Wealth Tax Not Levied On RNOR’s Property In Abroad

Once you become ordinarily resident, you will be subjected to wealth tax on the property which is situated abroad.

For example, if a person who is returning back to India after staying in abroad for nearly 20 years. He has a house both in India and abroad. Can he retain the house that he has in abroad? What will be the tax consequences of doing so? Is there any wealth tax liabilities?

According to the section 6(4) of the Foreign Exchange Management Act, 1999, any property attained by you when you were a non-resident can continue to hold it but once you become a resident for exchange control purposes. You are returning back to India permanently and will qualify to become a tax resident of India for the subsequent years for the income tax return when you were a non-resident can be continued to be held by you once you have become a resident for the exchange control purposes. Any income earned from the immovable property either by way of rent or as consideration for transfer will be taxable in India.

Therefore, such income can also be taxable in the country in which the immovable property is located outside India.

Therefore, you should examine the provisions of the double taxation avoidance agreement (DTAA) that India can have with the other country in which the property is located and to determine the details of the taxability of the income arising from the immovable property which is located abroad and the availability of the credit paid in such country against your taxes in India.

Apart from this, an individual is liable to wealth tax at the rate of 1% on certain specified assets which is owned by him in surplus of Rs.30 lakh. Immovable property, especially a house qualifies to be one such asset stated irrespective of whether it is located in India or abroad.

Therefore, you will not be liable to wealth tax in respect of one house property. For the other house property, you can be liable for both wealth tax and tax on residential status in India. If you are a resident and ordinarily resident then your assets which is located abroad will be liable to wealth tax.

If you are a resident but not ordinarily resident (RNOR) or a non-resident then the assets which is located abroad will not be liable to wealth tax in India.

You will qualify to be an RNOR only if you are a non-resident in 9 financial years out of 10 or you stay in India in the 7th previous years prior to the current year which does not cross 729 days. Consequently, if you qualify to be a RNOR then you will not be liable to wealth tax in respect of your house which is located in abroad.

Therefore, once you become ordinarily resident in India then you will be liable to the wealth tax on the property which is situated outside India.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.