Following the examination of foreign bank accounts, stock holdings, and trusts in tax havens, it is now the turn of offshore property deals of wealthy Indians which are now under the taxman’s scrutiny.

Last week, at least half a dozen resident Indians were surprised by summons from the Income Tax (I-T) Department regarding their property purchases in Switzerland and Portugal.

For the first time, residents are being questioned about property acquisitions in countries that were previously not under the taxman’s radar for realty investments.

Indian revenue authorities regularly receive information about citizens’ overseas financial assets. This is part of an automatic exchange of information pact under the CRS, developed by the Organisation for Economic Cooperation and Development (OECD) a decade ago. Over 100 countries are signatories to this arrangement.

CRS data is shared by banks, financial institutions, and, in some cases, trustee service providers.

However, this data has primarily been confined to the names and addresses of Indians with foreign bank accounts, exposures to securities and funds, or identities of beneficial owners, trustees, and sometimes protectors of trusts formed in jurisdictions such as Jersey, Guernsey, and the Bahamas to ring-fence family wealth and slush money.

Typically, financial institutions do not share information on property purchases.

In recent years, many resident Indians have invested in properties under schemes offered by countries like Portugal, which provide citizenship, permanent residency, and long-term golden visas, similar to those in the United Arab Emirates (UAE).

From One Crorepati To Another

One of the most extravagant weddings that not only made headlines in India but also abroad was the Anant Ambani-Radhika Merchant wedding and as grand as the wedding and the pre-wedding bashes were equally grandiose were the gifts!

Even as the festivities were widely publicised, details of the lavish wedding gifts given by the VVIP Crorepati guests also made headlines.

For one was Sharukh Khans’ wedding gift to the couple which was a luxurious apartment in France worth Rs. 40 Crore.

The gift got significant coverage on social media with many scratching their heads and pointing out, that the approximate cost of the apartment would be USD 4 Million and as per Indian laws one is allowed to transfer forex 250,000 USD per year, per person so how did this happen, did Sharukh Khan plan this wedding gift 16 years earlier?!

Now that we have touched upon the “gift” topic let us explore a bit further, according to reports, the Bachchan family (the women, Jaya and Shweta Bachan turned up with some serious bling!) gave an emerald neckpiece valued at 30 crores, Salman Khan gifted a sports bike valued at 15 crores, Ranvir and wife Deepika Padukone gave a customised Rolls Royce worth 20 crores, while Alia Bhatt and Ranbir Kapoor gave a Mercedes worth 9 crore….phew!!!

According to the prevailing tax laws in India, gifts can be tax-exempt under specific conditions, such as amounts received on the occasion of marriage or gifts from relatives.

For instance, any amount given to Radhika Merchant or Anant Ambani during their wedding would fall under this exemption. However, the gifts that Anant Ambani presented to his friends do not enjoy the same immunity.

By the way, Anant Ambani is said to have pleasantly surprised Shahrukh Khan, Ranveer Singh and all his groomsmen with Rs. 2 Crore watches!

That we are talking about taxes – how much tax will the recipients need to pay?

Gifts received on birthdays, anniversaries, or from friends are taxable. The tax exemption is only applicable if the total value of gifts received does not exceed Rs 50,000 in a year. Once this threshold is exceeded, the entire amount is subject to tax.

In the case of these luxurious watches, each valued at up to Rs 2 crores, the threshold is crossed. Consequently, the celebrities will be obligated to pay taxes.

As Sujit Bangar, Founder of Taxbuddy.com, explained, “In the Radhika-Anant Ambani wedding saga, the watch received should be taxable. If these watches have been purchased by Anant Ambani in the name of Shahrukh, Ranveer, etc., then they will have to pay tax on its market value as it’ll be considered a cash gift (which is taxable).”

The tax calculated on this amount will be categorized as “income from other sources” under the Income Tax Act. This means that the recipients must declare the market value of these watches in their income tax returns and pay the appropriate tax rate applicable to their income bracket.

For high-income individuals, this could mean a substantial tax liability, given that their income likely places them in the highest tax bracket.

Receiving luxury gifts comes with its own set of tax obligations. As the saying goes, “There’s no such thing as a free lunch,” and in this case, there’s certainly no such thing as a tax-free luxury watch.

The Last Bit, it seems that the wedding while a happy and grand affair has also opened the Tax-Pandora-Box.

As the Income Tax Department goes about examining overseas property investments by Wealthy Indians, including recent acquisitions in Switzerland, Portugal and perhaps France, it adds to the woes of overall tax scrutiny but hey what are a few lakhs when we are talking of major crores?