Understanding the Liberalised Remittance Scheme (LRS) and Its Implications
Under the Liberalised Remittance Scheme (LRS), affluent resident individuals in India are allowed to remit up to $250,000 per financial year for various purposes, including the purchase of properties abroad. However, there are strict regulations governing this scheme that must be adhered to, especially concerning investments in foreign companies.
Recent Scrutiny on Offshore Investments
Recently, reports have surfaced indicating that wealthy Indians utilizing offshore companies to acquire luxury properties in the UK are under investigation by the Enforcement Directorate (ED). While the LRS permits direct property purchases, acquiring shares in foreign companies that primarily own real estate constitutes a breach of foreign exchange regulations.
Avoiding Taxes: The Illusion of Safety
Some affluent families have resorted to buying shares in property-holding companies to evade stamp duty, capital gains, and inheritance taxes, under the assumption that these transactions would remain undetected. However, with the UK government tightening tax loopholes and mandating the disclosure of beneficial ownership (BO) details since 2023, the identities of these offshore investors are increasingly coming to light.
ED Notices and Regulatory Compliance
In the past month, at least four individuals have received notices from the ED concerning their ownership of shares in companies that own properties, predominantly based in the UK. Moin Ladha, a partner at Khaitan & Co., emphasized that overseas investment in a foreign company that solely owns property without engaging in genuine business activities is not permitted under Indian law.
The Role of the UK Registry
It is believed that the UK has shared beneficial ownership information of property-owning firms with India, as foreign corporations are required to register with the UK registry. This increased transparency makes it essential for Indian investors to comply with regulations to avoid legal repercussions.
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