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Tax Considerations While Buying Overseas Property

Tax Considerations While Buying Overseas Property

Today Indians who are globetrotters are increasingly buying overseas property as an extension of their lifestyle and also an investment avenue in leading destinations like London, New York, Singapore and Dubai considering the availability of properties at reasonable rate. In this context, it becomes critical for them to consider the foreign exchange regulation and tax provisions of the relevant country as well as India before making their buying decisions. Some of the important aspects to be noted in this regards from Indian perspective are mentioned below:

Foreign Exchange Regulations – USD 250000 per financial year per person

Under the Indian Foreign Exchange Regulations, the limit for permissible remittance outside India (including for investing in property outside India) by resident individuals is cumulatively USD 250000 per financial year (April – March) per person as per the Liberalized Remittance Scheme. Since the aforesaid limit is per person, each member of family can remit out of his own balance USD 250,000 per financial year for purpose of acquisition of property.

Taxation of rental income

If the person who has invested in immovable property abroad, earns rental income, then he may have to offer such income in India as Resident and ordinarily resident individuals are subject to income tax on their worldwide income. Accordingly, the rental income from immovable property held abroad, will also be taxed in India. The majority of tax treaties which India has signed provide taxing rights to both the countries i.e. country of residence and the country where the immovable property is located.

Further, where the tenant withholds tax as per the tax laws of the foreign country, the person may claim tax credit of tax withheld abroad against his tax liability in India as per the provisions of the relevant tax treaty. For this purpose, he may need to obtain certain documentations like proof of tax paid abroad.

Detailed Disclosure requirement of Foreign Asset and Income arising therefrom

Resident and ordinarily resident Individual is required to disclose the details of immovable property held outside India at any time during the previous year in income tax return the details in relation to property like country of investment, address of the property, date of acquisition, total investment, nature and amount of income derived from property etc.

Abolition of wealth tax

The Wealth Tax Act, 1957 has been abolished with effect from 1 April 2015 by the Finance Act 2015. Prior to that If the person (resident in India) is buying the properties abroad in his own name is an individual and is already holding property in India, there was wealth tax implication(one house property was exempted from wealth tax). The Wealth Tax was leviable @1% on certain specified asset including house property if an individual who possessed net wealth in excess of Rs. 30 lacs. With the abolition of wealth tax, an Individual can buy house properties without any wealth tax implication.

Capital Gain Exemption- No longer available

Earlier in the absence of clarity in the provision in the income tax provisions pertaining to reinvestment of capital gain in house property abroad, the benefit of capital gain tax exemption under section 54/54F were allowed. It is pertinent to note that after the amendment by the Finance Act, 2014 w.e.f. FY 2014-15, in order to claim capital gain exemption, ‘the purchase/construction of residential house must be in India and not outside India’.

Apart from above, proper analysis needs to be carried out related to title of the property, property market and other important aspects like Estate duty, property tax, Stamp duty, transfer duty, registration charges, maintenance costs, other taxes as per local laws of the country. The buyer should take into account all the aforesaid relevant aspects before deciding on the investment in the property abroad.

Tax Considerations While Buying Overseas Property

Gujarat VAT department has issued circular

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