After having made investments through cash held in Swiss accounts, income tax The IT department is now mulling over tightening scrutiny over real estate assets held abroad by high net worth individuals. According to sources, real estate investments of high net worth individuals outside India are currently under the scrutiny of the IT department.
“The Income Tax Department has recently carried out greater tax control of real estate investments made by HNI “It has issued thousands of notices requesting information on assets abroad,” the sources added.
The tax authorities have not only issued warnings but have also carried out inspections, which have revealed “a sudden increase in real estate transactions of Indian HNIs in Switzerland and Portugal,” the sources said.
Portugal | Portugal is one of the most sought-after countries in Western Europe for real estate investment. Investors can purchase real estate anywhere in the country for €500,000 to be eligible for Portugal’s Golden Visa program. Another attractive feature for real estate investors is the reduced minimum investment of €350,000 required for investments made in residential or commercial real estate rehabilitation projects. There is also the possibility of an additional twenty percent reduction if the property is located in a low-density area.
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With this action, the Treasury Department is targeting “undeclared foreign assets and income held and generated abroad,” the sources said.
The taxman has sought further disclosures from HNIs regarding foreign real estate assets held by them through these notices and surveys, an action taken under Section 133(A) and Section 133(6) of the Income Tax Act.
Section 133A empowers the tax authorities to enter and inspect any premises if they have reason to believe that any documents, books, accounts or other material relevant to any proceedings under the Income Tax Act may be found therein. The authorities may also seize such documents if found during the inspection.
Section 133(6) of the Income Tax Act states that officials of the Income Tax Department are authorized to summon any person, requiring him to furnish information or evidence in cases where there is suspicion of understatement or incorrect declarations.
The sources also said that recent investigations have uncovered several real estate transactions in Switzerland and Portugal.
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The tax department has discovered several interesting trends in these surveys and research. Firstly, HNIs find that properties in foreign countries are significantly cheaper than similar properties in India.
Secondly, the influx of multinational companies into India has led to old companies selling their stakes and accumulating large sums of money, thereby generating wealth.
Thirdly, since these HNIs have substantial funds, they find foreign investment opportunities more attractive than those available in India.
The Income Tax Department also believes that the increased scrutiny, coupled with such interesting trends, has actually “intensified the exodus of HNIs from India,” the sources added.
Experts say that historically, HNIs bought assets abroad through offshore trusts and sometimes through multiple intermediary companies, which were largely opaque structures.
However, with the global implementation of ultimate beneficial ownership (UBO) rules and multiple financial leaks, such as HSBC, Panama and the Paradise Papers, keeping wealth in offshore financial assets has become a challenge.
Therefore, HNIs considered investing in real estate abroad to be a safer bet.
“India’s interest in uncovering real estate transactions made by its citizens across multiple jurisdictions is part of its tax compliance strategy. The I-T department has asked field agencies to intensify scrutiny along with levying taxes on undeclared assets in the year they are discovered, without any time limitation,” the sources added.
These orders from the top have further intensified the exodus of top executives from India, the sources added.
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