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