Indian money on a world tour

MONEY MATTERS

Open an overseas account with the click of a mouse, invest in the Nikkei/Hang Seng, buy property in Dubai... Yes, you can do all these and more right from your office at Nariman Point, Safdarjung or even Madhubani.

But with the RBI dangling the spend-the-dollars bait before deep-wallets by increasing the overseas investment limit for individuals from $50,000 to $100,000 (around Rs 40-41 lakh), that row house in Singapore may be easier to buy than a bungalow in Bandra. And to top it all, it means a husband and wife can invest $200,000, while a family of four can invest up to $400,000.

Says Mukesh Dedhia, partner, Ghalla and Bhansali, "The RBI is encouraging investors to buy dollars and invest abroad as it has a surplus of dollars in its coffers now."  

So, for starters, how does one actually go about doing it? The process can vary for different banks. To begin with, you will need a bank account abroad. At present, most international banks have their branches in India.

Likewise, Indian banks such as ICICI Bank, SBI and HDFC Bank have a presence abroad. One option would be to approach the Indian banks to open an account in the country where you wish to invest.

Another would be to download the foreign bank's forms and submit them with the relevant documents in its Indian branch. Now that you have an account with which you can invest abroad, let us look at the asset classes where you can do so.

Stocks and funds
Shares, mutual funds, and exchange-traded funds "� you can invest in all these by opening an account with an international brokerage firm. This should be rather simple, given the fact that most banks have their own brokerage houses or have associations with others.

Also as Kartik Jhaveri, director, Transcend India says, "For investing in stocks, one could open an account with a brokerage like E*Trade or Ameritrade and buy stocks at certain stock exchanges mainly in the US.

However, as Gaurav Mashruwala, a certified financial planner, puts it, "One should remember that the charges are rather high (currency values make a big difference) so consider investing in mutual funds abroad only if the amount is substantial."

Agrees Jhaveri, "For equities, if there is an amount of over Rs 10 lakh available, it would be worthwhile." Also, the RBI has allowed forward contracts for individuals where one could take advantage of currency fluctuations only allowed for institutions earlier.

Commodities
You could invest in commodities as well. As Mashruwala says, "I advise clients to invest in gold or even Australian bonds depending on their financial goals." Adds Dedhia, "A strong rupee implies that traders can buy and sell gold abroad at dollar rates."

Plus, there is realty Too
An address in Dubai or London is definitely desirable, and, more importantly, easier now. Says Anuj Puri, Managing Director, Trammel Crow Meghraj, " Both investors and end-users are looking at buying property abroad."

There are three regions where property is being bought. These include, South East Asian countries such as Malaysia, Thailand and Singapore. In the latter country, except for sea-facing areas, property is priced at almost half the price of Mumbai or Delhi. Then, there is Dubai where Indian developers are getting aggressive and so are buyers.

Lastly, there is Europe and the US where the buying is mostly done by end users. The only devil in the fine print could perhaps be the 'tax' component. India has double taxation avoidance treaties with around 140 countries, which means when you pay tax in those countries, the amount gets credited back home. But different interpretations in some cases mean one could land up paying taxes in both countries.

TAXING MATTERS

While adequate due diligence before investing in real estate abroad is advisable, you need to be extra careful when it comes to the tax liability in case of a real estate holding. Tax will be applicable in the country (federal or state as applicable) where you are investing as also in India.

For example, Article 13 of the Double Tax Avoidance Agreement of India with the US states that, "Each contracting state charge tax capital gains in accordance with the provisions of its domestic law." Similar agreements exist with other countries.

For example, if you buy a house in the US and hold it for less than a year, then you are charged short term capital gains tax; any holding above one year will be classified as long term. As in India, long-term gains are relatively leniently taxed in the US too.

Assuming you purchase a house in New York, which you sell after two years and make a capital gain of $50,000. Under the US law, you will need to pay a tax of 15 per cent or $7,500 there. Under the Indian tax law, this will be treated as a short term gain which will be taxed at the marginal rate of 33.99 per cent and hence you have a tax liability of $16,995 (33.99 per cent of $50,000).

The Indian government will give you a tax credit of $7,500 that you have paid in the US, and you will have to pay $9,495 to the Indian government because in India long term capital gains can only be availed if you have held the property for more than three years.

Akhilesh Tilotia, director, PARK Financial Advisors

Off limits
Never mind the raised ceiling, some avenues are still off limits. These include investing in countries the Indian government is not comfortable with. Or, a good round of poker in Las Vegas may sound great, but will not meet the apex bank's idea of investment.

Finally, says Dedhia, "These opportunities can only be availed by the super-class high net-worth individuals." Yet, an address in London could be an interesting thought for the burgeoning Indian upper-middle class.
Any takers?

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The 'do not' invest list includes

Cook Islands

Egypt

Guatemala

Indonesia

Myanmar

Nauru

Nigeria

Philippines

Ukraine

Financial Action Task Force (FATF) has identified them as non-cooperative countries