitality or commercial real estate acquisitions must verify whether the target qualifies as a bona fide operating business under Schedule I of the OI Rules, 2022.
- Prohibition on Round-Tripping & Multi-Layering: The 2022 OI Rules strictly regulate multi-layered structures (limiting step-down layers where Indian entities are involved) and require clear commercial substance.
3. Multi-Generational Global Families: Distinguishing Resident Principals from NRI Co-Principals
Many prominent Indian business families operate across multiple jurisdictions, with family members residing in London, Dubai, Singapore, Geneva, or New York as Non-Resident Indians (NRIs) or foreign citizens alongside resident principals in Delhi NCR, Mumbai, or Bengaluru.
Under FEMA, persons resident outside India (NRIs) acquiring foreign assets solely from legitimately held offshore funds outside India are not bound by the domestic USD 250,000 LRS ceiling. Furthermore, under Section 6(4) of FEMA 1999 and the RBI Master Direction on Acquisition and Transfer of Immovable Property, a person resident in India may continue to hold, own, or transfer immovable property situated outside India if it was acquired when the individual was resident outside India, or inherited from a person resident outside India.
- Jurisdictional Mapping First: Before issuing an LOI on a cross-border estate, aircraft, or vessel, map the exact FEMA residential status (Section 2(v) of FEMA) and tax residency of the acquiring principal.
- Segregation of Remittance Channels: Keep domestic LRS remittances and offshore non-resident capital pools clearly documented and legally segregated in accordance with FEMA counsel advice.
- Disclosure & Reporting Discipline: Ensure accurate Schedule FA (Foreign Assets) reporting in Indian income-tax filings and Form OPI / Form FC filings with the AD bank where applicable.
4. Pre-Mandate Checklist Before Engaging Foreign Sellers or Escrow Agents
In international trophy asset transactions, sellers typically demand a 5% to 10% escrow deposit within days of executing a Letter of Intent or Memorandum of Agreement. If an Indian resident principal or family office attempts to structure the remittance route only after signing the LOI, Authorized Dealer bank documentation reviews can cause contractual default on deposit deadlines.
As an India-headquartered private acquisition platform (Regentum Dominion Pvt Ltd, Delhi NCR), Regentum advises principals and their wealth managers to complete AD Category-I bank pre-consultation and FEMA legal sign-off as a mandatory prerequisite before submitting a formal offer.
- Step 1 — FEMA & Tax Legal Opinion: Written sign-off on permissible acquisition route (direct LRS, corporate ODI for operating assets, or non-resident capital pool).
- Step 2 — Authorized Dealer (AD Category-I) Bank Pre-Clearance: Confirm documentation checklist (Form A2, LRS declaration, CA certificates Form 15CA/15CB, and underlying contract terms) prior to signing.
- Step 3 — Contract Alignment: Ensure the foreign purchase agreement or escrow agreement names the exact legally permitted acquiring party and reflects realistic regulatory remittance timelines.