The migration destination via investments

When considering migration programs, you should consider Indian exchange control regulations governing foreign remittances. Relocation presents complex tax challenges at the individual and business level. A well-structured investment plan is essential to avoid unexpected issues that could affect the return on investment. Even if you have enough funds to invest in your dream location, you may not be able to pass it all on, unless specifically allowed under the Foreign Exchange Management Act (FEMA). The Liberalized Remittance Scheme (LRS) under FEMA allows all residents to remit up to $250,000 per financial year free of charge for approved transactions. However, investment program requirements often exceed that limit, requiring a strategic investment approach to eligibility, such as:

You can pay up to $250,000 in two installments, one by the end of the current fiscal year and the second at the beginning of the following fiscal year; You, your spouse, and close relatives can pay up to $250,000 per year; With the prior approval of the Reserve Bank of India, you can send funds in excess of the $250,000 limit abroad. and higher investments could be allowed with corporate investments under overseas investment regulations by checking the acceptance of the host country for individual investment migration schemes.

The full payment may not be the exact amount that will reach your foreign account, as banks are instructed to collect tax, up to 20% depending on the nature of payments made under LRS. The tax collected at source (TCS) can be adjusted to your actual tax liability while filing your tax return or you can claim the excess TCS as a refund. However, the time difference in tax collection and demand in a tax return requires an additional cash outflow when making foreign investment.

Note these few important tax rules :

1. Residents must report all foreign assets, investments and foreign income in their Indian tax return. Non-reporting or inaccurate reporting under the Black Money Act can result in heavy penalties and prosecution.

2. Tax status depends on various factors, and staying outside India for more than 182 days does not guarantee tax exemption, especially in a tax-friendly destination like the UAE.

3. Consider the tax laws of the host country and the tax treaty provisions between India and the host country.

4. Any business entity established abroad but operated from India may face the risk of establishing a permanent establishment and Place of Effective Management (POEM) in India. Such tax risks must be avoided by structuring your business investments and operating procedures.

As the trend of global mobility continues to develop, it is imperative for individuals to carefully assess their options, consult with experts, and make informed decisions when considering investment investment programs.

Preeti Sharma is partner, tax and regulatory services, BDO India.

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Updated: 20 November 2023, 11:52 PM IST