Dubai Property Investment: Tax Essentials for Indians
Dubai has become a preferred destination for Indians investing in overseas property. In response to this trend, the Indian Income Tax Department is ramping up its efforts to track foreign assets owned by Indian residents. If you’re planning to purchase property in Dubai, here are nine critical tax obligations and compliance considerations highlighted by experts.
Remittance Limits under the Liberalised Remittance Scheme (LRS)
Indian residents can remit up to $250,000 (approximately ₹2.1 crore) annually under LRS to purchase property abroad. However, the scheme prohibits financing the purchase via loans or buying with the intent of immediate resale.
Tax Collected at Source (TCS)
A 20% TCS is levied on remittances exceeding ₹7 lakh under LRS. This results in a temporary cash outflow, as the amount can only be claimed as credit during income tax return (ITR) filing.
Source of Funds
Funds used for purchasing property must come from declared income sources and should be traceable through past ITR filings.
Doubling LRS Limits through Gifting
Some individuals gift money to spouses to effectively double the LRS limit. However, any income generated from the gifted amount—such as rental income or capital gains—will be clubbed with the giver’s income and taxed accordingly.
ITR Disclosures
Properties owned in Dubai must be disclosed under the Foreign Asset (FA) schedule of the Indian ITR. Non-compliance can result in penalties of up to ₹10 lakh under the Black Money Act.
Taxability of Rental Income
Rental income from Dubai properties is taxable in India under “Income from House Property.” Taxpayers can claim a 30% standard deduction on rental income, and foreign taxes paid can be credited against Indian tax liabilities.
Capital Gains Tax
Capital gains on the sale of Dubai property are taxable in India:
- Short-Term Capital Gains (STCG): Properties held for less than 24 months are taxed at the applicable slab rate.
- Long-Term Capital Gains (LTCG):
- 12.5% (without indexation): For properties purchased on or after July 23, 2024.
- 20% (with indexation): For properties purchased before this date.
Taxpayers may claim foreign tax credits for capital gains tax paid in Dubai. Additionally, Section 54 exemptions apply if sale proceeds are reinvested in residential property in India.
Tax Exemptions in Dubai
Dubai does not impose taxes on rental income or sale proceeds from properties held as personal investments. No tax registration is required in such cases. However, this exemption does not cover properties used for business purposes or owned under a business license.
UAE Golden Visa Eligibility
Purchasing property worth AED 2 million (approximately ₹5 crore) in Dubai can qualify buyers for the UAE’s Golden Visa, offering long-term residency benefits.
While Dubai offers tax-free benefits on personal real estate investments, Indian residents must adhere to stringent reporting and taxation requirements under Indian law. Proper planning and compliance are essential to maximize benefits and avoid penalties.
