Planning to buy a property in Dubai: Here’s a list of 9 key tax obligations for Indians

Dubai has emerged as one of the favourite destinations for Indians buying properties overseas. To monitor this trend and track foreign assets owned by Indians, the Income Tax Department is stepping up its vigilance. Amid this development, experts have outlined key considerations and compliance measures to keep in mind when planning such financial transactions and the associated tax obligations.

As Indian tax authorities are obtaining information from the UAE on property buyers, here’s what you should know:

Remittance limits under LRS

A resident Indian can remit up to $250,000 (approximately ₹2.1 crore) per financial year under the Liberalised Remittance Scheme (LRS) to purchase property. However, taking a loan, financing the purchase, or buying property with the intent to resell immediately is not permitted, explains Yeeshu Sehgal, Tax Lead, UAE at AKM Global.

Tax collected at source (TCS)

A 20% TCS applies for remittances exceeding Rs7 lakh when funds are sent via LRS to Dubai. This creates a cash blockage, as credit for the amount can only be claimed at the time of filing the income tax return, adds Sehgal.

Declared income sources

The funds used to buy the property must originate from declared income sources reflected in past income tax returns.

Gifting for double LRS limit

Some individuals gift money to their spouses to double the LRS limit. However, income generated from the gifted amount—such as rental income or profits from the eventual sale of the property—will be clubbed with the giver’s income and taxed at the applicable slab rates.

ITR disclosures

Any Dubai property owned by an Indian resident must be disclosed in the Foreign Asset (FA) schedule of the income tax return. Failure to do so can attract penalties of up to ₹10 lakh under the Black Money Act.

Rental income taxability

Rental income from Dubai property is taxable in India under “Income from House Property.” It must be reported in the Foreign Source Income (FSI) schedule of the ITR. A standard deduction of 30% is allowed on rental income, and any foreign tax paid can be claimed as a credit against Indian tax liability.

Capital gains tax

Capital gains from selling a Dubai property are taxable in India for Indian residents. Properties held for less than 24 months are subject to Short-Term Capital Gains (STCG) tax at the slab rate. For properties held longer, the Long-Term Capital Gains (LTCG) tax applies:

• 12.5% without indexation for properties purchased on or after July 23, 2024.
• 20% with indexation for properties purchased before this date.

A foreign tax credit can be claimed for capital gains tax paid in Dubai. Additionally, exemptions under Section 54 of the Income Tax Act apply if the proceeds are reinvested in a residential property in India.

Tax exemptions in Dubai

In Dubai, individuals holding property as a personal investment are not subject to tax on rental income or sale proceeds. They are not required to register for taxes in such cases. However, expenses related to real estate investment income are not deductible.

Importantly, this exemption does not apply to properties held as part of a business activity conducted through a license in Dubai. Only real estate income from personal investments is tax-free.

Golden visa eligibility

Purchasing a property in Dubai can also make one eligible for the UAE’s Golden Visa, which requires a minimum investment of AED 2 million (approximately ₹5 crore).

Source: CNBC TV18