Nominal Rent Versus Fair Market Value
“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