Kamal Ghorui
Indians are increasingly investing in real estate overseas. Even salaried individuals are doing so driven by factors like children studying abroad and investment diversification. For resident individuals, such purchases are governed by RBI’s Liberalised Remittance Scheme (LRS), which allows outward remittances of up to $250,000 per person in a financial year. Families often pool individual LRS limits to fund a single acquisition. Payments may be made in instalments, provided each remittance stays within the annual cap and is routed through authorised banking channels. Proper documentation is essential to avoid violations under Foreign Exchange Management Act,1999 (FEMA).All foreign assets must be disclosed in Indian tax returns in the prescribed manner. Non-disclosure of foreign assets can trigger implications under the Black Money Act, 2015, including substantial fines and prosecution.Rental income, whether earned in India or overseas, is taxable in India for tax residents. Overseas rental income must be reported even if taxed abroad, though relief in the form of foreign tax credit (based on residency) may be available for any doubly taxed income under the relevant tax treaties (Double Taxation Avoidance Agreements). Interest on loans taken to acquire overseas property can be claimed as a deduction, subject to the specified limit.FOREIGN TAX CREDIT EXPLAINED: Under India’s tax treaties, residents can claim foreign tax credit to avoid being taxed twice on the same income. For example, if an Indian resident earns rental income from a property in London, that income is taxable in India due to his residential status. Since the UK also taxes such rental income at source, the taxpayer can claim credit in India for the UK tax paid, against the Indian tax payable on the same income. This mechanism ensures that the income is effectively taxed only once, broadly at the higher of the two tax rates. Of course, proper documentation, including proof of taxes paid in the UK, is vital.WHAT HAPPENS ON SALE OF PROPERTY? Capital gains from overseas properties are also taxable in India for residents, with tax treaty relief by way of foreign tax credit helping mitigate double taxation.
