P0005 Purpose Code
According to the RBI, it is for transactions related to “Repatriation of Indian investment abroad in real estate.”
P0005 is used to report the process of bringing back funds to India from the sale of real estate property located outside India, which was originally purchased by a resident Indian. When such a property is sold, the amount received and transferred back to India is reported under this code. This code can be used by an individual investor, a resident of India or an NRI, and companies as well.
For Example, suppose a resident Indian purchased an apartment in London in 2018 for Rs. 2 crore (approx. £200,000 at the time). In 2025, the investor sells the property for Rs. 3 crore (approx. £270,000). After paying applicable taxes and expenses abroad, the net proceeds of Rs. 2.8 crore is transferred back to the investor’s bank account in India. This inward remittance is reported under the code P0005.
Important Rules for Repatriation
- Investment Must Be Lawful – This means that the investor should follow the guidelines mentioned under the Foreign Exchange Management Act (FEMA), laid down by the RBI.
- Use of the Liberalised Remittance Scheme (LRS) – This is an important factor when using the code P0004 while bringing back returns from investments in foreign subsidiaries or associate companies. However, LRS is not directly used for repatriating funds, but is used initially to send money out of India for such investments. Under this scheme, a resident individual can remit up to $250,000 per financial year, as of 2025, without prior RBI approval, making it easier to invest in foreign entities legally and smoothly. It is to be noted that this scheme is only applicable to individual investors and not to an Indian company seeking to invest abroad.
- Declaration of Source and Ownership – The investor needs to confirm two things when repatriating money from the sale of property abroad-
Investment was made out of permitted funds:-
This means the money used to buy the foreign property must have come from legal and approved sources, such as savings legally sent abroad under the Liberalised Remittance Scheme (LRS). The investor must declare that no illegal or restricted funds were used.
They are the beneficial owner:-
The investor must also confirm that they truly own the property and the money from the sale, not just on paper, but in reality. For this, the AD Bank may send its agent to visually verify and document that the property being sold by an investor is theirs indeed.
- Repatriation Limit – There is no fixed upper limit on how much money an investor can bring back (repatriate) to India from the sale of property abroad.
- Prior Approval from the Reserve Bank of India – If the investment or repatriation does not meet the conditions under the RBI’s automatic route, prior approval from the RBI is required. This usually applies when the transaction exceeds limits, involves non-permitted methods, or lacks proper documentation. Approval ensures compliance with FEMA and proper monitoring of foreign exchange transactions.
- What Type of Income Is Not Allowed? – Rental income from foreign property, interest income or dividends from investments in real estate-related financial instruments abroad, or inheritance proceeds or gifts related to property.
How to Report the Purpose of The Transaction to The RBI by Giving the Purpose Code:
Investors repatriating money to India must file several forms before starting the process. Usually, the transactions are via bank transfers, and your bank will ask you to provide a purpose code by giving a form to fill out. If you have any doubts or questions, feel free to reach out to us via email- support@bankerpanda.com, and we will try our best to help you out.
Tax or No Tax?
In some situations, repatriated income may not be taxed at all or might be rebated in India. As an Indian investor, it is important to note that any income earned from these investments is taxable in India, unless a tax exemption or treaty applies. Here are the common exemptions:
- Tax is Not Charged on the Remittance Itself – Bringing money into India (repatriation) is not taxed by itself. What gets taxed is the type of income, like profit from selling a property or business abroad. So, if the money includes capital gains, that part may be taxable in India.
– For an Indian Investor – A Resident Indian is taxed on their global income, which means income earned anywhere in the world is taxable in India. This includes capital gains from the sale of foreign property, even if the property is located outside India.
– For a Non-Resident Indian (NRI) – According to Indian tax rules, income on property earned outside India by a person who qualifies as a non-resident is generally not taxable in India, as it is considered foreign-sourced income. Therefore, if both the property and the income from its sale are located outside India, and the individual continues to be a non-resident for tax purposes, the repatriated amount is not taxable in India.
- Filing Foreign Tax Credit (FTC) (Section 90/91) – When an investor residing in India brings back income from their real estate in a foreign country, they might have already paid tax on that income there. To avoid double taxation, they can claim a Foreign Tax Credit (FTC) in India by filing Form 67 and showing proof of the tax paid overseas. This helps reduce their Indian tax liability on the same income.
How DTAA Plays a Role – The percentage of tax exemption is dependent on the factor whether India is in a Double Taxation Avoidance Agreement (DTAA) with the country where the property was purchased. India has DTAA with 90+ countries. To avail of these benefits, you must obtain a Tax Residency Certificate (TRC) from the foreign country and submit it along with Form 10F to the Indian tax authorities. To learn more about the countries with which India has DTAA, click here.
- Taxation on Capital Gains – Short-Term Capital Gains (STCG) are taxed at the investor’s income tax slab rate, which can go up to 30%. Long-Term Capital Gains (LTCG), for property held over two years, are taxed at 20% with indexation benefit, which adjusts the purchase cost for inflation and lowers the taxable gain. This makes LTCG more tax-efficient than STCG.
- No Profit, No Tax – If there is no profit from the sale of a foreign property, meaning the sale proceeds are equal to or less than the original investment, then no capital gains arise, and therefore, no tax is payable in India on the repatriated amount under Purpose Code P0005. In such cases, the amount brought back to India is simply a return of the original capital, not income or gain, and hence is not taxable. However, the investor should maintain proper documentation, such as purchase and sale agreements, proof of payments, and foreign exchange conversion details, to support that the repatriated funds represent the invested capital and not profit. Tax may still be applicable in the foreign country as per its local laws.
- Capital Loss Set-Off or Carry Forward – Under P0005, capital loss set-off and carry forward are allowed only for resident Indians, since they are taxed on global income. Short-term losses can be set off against any capital gains, while long-term losses can only be set off against long-term gains. If not fully adjusted, the losses can be carried forward for 8 years, provided the tax return is filed on time. These provisions do not apply to non-residents, as foreign capital gains are not taxable in India for them.
For Example, in 2016, a resident Indian bought a property abroad for Rs. 80 lakhs and later sold it for Rs. 70 lakhs, making a loss of Rs. 10 lakhs. In the same year, he earned Rs. 6 lakhs as long-term capital gain from Indian mutual funds. Since he is a resident, he can use Rs. 6 lakhs of the loss to cancel out the gain, so he does not have to pay tax on it. The remaining Rs. 4 lakhs loss can be carried forward for up to 8 assessment years to reduce tax on future long-term gains. If the investor was a non-resident, this would not apply, as foreign gains/losses, in this context, are not taxed in India for NRIs.
P0005 Purpose Code Use Case Examples:
Here are some real-life examples where the RBI’s Purpose Code P0005 would be used to report transactions in India:-
- Return of Proceeds by Selling a Property by An NRI in A Foreign Company:-
An NRI sells a residential property in the UK that was originally purchased for Rs. 1.2 crore and sold after five years for Rs. 1.5 crore, resulting in a capital gain of Rs. 30 lakhs. Since the property and income are both outside India, and the individual remains a non-resident, the capital gain is not taxable in India. The full sale proceeds of Rs. 1.5 crore are repatriated to India under Purpose Code P0005, which covers the repatriation of investment abroad in real estate. While no Indian tax is payable, the NRI must ensure that the investment was made from permitted sources and that they are the beneficial owner of the property and the repatriated funds.
- Indian Resident Sells Property in A Foreign Country and Repatriates Money to India:-
An Indian resident buys a property in the UK for Rs. 90 lakhs in 2018 and sells it in 2025 for Rs. 1.2 crore, resulting in a Rs. 30 lakh long-term capital gain. Since the person is a resident, the gain is taxable in India and must be reported under Purpose Code P0005 when repatriating the funds. Indexation benefit can be applied, and foreign tax credit (FTC) may be claimed if tax was paid in the UK.
- Purchase and Sale of Joint Property in a Foreign Country:-
A jointly owned foreign property was purchased for Rs. 1.2 crore (Rs. 60 lakhs each) and sold for Rs. 1 crore (Rs. 50 lakhs each), resulting in a long-term capital loss of Rs. 10 lakhs per co-owner. Since both are resident Indians, the loss must be reported under P0005 while repatriating the sale proceeds. Each can set off their Rs. 10 lakh loss against any long-term capital gains in the same year and carry forward the balance for up to 8 years. If either owner were non-resident, the loss would not be taxable or eligible for set-off in India.
- Repatriation of Indian Investment in Foreign Real Estate by a Company:-
An Indian company had invested Rs. 50 crore in commercial real estate through its subsidiary in Singapore. After a few years, the property was sold for Rs. 70 crore, and the full amount was repatriated to India. This transaction is reported under P0005. While the act of bringing money into India is not taxed by itself, the capital gain of Rs. 20 crore may be taxable in India, depending on the provisions of Indian tax laws and the applicable Double Taxation Avoidance Agreement (DTAA) with Singapore.
- Repatriating Capital to India after Incurring a Loss following The Sale of a Foreign Property:-
An Indian investor had purchased a residential property in the U.K. for Rs. 3 crore using funds remitted under the Liberalised Remittance Scheme (LRS). After a few years, due to a downturn in the property market, the investor sold the property for Rs. 2.2 crore, incurring a loss of Rs. 80 lakh. The investor then repatriated the entire Rs. 2.2 crore back to India. This transaction is reported under P0005. Since there is no gain, there is no tax liability in India.
- Repatriation of Funds After Property is Ceased or Compulsorily Acquired by Foreign Authorities:-
A resident Indian had invested in a residential property in a foreign country, which was later compulsorily acquired by the local government for a public project. The government paid compensation equivalent to Rs. 90 lakhs, while the original purchase price was Rs. 80 lakhs, resulting in a long-term capital gain of Rs. 10 lakhs. The investor repatriated the amount to India through official banking channels and reported the transaction under Purpose Code P0005. Since the investor is a resident, the Rs. 10 lakhs gain was taxable in India, while the original investment portion was not.
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