TDS implication on an NRI of the US for sale of property in India

TDS implication on an NRI of the US for sale of property in India

by | Oct 24, 2019 | income tax, tax savings, taxes, TDS

TDS implication on an NRI of the US for sale of property in India

What is TDS?

TDS implication on an NRI of the US , TDS is referred to as Tax deducted at Source. It is the income tax that is reduced from the money paid at a specific time such as payment of rent, salary, commission, interest, etc.  The Income Tax Department ensures that income tax is deducted in advance from the payments that are made by taxpayers and this is made feasible by TDS.

According to the provisions of the Income Tax Act, 1961 if an individual is purchasing a property in India then he would have to deduct the appropriate TDS from the sale value and pay it to the Government. In the case of a seller who is a resident of India and the value of the property is Rs. 50 lakhs or more, a TDS at the rate of 1% is deducted by the buyer and deposited with the Government.

However, there are certain different provisions related to TDS in case of the seller being an NRI.

Tax implications of sale of property by NRI in India

The selling of property in India by an NRI residing in the US is taxable under Section 195 of the Income Tax Act, 1961. When the seller of the property in India is an NRI, TDS at the rate of 1% is not applicable under Section 194/A of the Income Tax Act, 1961.

When an NRI is selling a property in India, there are three major points affecting taxation. Let us have a look at these 3 major factors.

  • Capital Gain Tax

 When an NRI is selling a property in India after a period of 3 years of holding, then long term capital gain tax at the rate of 22.6% is applicable on the amount earned. In case of holding the property for less than 3 years before selling it, the short term capital gain tax is levied as per the rates of the Income Tax slab.  In the case of short term capital gain, a TDS at the rate of 33.9% is applicable even if the seller is an NRI. The capital gain taxation proceeds remain the same in the case of both resident sellers and an NRI as well. The difference lies in the calculation and deduction of TDS. The Income Tax Department of India directs the buyer to deduct the TDS under Section 195 before making payment to the NRI buyer.

  • TDS

In case of an NRI selling a property in India, the buyer must deduct TDS at the rate of 20.66% on the price of the property. This is applicable in case of Long term capital gains. In the case of short term capital gains, the TDS would be deducted at the rate of 33.9%. NRIs who are selling property in India are liable for making payment of Capital Gain Tax on the capital gain obtained but TDS is levied on the property’s total sale value. So, usually, NRIs have to incur a loss if they do not claim their TDS refund on time.

  • Re-investment of the capital gain obtained

Many NRIs re-invest their capital gains to be safe from the payment of capital gain tax. An NRI who has incurred a long term capital gain can re-invest the gain into property or other tax-exempted bonds for saving long term capital gain tax.  The Income Tax Department can issue a Tax Exemption Certificate to NRIs under Section 195 of the Income Tax Act, 1961.

Claim of TDS refund by NRIs

1.DTAA

NRIs in the US can avail the benefit of lower TDS by the provisions of DTAA (Double Tax Avoidance Agreements).  NRIs in the US can obtain a tax residency certificate i.e. ‘Form 6166′ from Revenue and Customs Department. Then an application for a TDS refund can be submitted with the IRS by ‘Form 8802′.

2.Re-investment proofs

NRIs can submit their proofs of re-investment proofs in India to claim a TDS refund.  NRIs will have to submit an affidavit which states the investment of the capital gains in the purchase of capital gain bonds. Moreover, if an NRI is purchasing a new property by the capital gain obtained then an allotment letter can be submitted.

3.TDS Waiver

In case of an NRI’s total income in India is less than Rs. 2, 50,000; an application for TDS waiver can be submitted with Income Tax Officer.

Hence, NRIs selling property in India will have to pay TDS on the entire sale value of the property. But, they should claim the TDS refund by making appropriate tax planning in advance.

 

 

How to transfer Indian income to the US for an NRI?

How to transfer Indian income to the US for an NRI?

by | Oct 17, 2019 | indian income, NRI, NRO, tax form

How to transfer Indian income to the US for an NRI?

Many NRIs, PIOs (Persons of Indian Origin) and even American Indians are interested in bringing money earned in India to the US. Indian income ,This scenario mostly arises when people have the immovable property back in India or they have inherited assets in India. This NRIs will try to bring the money associated with these assets to the USA by liquidating the assets.

NRIs or PIOs or American Indians who are interested in bringing such Indian income to the USA have to follow certain procedures. This usually depends on the methods by which the income has been acquired in India such as either by selling of property, an inheritance or gift or by making investments into certain financial instruments.

Selling of property in India by an NRI

 NRIs or PIOs are allowed to sell residential or commercial property in India but not agricultural land or farmland. According to the laws, NRIs are also allowed to bring Indian income earned from the sale of a maximum of two residential properties. The NRI who is selling his property and wants to bring his Indian income to the USA must have an NRO Account i.e. Non-resident ordinary Account.

In case of an NRI selling a property in India, the proceeds of the sale must be credited to the NRO account of the individual. If an NRI is selling a property after three years of the purchase of property then it is a long-term capital gain and a long-term capital gain tax of 20% would be levied on this. There is a limit of $1million which can be transferred from India to the US in a particular calendar year.

To begin the transfer of money from India to the US, the NRI has to obtain a certificate from a Chartered Accountant in India. The Chartered Accountant will issue a ‘Form 15CB’ obtained from the website of the Indian Government’s tax department. This certificate is proof that the money which is being transferred from India to the US has been earned by legal means and also all taxes have been paid. In addition to this, the NRI also has to fill another form online i.e. ‘Form 15CA’. This form is submitted online and a system-generated receipt has to be obtained by the NRI. Form 15CB and this receipt have to be deposited in the bank which has the NRO Account along with an additional ‘Form A2’ and a foreign exchange form.

Inheritance or gift received

The property which has been inherited in India is exempt from any gift tax. However, the amount which is obtained from the sale of inherited property is the capital gains and is taxed depending on the specified tax rates.

NRIs that are selling their inherited property and bringing that Indian income into the US must fill up two forms i.e. ‘Form 3520’ and ‘Form 8938’. Form 3520 has to be signed by NRIs along with their tax returns if they are inheriting any property in India.  This helps in validating the trail of the receipts by the NRI and also checks the basis of his inheritance.

Form 8938 has to be filled by all the USA residents, citizens and green card holders for reporting about their financial assets if the aggregate asset is more than $50,000 in case of single taxpayers and $100,000 for couple taxpayers.

Investments made in financial instruments

Another method by which NRIs can bring money from India to the US is by investing in financial instruments like debt investments and equity investment. For making debt investments, NRIs can invest in NRO Account or NRE fixed deposit account. NRIs can also invest in FCNR deposits which yield high returns and the interest income obtained from FNCR deposits is tax-exempted in nature. NRIs can also invest in direct equities or equity mutual funds.

For the transfer of this income earned in India, the NRI needs to fill the Form 15CB and Form 15CA and proceed with the repatriation procedure.

Hence, the procedure for the transfer of funds from India to the US is not a complicated process and can be carried out smoothly by the help of some expert professionals like CAs.

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

by | Oct 10, 2019 | capital gains, income tax, tax filing, tax savings

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

NRI Tax Filing The Indian Income Tax Department has made strides of improvement over the years when it comes to its processes. Thus, there are higher chances of your tax filing or lack of filing coming under the radar of the Income Tax Department. Here are some prominent reasons why you might receive a notice from the Income Tax Department.

  • Delay in Filing IT Return

If you fail to submit your IT return by the deadline set by the IT Department, you will most likely receive an intimation from the department.

  • Misreporting of Capital Gains

The IT department expects its taxpayers to report all the short term and long term capital gains that they have made. Failing to do so might add extra scrutiny to your returns.

  • Mismatch with Form 26AS

There ideally should not be any mismatch when it comes to Form 26AS, your TDS, Form 16 or Form 16A. Any mismatch between these would warrant notice from the department.

  • Failing to disclose income

Any taxpayer who fails to disclose income to the IT department would also come under the lenses of the department.

All You Need to Know

If you are an NRI, here is all that you need to know when it comes to tax filing in India.

  • Residential Status

India, like most other countries that rely on income taxes, depends heavily on the residential status of an individual to calculate income taxes. Individuals satisfying any of the following conditions would qualify as a  resident Indian, otherwise a Non-resident.

  •           You have spent a minimum of 182 days during the financial year in question.
  •           You have spent a minimum of 60 days during the financial year in question and cumulative of 365 days in the previous four years.
  • Taxable Income

For resident Indians, their global income is taxable in India as per the applicable tax slabs. However, if you are a non-resident Indian, you are liable to pay taxes only on the income generated in India. This could include salary received for consultation, rental property in India, interests earned on fixed deposits, capital gains on shares, selling of capital assets, etc.

  • When to File

NRIs or any individual for that matter, need to file their income tax returns only if their annual income exceeds the minimum threshold of INR 2,50,000 for a fiscal year. For example, if you have only one source of income in India and it is interest earned on your fixed deposits, you would be taxed accordingly. If the interests earned for a year is INR 80,000 you do not have to file your tax returns. On the other hand, if you have one or more sources of income and together, they add up to INR 3,00,000 for a financial year, you will have to pay taxes and file your returns.

  • Tax Filing Timeline

The standard deadline for NRIs for filing their taxes and returns is 31st of July. Should there be any changes in the dates, the IT department would notify everyone of the same.

  • Advance Tax

The concept of Advance taxes come into the picture when the tax liability of an individual exceeds INR 10,000 for a financial year. This is in general to avoid tax evasion. Failing to do so will warrant fines and penalties under Section 234B and 234C.

Staying a step ahead and being aware of the various intricacies of the income tax will help you avoid any notices or fines from the IT department or even coming under their lenses as well.

Updated Norms For Global Tax Filing for NRI’s Residing In the US

Updated Norms For Global Tax Filing for NRI’s Residing In the US

by | Oct 3, 2019 | Double taxation, income tax, NRI, tax reforms, taxes

Updated Norms For Global Tax Filing for NRI’s Residing In the US

The tax liability of an individual in India relies on the residential status of the individual. Taxpayers who qualify as resident Indians are taxed a bit differently than taxpayers who qualify as non-residents. While the definition of resident and non-resident has been around for quite some time, the Income Tax Department only recently has started looking into it with a lot of scrutiny. Global Tax Filing For NRI’s Residing In The US.

The following conditions will help you to determine whether you qualify as a resident or non-resident.

  • Individuals who have stayed for a minimum of 182 days in the current financial year, or
  • Individuals who have stayed for a minimum of 60 days in the current financial year and a total of 365 days in the previous 4 years, qualify as residents.

If you do not meet the above conditions, you are a non-resident Indian. The IT department has started looking into the residential status of individuals and it is the reason why quite a few NRIs have been receiving notices from the IT department. The tax implications are one of the major reasons why residential status is important. While residents are taxed on their global income, non-residents only have to pay taxes on the income that is generated or accrued in India.

New Forms

India and the USA have signed the DTAA or the Double Taxation Avoidance Agreement. This agreement ensures that taxpayers do not end up paying double taxes on the same income in both countries. There have been certain changes as far as claiming tax relief under the DTAA is concerned. Individuals who benefit from the DTAA will now have to furnish additional details before being able to claim the benefits.

Taxpayers now much provide additional details to the Income Tax department such as the Tax Identification Number of India, all the assets that they hold both in India as well as the USA. The directors or shareholders of an unlisted organization must disclose the same in their tax returns along with the Permanent Account Number of the company in question. NRIs must now also mention the number of days that they have stayed in the country versus the number of days that they have stayed out of the country.

The tax reforms intended to bring about more transparency to the tax filing process by disclosing additional details. And this is particularly for individuals who claim benefits under the treaty signed between the two countries. By implementing these changes, the Income Tax department hopes to reduce the need for further investigations by the tax authorities.

As per the new norms, residents now have to provide additional details of the salary received, its breakdown, any unlisted securities that they hold, list of agricultural land that they hold and the income generated from it, should it exceed a certain threshold, any donations made, etc.

There haven’t been any changes to ITR-1, which is primarily for individuals whose annual income doesn’t exceed INR 50 lakhs. This is for individuals who draw a salary and have a house apart from other income sources such as interests earned and income from agriculture up to INR 5,000. ITR 2, 3, 5, 6 and 7 have undergone minor changes.

ITR-2 is for taxpayers and HUFs who do not make any profits or gains from a business while ITR-3 is for individuals and HUFs who make profits and gains from business or their profession. Thus, it is essential that you take some time to access the right ITR before you can file your taxes to ensure that you do not receive any notification or notice from the IT Department.

How to save money from your Employee Benefits offered to NRIs in the US

How to save money from your Employee Benefits offered to NRIs in the US

by | Sep 26, 2019 | 401 Plan, federal income tax, income tax, state tax, tax deductions, tax filing, tax rate, tax savings

How to save money from your Employee Benefits offered to NRIs in the US

ForIf you are an NRI and doing a job in the US, you will have to pay taxes to the US Government according to the tax laws framed by the US Government.  an NRI doing a job in the US, there are numerous taxes to be paid. However, some substantial amounts of money can be saved by an NRI by availing of the various employee benefits offered by the employer in the US.

Let us have a look at the taxes which an NRI doing a job in the US is supposed to pay.

Taxes to be paid by an NRI employee in the US

Social Security taxes

Every individual working in the US has to pay the Social Security Tax. This amount is contributed by you and your employer together. Half of this amount is contributed by your employer and you will contribute the other half for the payment of the Social Security Tax. An amount ranging to 6.2% of your gross salary is deductible from your salary for the payment of social security tax.

Medicare Tax

The Medicare tax would be paid by you for the health care services to be availed after your retirement. Your employer will deduct 1.45% from your gross salary for making the payment of the Medicare Tax. Even if you will not be present in the country to avail the retirement benefits, but you are still liable to pay this tax.

Federal Income Tax

This is a tricky category of taxation for the US residents including NRIs and PIOs as well. You will have to pay taxes on the income earned in the US but you will not be able to claim any deductions which the US citizens will avail. However, if you are willing to avail of these deductions then you will have to pay tax on your income earned outside the US as well.

State Tax

You are liable State Tax for that particular state in which you are working.

Global Income Tax

You will have to pay this tax if you are earning dividends on mutual funds, shares, agricultural income, etc.

Paying all these taxes would definitely reduce your take-home salary by a considerable amount. However, in the US your employers will provide a number of employee benefits which would be very helpful for you in saving money.

Let us check out some of these benefits available to NRI employees in the US which help in saving money.

Health Savings Account (HSA)

In case your employer is providing a good health plan with a high deductible, you can consider the option of opening a Health Savings Account (HSA). The maximum limit on the contribution to be made by families is $6900 and for singles, the maximum limit is $3450. This money is taken from your paycheck and is accumulated in a Savings Account that can be used during medical emergencies. However, your withdrawal from the HSA will be tax-free only when you are doing it for medical expenses.

Flexible Spending Account (FSA)

This is another benefit provided by your employer is giving you an opportunity to set aside the entire amount in this account free from ant taxation. The contribution into this account has to be made by your employer but you will have to use the money in this account within a stipulated time period otherwise you tend to lose the amount.

Medical Insurance

This insurance is a major benefit provided by your employer and it will cover expenses incurred in hospital visits, doctor’s visits, medicines, prescriptions, etc.

401(K)

This is otherwise known as your retirement plan and by this; you are contributing towards your savings for your retirement. The contribution to this corpus for retirement is made by you and your employer as well. The maximum limit on the contribution made by you would be up to $19000. Moreover, if you are above the 50 years you can contribute an additional $6000 into your retirement corpus.

Health Reimbursement Account (HRA)

This can be termed as Group Health Plans and are sponsored by you and your employer. The amounts which qualify for your medical expenses in a particular year up to a specific limit are free from taxes. The amount which remains unused can be used in the subsequent years as well.

Accident Insurance

This insurance covers medical examinations, emergency treatments, and ambulance or transportation charges, in-hospitalization expenses.

Hence, in addition to the above-mentioned benefits provided by employers, there are a number of other benefits as well such as Dental Insurance, Vision Insurance, Disability Insurance, Accidental death and, dismemberment insurance, etc. These benefits offered by employers can be a great help to NRIs working in the US in saving money.