Property Investments in Abroad : Major Things to keep in Mind..!.

By Mr. Alok Agrawal, Deloitte Haskins & Sells LLP

Investing in property overseas could involve a variety of tax complexities, particularly if the country where the immovable property is situated also levies tax on the property earnings.

If you are looking to make investments overseas, it’s important to be aware of certain exchange control laws and income-tax implications to maximise your gains.

Exchange control laws..!

Quantum of investment..!

The Reserve Bank of India (RBI) allows approval-free remittances under the Liberalised Remittance Scheme for a resident individual up to $ 2,50,000 per annum, i.e., Rs. 5 crore, for any purpose (except exceptions).  

Alok Agrawal, Deloitte Haskins & Sells LLP

One can remit more through other members of family, being joint owners.

There are no restrictions on the frequency or number of remittances under LRS within the overall limit - this can also help where the purchase price needs to be paid in instalments.

Rental income and final sale proceeds..!

Being a resident of India, the investor would be required to repatriate the rental income as well as the final sale proceeds from the overseas property into his Indian bank account within a time limit of 90 days.

Income-tax implications..!

Investing in property overseas could involve a variety of tax complexities, particularly if the country where the immovable property is situated also levies tax on the property earnings.

Such rental income may also be taxable in India due to the Ordinarily Resident status of the investor.

Compliance requirements include obtaining tax registrations, file returns, etc.

For example, the tenant may need to withhold tax under the overseas country tax laws while making rental payments to a non-resident landlord.

Depending upon the foreign exchange regulations in the overseas country, there could also be limitations on repatriation of sale proceeds at the time of exiting the investment.

The rental income is taxable on lines similar to a second property in India.

The following additional points merit attention for an overseas property:

* If supported by a certificate, interest payable on loan/mortgage taken outside India to fund the purchase of property may also be deductible;

* Unless the loan is availed from specified Indian financial institutions, principal repayment of housing loan will not be deductible.

*   Credit of foreign income-tax paid to reduce the Indian tax burden could be explored, subject to the conditions under relevant Double Taxation Avoidance Agreement (DTAA) between India and the other country.

Such foreign tax credit is also available (subject to conditions) if India does not have a DTAA with the other country. This claim would be required to be supported by appropriate documents, like proof of income-tax paid overseas, overseas tax return filed, etc. The required details should be reported in the Indian tax return form.

* The investor will need to report the prescribed details of the property in his Indian tax return. When the property is sold, capital gains would be taxable in India similar to sale of Indian property. The following points may be relevant:

* Long-term capital gains (property held for more than 36 months) will be taxed at a flat rate of 20% after applying indexation benefit. Short-term capital gains  are taxed at normal slab rates. It may also be possible to avail of tax exemption by investing the amount of long-term capital gain in another residential house property in India or in specified NHAI / REC bonds-  these are subject to additional conditions.

* If the capital gains is taxable in the other country as well, the relevant DTAA can be examined to avoid double taxation or avail credit of foreign taxes against Indian tax liability, subject to maintenance of appropriate documentation.

About the author..   
The writer Mr. Alok Agrawal is a senior director in Deloitte Haskins & Sells. With inputs from Manish Shah, senior manager, Deloitte Haskins & Sells LLP

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