How to account for your Indian investments while filing for US taxes?

How to account for your Indian investments while filing for US taxes?

by | Nov 29, 2018 | Investment & Income, Tax Planning

How to account for your Indian investments while filing for US taxes?

The sole intent of investments is to increase your net capital over a period of time. indian investments With the advent of newer methods, individuals now have more avenues to invest their money and their money works harder. However, amidst all this one must not forget about the US taxes. While there are various reasons for the same, coming under the radar of the IRS is something that you wouldn’t want to happen.

If you are an NRI and have investments in the home country India, some or all of it might be taxable. Thus, it is crucial to be cognizant of them and includes them in your tax returns as and when it is required. Here are some of the leading investments that you can make and how they are impacted by taxes.

Fixed Deposit

NRI’s can either have NRO or NRE accounts with leading Indian banks. For that matter, individuals can choose to invest their money with the help of Fixed Deposits. The basic structure of a Fixed Deposit is quite similar to other capital investments. There is an initial amount and that increases year on year due to interests. Thus, during its maturity, it is similar to other capital assets, where your investment grows over time.

The interest that you have earned on FD’s must be first converted into USD for the specific fiscal year and then reported in Form 1099-NT. You might still have to pay taxes to the IRS on your FD. This example would make things a bit clearer. Let us assume you have earned an interest of INR 15,000 on your FDs and the Indian Government levies a tax of 15%. Should your tax bracket in the USA be 30%, you will have to pay the additional 15% to the IRS under the DTAA or Direct Tax Avoidance Agreement between the USA and India.

Mutual Funds and Stocks

Mutual funds and stocks are quite popular among investor for their incredibly high returns. Thus, there would be no surprises if an NRI invests in these assets. However, just as a fixed deposit, you will have to pay taxes on the dividends earned on these mutual funds or stocks. Stocks and dividends come under the purview of the capital gain taxation system. For any gains in short term or less than a year, you will be charged 15% by the Indian Government. Similarly, for long term gains, if the amount exceeds INR 1,00,000 you will have to pay 10% taxes on the same. Should your investments exceed $10,000 you need to declare the same using Form 8938 and FBAR.

Real Estate

There is no denying the fact that Real Estate has always been one of the most lucrative investment opportunities. Whether you are looking for a place to settle down in the future or buying it for outright investments, real estate is a lucrative market. But should you pay taxes for any real estate that you hold in India? Well, yes and no. As long as you hold property in India, you need not to worry about any taxations. However, if you sell a property while staying in the USA, capital gains tax is applicable on the same. And you are liable to pay the appropriate taxes in the US.

Also, there aren’t any specific rules or regulations for rent. Thus, you can declare them under other income in your Tax Returns. Being aware of the different taxes on your financial assets is important to keep the IRS from digging deeper and finding any discrepancy with your tax filing.

Tax implications for your Indian Properties

Tax implications for your Indian Properties

by | Nov 29, 2018 | Blog, Investment & Income, Tax Planning, Tax Preparation

Tax implications for your Indian Properties

Tax implications for your Indian Properties.The real estate market has always been one of the most lucrative ones for investment. Tax implications for your indian properties.This applies to residents of India as well as non-resident Indians. However, there is a small aspect that not many are aware of or pay a lot of importance to, taxation.

If you are a currently in the United States of America and there is a property that you own in India, you are liable to pay taxes owing to certain terms and conditions. We will find out more about those situations or scenarios where you will end up paying taxes for those properties.

Resident status

Before we get to other details, it is important to know your residential status. A Non-Resident Indian is an individual who still holds an Indian Passport but has emigrated to another country on a temporary basis. This could either be related to work opportunities, education or residence. Any individual who spends more than 182 days outside the country would fit into the category.

Tax Implications

Taxes on your Indian property will only come into the picture if you earn more than INR 2,50,000 in India, excluding any sort of capital gains taxes. There are two major possibilities for earning money from your Indian property. You can either rent it or sell it to earn a profit.

Income from Rent

Any form of rental income exceeding INR 2,50,000 would be taxed like it is for a normal Indian resident.

  • The municipal tax is the first one to be deducted from your total rental income.
  • From the remaining, amount a standard deduction of 30% is allowed. It can also be used to offset any interest on a home loan that you pay for the property.
  • In the event, that you own more than one property but do not use it for residential purposes, you can claim it as self-occupied. In such cases, a notional rent is calculated on the property and taxes are applicable on the other properties.

Capital Gains

As the name suggests, this scenario would come into the picture if you sell a property and make some profit out of the transaction. There are two simple variables to such transactions. Firstly, the duration for which you held the property before selling it. And secondly, the cost variance in buying and selling the same.

  • If you hold on to a property for less than 2 years and decide to sell, it would come under the purview of short-term capital gains. In such cases, the gain is taxed as per the income tax slabs.
  • If you hold on to a property for at least 3 years before selling it, the same would qualify as a long-term capital gain and taxed accordingly. According to the current laws, it would stand at 20% and you would end up paying cess and surcharge on the top of it.

Certain Exemptions

NRIs can also benefit from certain tax exemptions that are in place.

  • Section 54

If you buy a property and decide to sell the same after 2 years from the purchase, and reinvest the total amount in buying another property within a span of 2 to 3 years, the profit that you make from the previous transaction is exempted.

  • Section 54EC

In the event that you hold on to a property for three years or more, it would qualify as a long-term capital tax. However, the gains on the transaction can be completely exempted if you decide to reinvest the same in bonds issued by NHAI or REC within 6 months of the sale.

These are some of the major tax implications that you need to be aware of, regarding your Indian properties.

Can an NRI continue his PPF?

Can an NRI continue his PPF?

by | Nov 29, 2018 | Blog, Investment & Income, Tax Planning, Tax Preparation

Can an NRI continue his PPF? 

NRI have common doubt on Can an NRI continue his PPF? but this is one of the most common forms of investments for Indians is PPF. It is secured, and you know the exact returns on its maturity. Its long-term perspective also works well with a lot of investors. PPF is majorly risk-free and is tax-free as well, which attracts a lot of investors. However, things might change a bit if you are an NRI and have invested in PPF.

Sometime back the Department of Economic Affairs passed a ruling which put NRI’s at a back step. According to the modifications to rules, anyone who invests in PPF as a resident of India and later moves out of the country, the account will be closed. The rule was set to come into effect the moment an individual was deemed as a non-resident Indian or lost their resident status.

This had left a lot of NRIs confused and worried about their investments. But there is some relief for them as of now. On 23rd of February 2018, the DEA released a memo which kept the previous decision on hold. In simple words, NRIs can continue to hold their PPF accounts until it reaches its maturity.

Yet one cannot invest any additional amount once their residential status changes. The PPF is a 15-year scheme which has provisions for extending the maturity date in the block of 5 years. However, it is not applicable to non-resident Indians.

Can NRIs open PPF Accounts?

The short answer is No. NRIs cannot open new accounts once their residential status has changed. Prior to 2003, NRIs were allowed to make additional contributions to their PPFs. Even then, it was only possible if your account was active prior to the change of residential status. An amendment in 2003 meant, that fresh contributions to PPF were not allowed anymore. However, they can hold to existing PPF contributions till their maturity.

Which Account Can NRIs use?

NRIs have the option to use either fund in their NRO or NRE account to pay for PPF. According to the PPF, a minimum investment of INR 500 must be made on a yearly basis to keep the account active. Failing to do so will make your account dormant. To revive the same, one must INR 500 for each year that you have missed along with a penalty of INR 50.

On Maturity

There are possibilities that you might still be an NRI when your PPF matures. In such cases, you would need to withdraw the remaining amount. As already mentioned, NRIs cannot extend their PPF duration. If the maturity date of your PPF is over and you haven’t withdrawn the amount, it would continue as ‘extended without contribution’.

What this means is that your PPF account will continue to earn interests, but you do not have to adhere to the minimum INR 500 rule anymore. The extension will take place in a chunk of 5 years for an unlimited number of times, as per the rule books.

Taxations

It is imperative that one takes a closer look at the taxation involved when they get into investments of any form. The case is no different when it comes to PPFs. If you are in India, the amount that you invest in PPF is tax deductible through Section 80C. And the returns that you receive on maturity is non-taxable as well, making them a worthy investment.

However, if you are an NRI and your PPF matures while you are in a different country, things pan out a bit differently. You most probably might have to declare the amount in your current residential country and pay appropriate taxes on the same.

All you need to know about Bank FATCA reporting as a US taxpayer

All you need to know about Bank FATCA reporting as a US taxpayer

by | Nov 27, 2018 | Audits, FATCA, FATCA reporting, Investment & Income, US Government

All you need to know about Bank FATCA reporting as a US taxpayer

Bank FATCA reporting as US Taxpayer.It should not come as a surprise that the US Government looks into a wider array of things for expats and not just the taxation. FATCA is one such avenue.  There are a lot of rumours and misinformation surrounding FATCA, so let’s break it down slowly.

What is It?

FATCA or Foreign Account Tax Compliance Act came into the law books in the year 2010. It made way for reporting of information related to payments towards foreign financial institutions or foreign entities in general. The whole intent of creating this Act was to make it easier for the IRS to keep a track of all the earnings that US citizens and business have from foreign investments or bank accounts.

One thing to keep in mind is that the IRS does not govern the FATCA. In fact, the Financial Crimes Enforcement Network under the US Treasury Department takes care of the same. Though, there is nothing holding them against sharing information at the time of need.

Whom does it Affect?

Knowing whether or not FATCA affects you is important. Simply because if it does, you would need to file everything very carefully and in a timely manner. The following individuals are impacted by FATCA.

  • US citizen or resident aliens (Green card holders) must be compliant with FATCA irrespective of where they stay.
  • US persons owning a business or have a majority stake in a business.
  • Any form of worldwide agreements.
  • US investment houses or banks that have interactions and dealings with foreign financial institutions.
  • Any foreign financial institution that deals with money.

Requirements to File FATCA

US residents who have foreign bank accounts or investments must file the FinCEN Form 114 if their investments meet the threshold amount. The FinCen Form 114 was previously known as the FBAR Form and some people still use the name. There aren’t any minimum age criteria for filing the Form 114.

The threshold amount for individuals stands at $10,000. If at any point in time during a financial year the investments breach the $10,000 mark, it must be reported with the help of FinCEN Form 114. Other forms of income such as interests or dividends must also be reported regularly to avoid any penalties or fines at a later stage.

What you Need to file FinCEN Form 114

In order to fill the FinCEN Form 114, you would need to have the following information handy.

  • Your name, social security details and address.
  • If there are any joint account holders, their name, social security number and address.
  • The type of bank account that you are holding (ex. Current, savings etc.). The type of Securities that you are holding (mutual funds or stocks) and any other type of investments that don’t come under the category of bank account or securities.
  • Details of your bank account.
  • The name and address of the bank with which you hold the account.
  • The bank account number.
  • The number of joint owners of the account.
  • The highest amount of money held in the account for the taxable year in question.

Are there any penalties?

The US Government levies some hefty penalties for withholding such information or failing to declare them during your tax filing. For non-willful violations, you might end up paying up to $10,000 for every year of not filing.

If you are found to be willfully violating the rules, you might face penalties up to $100,000 or 50% of the amount of money in your account at that point in time.

How to account for the NRE and NRO interest and FD while filing for your US taxes

How to account for the NRE and NRO interest and FD while filing for your US taxes

by | Nov 26, 2018 | Blog, Investment & Income, NRO, tax savings

How to account for the NRE and NRO interest and FD while filing for your US taxes?

According to the data available with the Indian Ministry, India ranks second among all countries for citizens who have temporarily or permanently shifted to other countries. NRE Interest The number stands at a staggering 25 million across some of the most prominent countries around the globe. And this is where the concept of NRI comes into the picture. An NRI or Non-Resident Indian is any individual who has an Indian passport and has emigrated to a different country.

This is mostly on a temporary basis either for education, residence, work or other purposes. Thus, it is extremely important to understand the different taxes that an NRI is liable to pay, so as to remain clear of both the countries. To make matters a bit easier, the Indian government allows for two types of accounts for NRI’s, namely NRO and NRE.

And depending on your residential status, you with either be taxed on your global income or income in just one country. In case, you are an NRI and receive all your income in the USA, you will be taxed on in the USA. However, if you are a resident of India, then you will be taxed on your global income. To make matters a bit easier, the Indian government allows for two types of accounts for NRI’s, namely NRO and NRE.

NRE account can be opened by depositing foreign currency. While an NRO account can be created before leaving the country with the intention of being an NRI. In either case, an individual will earn some interest on the amount deposited in the account. Thus, the most common question among NRI’s is how to account for the interest earned on NRE and NRO accounts or even Fixed Deposits that they have in their accounts.

This is where the water gets a bit muddy. There are different schools of thoughts, where some do feel there is a need to declare the interests earned on the above fronts, while others feel it is necessary to do the same. The latter is a more preferable situation to be in.

Any interest that you earn from your NRE or NRO account or even Fixed Deposits for that matter is taxable. And you must not forget to include the same while your US taxes. The same is applicable for any dividends that you earn.

Fixed Deposit acts like a capital asset, where you invest a certain amount of money and receive yearly interest on the same. Thus, its maturity is similar to selling any other capital asset, as you make money out of it. The interest adds to the base amount and thus the taxation comes into the picture. For the interest that you have earned either on FDs or NRO or NRE accounts, you must first convert the same into USD for the financial in contention.

Once you are done with the conversion, make sure to add it in the Form 1099-INT and then file your taxes. However, one must be careful with the tax rates. For instance, the interest that you have earned is INR 25,000 and you end up paying the 20% taxes to the Indian government. If you tax slab is 40% in the United States, you must pay the additional 20% taxes to the IRS. And this is in accordance to the DTAA or Direct Tax Avoidance Agreement between the two countries.If you are an NRI, you most probably have an NRO or NRE account with any of the leading banks in India. It is important to disclose the interests earned from these accounts in your tax returns to avoid any form of discrepancies and to ensure a smoother tax filing season.

How is an NRI’s India ESOP’s taxed in the USA?

How is an NRI’s India ESOP’s taxed in the USA?

by | Nov 22, 2018 | Investment & Income

How is an NRI’s India ESOP’s taxed in the USA?

NRIs India ESOP’s or Employee Stock Option Plans have always been quite popular. Since you work for an organization, you would know the in and out of it. And the ESOP programs let you benefit from the same. You can own your company shares without even any upfront costs, depending on the agreement between you and your employer. However, as is the case with any source of income, ESOP’s are also taxable.

If you are an NRI staying in the United States of America, you need to be aware of the different taxation for your ESOPs. Primarily you are liable to pay taxes on ESOP’s either while exercising the facilities or while selling them. Here is all that you need to be aware of.

While Buying ESOPs

Under most circumstances, when a person exercises his/her ESOP option, theprice of the same is at a discount than the market price. Let us consider the following example. Keerthi had been working for a firm for a few years and got an opportunity in the US branch. When she exercised her ESOP’s, she had to pay INR 200 per share for 100 shares. Let us assume that the market price of the stock for that day was INR 300. Thus, Keerthi needs to pay taxes for the additional INR 100 for her 100 stocks, which is INR 10,000. Given her tax bracket, she will have to pay taxes accordingly.

However, after moving to the USA, she must declare this income in her tax filing. She must now add the prerequisite value of INR 10,000 to her global income after conversion. This must be disclosed as other income in Form 1040. Since she has already paid taxes in India, she can file for a tax credit for INR 10,000 after the conversion to USD.

One must be careful with the amount that they are claiming for tax credits. It cannot be, at any point in time, more than the tax that a person has to pay on their Indian income in the United States of America.

While Selling ESOPs

Selling of ESOPs is relatively easier to understand if you are familiar with the capital market. As is the case with buying or selling of any other stocks, ESOPs come under the purview of capital gain taxation. Let us assume Keerthi wishes to sell the 100 stocks and the current market value of the same is INR 500. As per the capital gain taxation system, if you sell any stocks at a price higher than the purchase price, you have made a profit and thus the taxes. She must pay taxes on the gain per share (INR 500 – INR200). However, she has already paid taxes based on the market price of the stock earlier. Thus, she must now pay only taxes only on INR 200 (INR 500 – INR 300) per share.

Depending on the duration for which a person holds the stocks, they will have to either pay short term capital gain taxes or long term capital gain taxes. If Keerthi decides to sell her stocks within a year of purchase, she will have to pay taxes at 15% of the gains made. Similarly, for stocks held for more than a year, she must pay 10% of the gains, if it exceeds INR 1,00,000.

The capital gain taxation remains similar in the US as well. Thus, for the taxes paid in India, you can seek tax credits.

While ESOP is a good benefit to have, being aware of the applicable taxes can make things much easier for you.