Dubai property investment is a rage nowadays. Given its world-class infrastructure, friendly environment, and rental yields, many Indians are tempted to own property in Dubai. While this plan seems a good idea for Indian investors interested in diversifying their real estate portfolios, it is crucial to understand essential tax rules and their implications before buying properties in Dubai.
If you are also interested in buying property in Dubai, stay right till the end so you do not miss anything on major tax rules that Indian buyers should know before Dubai real estate investment.
1. Indians Do Not Require To Pay Direct Property Tax in Dubai
One of the significant advantages of buying Dubai properties is that you don’t have to pay property tax in Dubai, unlike India. Thus, Indian buyers benefit from property tax rules relief, which further motivates them to invest in Dubai properties.
Real estate in Dubai for Indians is booming, offering tax-free perks and lucrative investments in the UAE’s prime locations.
However, the Indian Income Tax Department is now tracking foreign investment data and transactions associated with Dubai properties owned by Indians and has outlined compliance measures for associated tax obligations in India.
2. India Charges Capital Gains Tax on Dubai Property
While Dubai has a liberal approach to Capital Gains Tax on selling Dubai real estate owned by Indians as it does not charge any fees, India levies Capital Gains Tax rules on selling Dubai properties categorized into Short-Term Capital Gains (STCG) tax slab and Long-Term Capital Gains (LTCG) tax slab.
According to ITD, it charges 12.5% without indexation for real estate bought on or after 23 July 2024, and 20% with indexation for real estate bought before 23 July 2024. However, if the Indian seller is reinvesting the derived income in a residential property in India, he/she will be exempted under Section 54 of the Income Tax Act.
PS- While there’s no direct Indian taxation on Dubai property investment, buyers should be aware of capital gains and repatriation rules.
3. Indian Income Tax Rules on Foreign Real Estate
Indian residents investing in Dubai real estate must comply with Indian income tax rules. The income generated from rental yields or capital gains from Dubai properties is taxable in India. Under Indian law, rental income from Dubai properties must be declared in the investor’s tax returns and is taxed as per their applicable income tax rules slab.
4. Double Taxation Avoidance Agreement (DTAA)
To make things easier and more convenient for both nations, India and the United Arab Estate have signed the DTAA agreement to ensure that Indian shareholders do not have to pay double taxes on the same property profits or income.
So, the Indian investors paying taxes on rental income in Dubai can use the benefit of DTAA to reduce their tax burden in India. As of now, he/she can remit up to $250,000 (approx. Rs.2.1 crore/ financial year) under LRS. However, 20% of Tax Collected as a Source or TCS is applied on remittances of more than Rs.7 Lakh of the amount sent through Liberalized Remittance Scheme.
5. Mortgage Rules for Indian Buyers In Dubai
If an Indian buyer wants to purchase Dubai property through a loan or mortgage, there is a set of rules for that. Indians can get the desired amount of mortgage from the UAE Central Bank at a higher down payment i.e., a minimum of 20% to 25% of the property price upfront. The evaluation of a down payment varies depending on the property value as well.
Moreover, buying property in Dubai from India is seamless, but understanding Dubai real estate laws for foreigners, especially related to tax rules is key to making a smart investment. As they say- Look before you leap, especially when the leap involves real estate!
So, what are you waiting for- from Downtown to Palm Jumeirah, explore the best locations to buy property in Dubai for both luxury living and high returns.
6. RBI’s Foreign Exchange Regulations for Owning Property In Dubai
As per the RBI, Indian citizens can invest and own property in Dubai under the Liberalized Remittance Scheme. As of now, the foreign investment limit for Indians is Rs.2,15,77,542 or USD 250,000 per financial year.
So, the Indian investor must disclose his/her properties in Dubai in the Foreign Asset schedule during the IT return. Failing to do so will be treated as a crime under the Black Money Act and can slap a fine up to Rs. 10 lakhs. Apart from complying with the FRE tax rules policies, the investor must disclose in the IT returns the source of income used for buying properties in Dubai.
7. Minimum Investment Criteria for Owning A Property Visa in Dubai
Investing in Dubai real estate could help you secure a Dubai Golden Visa property investment, offering long-term residency benefits.
The Dubai Golden Visa property investment scheme is mandatory for getting a visa for Indian property owners in Dubai. As per Dubai’s property visa regulations, if an Indian buyer has purchased real estate worth Rs. 4.5 crores, he/she will get a 10-year Dubai residency visa. However, the residency visa duration varies with the property investment amount.
8. Crucial Yet Hidden Costs For Purchasing Property in Dubai
Wondering about property tax in Dubai for Indians? The UAE offers tax-friendly benefits, but there are still hidden costs of buying property in Dubai. Yes, you heard it right! Dubai also levies additional or just say, hidden charges involving in purchasing Dubai properties by Indians. Here are the details-
- You have to pay 0.25% of the loan amount on your loan or mortgage called mortgage registration fees.
- You have to pay 4% of the property value called the Dubai Land Department (DLD) fee.
- There is a 2% of the property price amount called the Real Estate Agent Commission fee.
- You have to pay AED 2,000 to AED 4,000 for registering a property.
- Annual maintenance charges are also applied in the guise of Service Charges.
9. Rental Income Tax Rules
As mentioned earlier, Dubai does not levy taxes on rental incomes on properties owned by Indians. However, the Indian IT Department is vigilant about it and has made it mandatory to disclose such incomes under the Income from House Property tax rules. All the details must be mentioned in the Foreign Source Income (FSI) of ITR. The rental income and property-selling benefits are regulated in compliance with RBI’s foreign exchange regulations in India.
Conclusion
Though Dubai does not charge taxes on individual property holdings, rental incomes, or selling properties, expenses related to real estate investment held as part of a business activity conducted through a license in Dubai income is not deductible. While Dubai has a liberal approach, Indian investors must take care of the Indian tax rules system on foreign assets before proceeding to buy properties in Dubai. If you have any queries or questions, feel free to ask in the comments.
