Nom­i­nal Rent Versus Fair Mar­ket Value

The Economic Times - - Econ­omy: Macro, Mi­cro & More -

“At times, for larger prop­er­ties funds are re­mit­ted over two to three years as the an­nual LRS quota is ex­hausted,” said Lakhani. In many cases, the tax de­mand may be sub­stan­tial with rents surg­ing in sev­eral mar­kets over the past decade along with prop­erty prices.

Since 2008, res­i­dent In­di­ans have availed the LRS win­dow to in­vest more than $600 mil­lion in over­seas prop­er­ties. LRS was in­tro­duced by RBI in 2004 and over the years the max­i­mum per­mis­si­ble re­mit­tance has been raised from $25,000 to $250,000.

Ac­cord­ing to Mi­til Chok­shi, se­nior part­ner at the au­dit and busi­ness ad­vi­sory firm Chok­shi & Chok­shi LLP, “There are as­sessees who dis­close a nom­i­nal rent which may be lower than the fair mar­ket value. To sup­port such nom­i­nal rent amount, they ob­tain quo­ta­tions from bro­kers and agents. To­day, the (I-T) depart­ment is ques­tion­ing the ra­tio­nale of these no­tional rent amounts. But one need not fear if ac­tual rent has been of­fered for tax.”

A tax as­sess­ing of­fi­cer who doubts the nom­i­nal rent num­ber can browse in­ter­na­tional prop­erty web­sites to check the pre­vail­ing rent in a city or neigh­bour­hood. But such data fished out from the In­ter­net may not be ac­cu­rate in a sit­u­a­tion where ac­tual num­ber of trans­ac­tions have dipped with in­vestors hav­ing a com­par­a­tively lower ap­petite for real es­tate as­sets.

Till a few years ago, it was not eas­ily pos­si­ble for the tax depart­ment to know about a per­son’s over­seas prop­erty in­vest­ments.

How­ever, since 2015-16 In­di­ans are re­quired to dis­close mov­able and im­mov­able as­sets, stocks and cash in the in­come tax re­turn form.

In many cases, the tax de­mand may be sub­stan­tial with rents surg­ing in sev­eral mar­kets over the past decade along with prop­erty prices

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