Many affluent Indians are looking to move aboard, driven by reasons such as global education, business expansion, and asset diversification. Investment migration programmes in various countries offer Indian investors the opportunity to move abroad by making requisite investments.
While evaluating migration programmes, you should consider Indian exchange control regulations governing foreign remittances. Relocation involves complex tax challenges at both individual and business levels. A well-structured investment plan is crucial to avoid unexpected issues that could impact return on investment. Even if you have sufficient funds to invest in your dream location, you may not be able to remit it all, unless specifically permitted under the Foreign Exchange Management Act (Fema). The Liberalized Remittance Scheme (LRS) under Fema allows all residents to freely remit up to $250,000 per financial year for permissible transactions. However, investment programmes requirements often surpass this limit, necessitating a strategic investment approach for eligibility, such as:
You can remit up to $250,000 in two instalments, one by the end of the current fiscal year and the second at the beginning of the subsequent fiscal year; You, your spouse, and close relatives can each remit up to $250,000 annually; With prior approval from the Reserve Bank of India, you may remit funds abroad in excess of the limit of $250,000. and corporate investments under overseas investment regulations may allow higher investments but check host country acceptance for individual investment migration schemes.
The total remittance may not be the exact amount that will reach your foreign account, as banks are instructed to collect tax, up to 20% depending on the nature of remittances made under LRS. Tax collected at source (TCS) can be adjusted with your actual tax liability while filing your tax return or you can claim the excess TCS as refund. However, the time difference of tax collection and claim in tax return requires additional cash outflow while making foreign investment.
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Do note these few important tax rules :
1. Resident individuals must report all foreign assets, investments, and foreign income in their Indian tax return. Non-reporting or inaccurate reporting can result in hefty penalties and prosecution under the Black Money Act.
2. Tax status depends on various factors, and simply staying outside India for more than 182 days doesn’t guarantee tax exemption, especially in tax-friendly destinations like the UAE.
3. Consider host country tax laws and the provisions of a tax treaty between India and the host country.
4. Any business entity set up abroad but being operated from India may lead to risk of formation of permanent establishment and Place of Effective Management (POEM) in India. Structuring your business investments and operating procedures is must to avoid such tax risks.
As the trend of global mobility continues to evolve, it is essential for individuals to carefully assess their options, consult experts, and make informed decisions when considering investment migration programmes.
Preeti Sharma is partner, tax and regulatory services, BDO India.
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Updated: 20 Nov 2023, 11:52 PM IST