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Rules that Indians should keep in mind while investing overseas

$250,000 can be transferred by resident Indians every year

Question: My brother, who is a resident of India, wants to invest his Indian Rupee funds in the overseas capital markets. He is also considering buying a property. Is this legally possible? Are there any issues which he has to keep in mind while doing so?

ANSWER: Under the liberalised remittance scheme (LRS) introduced by the Reserve Bank of India more than a decade ago, resident Indians are permitted to transfer upto $250,000 outside India every year through their bank accounts. This figure includes spending in foreign exchange for travel, education, medical treatment, gifts to relatives, etc. In respect of certain forex spending, tax is collected at source and paid to the government, which the resident Indian can subsequently adjust while paying his tax dues, which would be disclosed in the tax return. LRS has become a popular scheme among resident Indians and, during the current financial year, the average monthly remittances has risen to $3 billion as against $1.1 billion in the financial year ended March 31, 2021. The funds remitted outside India can be invested on the capital market or in other forms of investments. Residential properties can also be purchased outside India from the funds so remitted. Your brother must account for all income earned outside India or capital gains made. Rental income would also be liable to tax in India. The reason is that all resident Indians have to pay tax in India on income which accrues, arises or is received outside India, which would be added to the Indian income. Hence, the return of income for each financial year would need to disclose the aggregate of income earned in and outside India on which advance tax and self assessment tax would have to be paid.

Question: Online purchases of goods and services are part of daily life. However, very often consumers feel that they have been taken for a ride and end up buying a product which they don’t need or pay a higher amount than what was stated. Can anything be done to prevent this?

ANSWER: This is happening all over the world, including in India. To deal with this situation, the Central Consumer Protection Authority has issued a notification under which advertisers and sellers have been prohibited from engaging in ‘dark patterns’. This expression means deceptive practices that are adopted to mislead or trick users of online platforms to do something which they do not want to do. For example, consumers are forced to take a decision when they are told that only one room is available at a hotel at a specified price or only two seats are available on an airline at a particular fare. This dark pattern creates a false scarcity, which would make the consumer take an impulsive decision. Another example of a dark pattern that is covered by the notification is to describe a sale as an exclusive one for a limited time, thereby inducing the consumer to make the purchase. ‘Basket sneaking’ is resorted to whereby additional products or services are added without the consent of the user. This is also considered to be a dark pattern. Another area covered by the notification relates to ‘drip pricing’. This pertains to charging an amount at the time of payment which is higher than the amount disclosed earlier. All these practices are prohibited by the Indian government to protect the interest of consumers.

Question: My son, who is working in India, has taken an insurance policy from an agent which he believes does not suit his needs and the agent has misled him. He wants to discontinue the policy. Will he get a reasonable amount from the insurance company at the time of its discontinuance?

ANSWER: The insurance regulator, IRDAI, has recently made new rules to protect the interest of policy holders. Insurance companies will now have to increase the amount they pay to customers who choose to discontinue the policy before the expiry of its term. The object of doing so is to curb mis-selling by forcing insurance companies to spread out the commission which they pay to agents. A premium threshold has been fixed for each insurance product in respect of which there would be no charges imposed on the balance of the premia irrespective of the timing of the surrender. This new rule will ensure that individuals who wish to surrender their policies prematurely will get a fair deal and a higher surrender value will be paid to them than at present.

HP Ranina is a practising lawyer, specialising in tax and corporate laws of India.