Own a home in Dubai – Be prepared to receive an IT notice

Own a home in Dubai? Beware! You are under Income-tax scanner

Income Tax (IT) department is scrutinizing many Indians who have purchased properties in Dubai in the last few years under a new initiative. Based on the Intelligence gathered, the IT department’s Intelligence and Criminal Investigation (I&CI) wing has started issuing tax notices to Indian nationals who have purchased Real estate in Dubai. A detailed questionnaire has been sent under Section 133(6) of the Income-Tax Act, which empowers tax authorities to conduct inquiries and ask for information.

The I&CI wing is asking to prove the source of funds along with documentary evidence, whether details regarding the assets have been declared to the tax returns filed in India and the tax on the income (if any) has been paid in India, etc.

1. How did IT department get the information that I have a property in India?

The UAE is one of some 47 countries and jurisdictions that have committed to share financial data on individuals and legal entities under Common Reporting Standards (CRS), started in 2018.

In a typical scenario, if one lives in one country and has assets in another, under CSR his information will be shared between countries and the local tax authority in his country (where he is citizen or domiciled for tax purposes) will automatically receive information on the financial assets he owns overseas, without asking for it, and regardless of whether they have any questions about his tax affairs.

Under the CRS, information is exchanged by UAE and India on the assets held by the Individual overseas. An individual is becoming one transparent entity whose data and information is linked to home country tax ID.

2. Is it legal to hold property in Dubai by Indian national?

As per the existing laws in India, it is legal to have properties in Dubai. Resident and Non-resident Indians both can buy properties abroad, as per Foreign Exchange Management Act (FEMA) of 1999. A resident individual can have investment up to $250,000 in properties under theLiberalised Remittance Scheme (LRS). The Resident Individual has to disclose the details about the foreign assets under FA (Foreign Assets) Schedule from FY 2011-12 and Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act (Black Money Act) in 2015.

3. I invested property out of funds earned outside India since I’m an NRI. There were no Indian funds used to buy the property. Then why did I receive a Notice?

Since the IT department does not know who has undeclared funds and who doesn’t so basically all Indians whose name is on the database provided by Dubai Government are receiving an inquiry to verify the legality of their purchases. Ideally, the IT people wish to target the Resident Indians but it will also cover NRI’s because they don’t know who got money from India and who didn’t and whether legitimate taxes have been paid or not.

4. I am a NRI settled in UAE. What do I do if I have received this notice?

Even though you as a NRI don’t have to pay tax on earnings or funds abroad, you cannot afford to disregard the notices received from Tax department as long as you continue to hold Indian passport.

5. points to remember:

1. Neither Panic nor Ignore: Your first reaction could be to press the panic button or ignoring it completely due to ignorance. Both the ways are wrong and key is to handle this carefully and honestly else you may end up paying hefty penalty along with tax payment.

2. Reply on Time: Always reply on time even if you are not able to collect the required documents. You can ask for some time to prepare the same. It would establish that you are honest and cooperating with the laws.

3. Collate & submit the documents required: You need to write a letter to IT Officer and prove that you are NRI as per the Income-tax & FEMA laws in India for last 16 years. Further, you need to explain the source of funds used in buying the property is earned outside India only. If you cannot explain the source of fund, it would not only be a violation of the FEMA but also expose the person to tax demands and penalty.

PS: The penalties are severe: “Non-disclosure can attract a tax of 30 per cent and penalty of up to 300 per cent of the tax along with criminal prosecution under the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act (Black Money Act), which was introduced in 2015.”

Get Professional Help: You can follow the above steps and represent yourself in most of the cases. If you still face any issues about notices from the Income Tax department, you can get professional help.