Legal ways and means of holding foreign assets

IN THE recent past there has been a lot of hue and cry over leak of information about famous personalities holding beneficial interest and assets outside India. First instinct is to think of them as criminals. The way the information has surfaced, it seems like something illegal was happening which has now caught the eyes of the law makers. But is it really illegal to hold assets outside India?

Certainly,therearesomerestrictionsunder the exchange control regulations and tax laws, but Indian residents are allowed to invest and hold assets around the world. Indian residents do not need an approval for investmentoutsideIndiainfollowingcases:

a) Under Liberalized Scheme (LRS), whereby a person can remit $250,000 per family member (including minors) in a financial year. The LRS limit includes transactions such as private visit, gift / donation, going abroad on employment, emigration, maintenance of close relatives abroad, business trip, medical treatment abroad and studies abroad. Individuals can also open, maintain and hold foreign currency accountswithabankoutsideIndiaformaking remittances under the scheme without prior approval of the Reserve Bank of India. Though the LRS is very easy and convenient, it cannot be used by companies and firms.

b) Under General Permission for funds heldinforeigncurrencyaccountsi.e.incase someone has earned any money when one wasnotresidentof India,onemayinvestthe said money even after becoming an Indian resident. Also you are permitted to hold assets abroad even after becoming an Indian resident.

c) Under the automatic approval route, Indian residents other than individuals i.e. a company, a firm, LLP, etc can invest in a joint venture / wholly owned subsidiary (JV/WOS) abroad under the automatic route up to 400% of its net worth, by way of contribution to equity or by way of loan, subject to certain conditions. So, being a shareholder in a foreign company is certainly allowed and should not be seen as a crime.

What to do if you want to buy a house

If you want to buy a house property outside India, use the potential of LRS scheme by sending money to a foreign bank account once in the month of March and again in April. If you have four members in your family, you can send $1 million in March and another $1 million in April. You could also take bank loans which are easily available from the overseas banks. Many of us who have a separate source of income globally can also use their global income and money lying outside India since the same doesn’t fall under the purview of the LRS limit.

One reason why people set up a company for buying property outside India, say in the UK, because there is no succession issue since the house belongs to the company and the children can be made directors. In the UK, if you gift the property to your child and die within seven years, your child has to pay inheritance tax. The rate of tax is reduced for gifts over the threshold (325,000 pounds) made between 3 and 7 years before the person died, known as ‘taper relief ’. If you survive that period, no inheritance tax is payable. However, it has now been proposed that inheritance tax will be scrapped on homes up to one million pound, so no such tax when parents or grandparents pass on a home that is worth up to £1m (500,000 pound for singles). This will be phased in gradually between 2017 and 2020. The writer is managing partner, Nangia & Co