Last year in September I had gone to India to meet and greet my family and friends, also to attend a family wedding. It was also an opportunity for us to introduce my daughter and celebrate her first birthday there.
I have been to India many times, almost every year but this time it was different financially. My long-term plans have always been to go back to India and live there for rest of my life.
Part of the plan was to buy a home and be mortgage free before I go back. If I want to maintain same lifestyle and standard of living, if not same at least to a comfortable extent then cost of living in India is not that cheap.
Even though I always wanted to buy a home in India, but never had I planned to buy one at this time of my life. Especially when I have two houses on mortgage that I need to repay, I don’t believe I am over exposed but I am stretched financially.
My intention of buying a property overseas has led to maintaining keen interest on the property market in Hyderabad, even more after the state got partitioned.
I always knew the price was moving up with booming economy and jobs, hoping this bubble will burst. Even after partition of the state, prices didn’t budge, this made me think on my belief of prices going down.
Current price for a villa located in decent area is starting anywhere from 2cr, which is 400,000 Australian dollars.
Buying a house at this price was well beyond my budget and I never liked the concept of living in an apartment. As most of my childhood had been spent in apartments and I really hate to live in them again, more over they were not cheap either, it will cost you 1cr rupees to get in a decent area which is 200k Australian dollar.
I was kind of surprised to find myself in this situation, if I want to get anything within means, I have to travel far from city. The other problem in buying a property in India is that you have choose premium builders, buying from any other third-party builders or brokers will cost you much cheaper but you are gambling with the whole delivery and validity of the project.
After spending few weeks scavenging the area, I found to be out priced almost in and around the area I was looking.
I have to say I was lucky enough to find a place near my relatives which was priced at 1.2 cr.
This is brand new place and the price was well below the market price. The main reason it was below the market price was that the builder who has built the community did not yet finished the internal roads and few other facilities.
Also it has obtained a negative reputation, more than it deserved. I had the advantage of inside information from someone I know closely, purchased and living in the community for the past 4 years.
I bought the place for 240 k Australian dollars. Apart from this cost I also have to shed some more amount of money to build woodwork’s and appliances. In India houses come in shells, where it is owner onus to build wardrobes and other interior designs.
Visa and Immigration Implications
Being Australian citizen there are laws in other countries that restricts what property can a foreigner own. For Instance, India doesn’t allow foreigner to buy or own agricultural land.
I also obtained overseas citizen of India (OCI) which gives you the rights to travel and work between two countries unconditionally. But to own a residential or commercial property in India you don’t need this status.
Having a foreign passport comes with restrictions, as to what one can do but it also gives you other benefits that government has introduced to encourage tourism, like you can always be assured of getting a ticket on public transport under foreign quota.
Overseas Tax Deductions
There are many deductions that you can deduct from taxable income depending on the invested property.
Lot of the Australians don’t know that we claim tax deductions on overseas investment. I was ignorant of this fact till recently, until my tax accountant told me about this few years back.
Depreciation of the investment property
While the tax system varies from country to country, it is also true on the method that local agencies use to depreciate property. I want to do depreciation of this property, it’s brand new and Australian Tax Office (ATO) allows depreciation deduction of the property against income.
But the challenge is that I need to find a Charted Accountant who could depreciate property that aligns with Australian tax laws and is accepted by government here. I will keep you guys posted once I get this done and my lessons learnt in this process.
My loan repayment amount is 105000 rupees, approximately 2300 dollars. Of which I pay 63000 rupees in interest and 42000 towards principal. I can only deduct 63000 rupees part towards my tax deductions but not the whole amount.
Double Tax Agreement
One other thing is that the whole laws of deducting and paying tax for the property depends on double tax agreement between countries. This is what ATO has to say on this, in short, you won’t be paying double tax in both countries if there is an agreement.
Australia has tax treaties with more than 40 countries. Tax treaties are also referred to as tax conventions or double tax agreements (DTA). They prevent double taxation and fiscal evasion, and foster cooperation between Australia and other international tax authorities by enforcing their respective tax laws.
ATO allows us to deduct monthly bank fees that we may incur as part of maintaining this investment property.
Apart from deducting interest, bank fees and other expenses, I can also deduct part of my flight ticket to India.
Till I go back to India and settle, I have intentions of renting this property. Claiming an investment property for tax deduction also mean that any income and capital gains that I obtain needs to be declared in my tax returns.
If you have a property that’s been occupied by your parents or relative and is not for rental purpose then ATO doesn’t consider this as an investment property and hence we can’t claim any depreciation on the property.
Even though there are a lot of financial gains by investing in property overseas, there are other financial risks like fluctuating exchange rate and risk of maintaining property remotely, gauge the risk to rewards before leaping on to this type of investment.