Fail­ure to pay tax on rental in­come from prop­er­ties abroad draws I-T at­ten­tion

The Economic Times - - Front Page - Su­gata.Ghosh @times­group.com

Mum­bai: Many well-heeled In­di­ans are dis­cov­er­ing the down­side of their offshore in­vest­ments in top prop­erty mar­kets like Lon­don, Sin­ga­pore and Dubai. The in­come tax depart­ment has ques­tioned at least 12 per­sons in the past two months for not pay­ing tax on the rental in­come that such prop­er­ties can gen­er­ate. Over­seas prop­er­ties — bought un­der RBI’s lib­er­alised re­mit­tance scheme (LRS) which lets a per­son in­vest up to $250,000 a year abroad — typ­i­cally serve as va­ca­tion homes, be­sides be­ing used by fam­ily mem­bers study­ing or work­ing abroad.

Tax prac­ti­tion­ers han­dling these cases said nine out of 10 In­di­ans who pur­chased prop­er­ties abroad were either obliv­i­ous to or mis­un­der­stood the rule

that tax must be paid even on over­seas prop­er­ties which have not been rented out. In tax par­lance, it’s called ‘deemed rental in­come’.

“Ex­cept the one which is self­oc­cu­pied, a per­son has to pay tax on the rent or the deemed rental in­come from all prop­er­ties he owns. What many don’t re­alise is that this is ap­pli­ca­ble for lo­cal as well as over­seas prop­er­ties. There are many who don’t pay tax on deemed rent even from lo­cal prop­er­ties. As far as for­eign prop­er­ties go, most have ig­nored this pro­vi­sion,” said se­nior char­tered ac­coun­tant Dilip Lakhani. The is­sue of tax on over­seas prop­erty rent has cropped up in the course of scru­tiny as­sess­ment queries posed by tax of­fi­cers who ran­domly pick tax re­turns — par­tic­u­larly those in higher in­come brack­ets — to ex­am­ine them in de­tail.

Afamily of four may re­mit a to­tal $1 mil­lion to buy a prop­erty abroad in their joint names.

Since 2008, In­di­ans have used RBI’s LRS win­dow to in­vest over $600 m in as­sets abroad

To be sure, most of those sur­veyed for the PMI data ex­pect a quick re­bound from GST-re­lated dis­rup­tion and the level of con­fi­dence was at an 11-month high.

Pri­mary sales of re­frig­er­a­tors, wash­ing ma­chines and tele­vi­sions from com­pa­nies to dis­trib­u­tors and re­tail­ers fell as much as 25% from the same month last year as it took al­most 10 days to make billing sys­tems com­pli­ant with GST. The in­dus­try was left with no in­ven­tory un­til then as pro­duc­tion halted to­ward June-end for the tran­si­tion.

This was in stark con­trast with the wide­spread ex­pec­ta­tion that pri­mary sales of white goods would pick up sig­nif­i­cantly in July since re­tail­ers had stopped buy­ing from end-May to clear out old stock and had run dis­counts through­out June and ex­hausted in­ven­tory. Blowout sales in June ex­pect­edly led to a 4045% drop in re­tail sales in July, three se­nior in­dus­try ex­ec­u­tives said.

“July in it­self is a dull month for the in­dus­try. While we did ex­pect brisk pri­mary sales, the GST tran­si­tion took time to be set­tled, which led to 20-25% dip in pri­mary sales. Pro­duc­tion too re­sumed af­ter the sys­tem be­came GST com­pli­ant. The sales sit­u­a­tion, how­ever, is im­prov­ing week by week,” said Video­con chief op­er­at­ing of­fi­cer CM Singh. White goods com­pa­nies, how­ever, ex­pect a resur­gence as the fes­tive sea­son kicks off later this month.

Pas­sen­ger ve­hi­cle sales are es­ti­mated to have reg­is­tered record growth last month with man­u­fac­tur­ers re­sum­ing sup­plies to deal­er­ships and stock­ing up ahead of the fes­tive sea­son.

Ini­tial es­ti­mates sug­gest whole­sale vol­umes last month have ac­cel­er­ated and are close to the high­est ever in­dus­try vol­umes of 295,403 units recorded in March 2012. Au­tomak­ers in In­dia re­port whole­sale vol­umes — despatches to deal­ers — and not re­tail num­bers sold to cus­tomers. In­dus­try vol­umes were buoyed by Maruti Suzuki, which re­ported the high­estever monthly despatches at 153,298 units, al­most 10-15% of av­er­age monthly sales seen in re­cently times.

The com­pany’s whole­sale vol­ume grew 21.9% from 125,764 units in the year ear­lier. Both new or­ders and out­put de­creased for the first time since the de­mon­eti­sa­tion-re­lated down­turn recorded in De­cem­ber last year. Cit­ing anec­do­tal ev­i­dence, the sur­vey showed that the GST launch ham­pered de­mand due to which com­pa­nies ad­justed pro­duc­tion lower in July.

White goods cos ex­pect a resur­gence as the fes­tive sea­son kicks off later this month

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