Things to take care of, when you visit India for your annual vacation this summer

Things to take care of, when you visit India for your annual vacation this summer

by | Apr 2, 2019 | Investment & Income, Tax Extension, Tax Planning, Tax Preparation

NRI’S Things to take care of, when you visit India for your annual vacation this summer

Non-Resident Indians living away from motherland usually plan their trip or vacation to India during winter as they could celebrate some of the popular festivals with family. Many NRIs also plan their annual vacation in summer as spring is the season of marriages and other celebrations to be with family and friends. Are you also a NRI planning your annual vacation to India this summer? Then, there are few more things to take care of apart from celebration and spending quality time with family and friends. Let’s take a look at important things to take care of during your India visit this summer.

Review you finances

As the new financial year has just began, first quarter of the year is the best time to have a look at your financial portfolio in India and act upon existing investments accordingly. India has numerous investment options. Explore investment options available for you in India to diversify your portfolio. Understand tax implications of investments that you are planning for the year. As you make financial plan, take your global income, expenses, investments, assets and loans into consideration to arrive at the better plan in align with your future financial goals. For retirement planning, if you are unsure of your returning back to motherland, have alternative and flexible plans in place.

Income tax filing and tax planning for the year

Being a Non-Resident Indian, you are required to file income tax return on your income earned in India in an applicable form (ITR2 or ITR3 depending on your income type). For the financial year 2018-19, you are required to file income tax in India before 31st July 2019. As you are visiting in the first quarter of the new financial year, you can take care of things related to income tax filing for the year gone by. Learning change in requirements, new rules and requirement of documents can help you out finish the filing process smoothly. You can also take a look at ways to save tax liabilities such as claiming benefits under Double Taxation Avoidance Agreement (DTAA).

According to latest income tax return forms, if you are claiming tax relief under Double Taxation Avoidance Agreement (DTAA), you will need to provide more extensive details such as overseas tax residency certificate, tax identification number of home country and assets held abroad etc.

You can also plan ways to save tax for the current financial year. Beginning of the year is the perfect time for tax planning. You can take help of professionals who expertise in taxes of both geographies so that you can plan your taxes efficiently and file your taxes smoothly in India.

Review your insurance portfolio and seek sufficient coverage

Take a look at your insurance portfolio and ensure you have sufficient insurance coverage. If the existing coverage is not sufficient, plan efficiently to manage future uncertainties. It’s important to understand that insurance planning and risk management is an integral part of your financial planning. Not just the life insurance, you need to pay attention to health coverage also keeping in mind of your plans to return to India in future.

If you are living in US, you would have created health savings account (HSA) for future medical needs as it is a tax-advantaged medical savings account. As per data, HAS investment assets approached 8.3 billion dollars by the end of 2017 with 22% increase in assets year on year. Though, HSA sounds interesting for NRIs build corpus to pay for eligible medical expenses, it’s important to have health cover in India as well for treatments undergone in India as well as for future coverage and tax benefits.

Conclusion

Make your annual vacation to India worthwhile this summer by effectively planning your financials and taxes along with having family fun time. Seek help of certified financial advisors and tax experts to plan ahead in an efficient manner.

The top 10 Tax Tips for 2019 for NRI investors

The top 10 Tax Tips for 2019 for NRI investors

by | Mar 20, 2019 | NRI, Tax Extension, Tax Planning, taxes

The top 10 Tax Tips for 2019 for NRI investors

The top 10 Tax Tips for 2019 for NRI investors.While it is no secret that resident Indians have to pay taxes for a fiscal year. However,  all NRI  investors must also pay taxes for a fiscal year if applicable. Irrespective of whether they earned the money directly or indirectly, if they are liable, they must pay taxes on the same. As long as the income is generated in India.

Any income that is generated as a part of their investments or assets or business interests, is liable to taxes. The presence of tax laws means that there are different avenues to save money from tax liabilities as well. If you are an NRI and are looking for tax-related tips, here are some that you might find to be quite useful.

Section 80C

Just like resident Indians, NRIs also can benefit from investing in Section 80C. You can invest as much as INR 1.5 Lacs for a fiscal year in Section 80C as per the Income Tax Act of 1961 and enjoy a reduced tax liability.

Section 80CCD

Apart from the most common and obvious investment mode of Section 80C, there are a few additional ways to save money and taxes as well. You can invest in NPS instrument (Section 80CCD) and save additional money on the top of Section 80C. however, NRIs cannot invest in PPF, National Savings Certificate or any other senior citizen schemes.

Pan Number

Annual income exceeding a certain limit is subject to TDS. Section 206AA governs the taxes that an NRI is liable to pay. An NRI must furnish their Pan card details when they are investing in India. Failing to do so would result in you paying higher TDS amount.

Maintaining Status

The income tax liability of an individual depends on their annual income and residential status. Thus, it is essential to maintain your residential status as NRI. If you have any trips for India, ensure that they do not hamper your NRI status.

Home Loan

NRIs having any home loans in India can use it to claim deductions for their income tax. Under Section 24, NRIs can claim up to INR 2 Lac per year which they pay in interest towards their home loan.

Property Tax

If an NRI is paying any property tax for properties that they own, they can claim the amount as well. Depending on their tax liability they can save taxes.

Selling Property

As an NRI if you wish to sell any properties in India, you would have to pay applicable capital gains tax. It is usually split into short-term and long term capital gains. If you sell your property within 24 months of buying, it is short-term capital gain. And if you sell it after 24 months of buying, it qualifies as long term capital gain.

Health Cover

Most NRIs wish to come back to India to post their retirement. It would be a good idea to buy a health insurance plan. Buying it while being out of the country will help you overcome the waiting period of pre-existing diseases and offer tax cuts.

Mutual Funds

There are several mutual funds which can offer you tax deductions under Section 80C. The lock-in period of mutual funds is lower than other investment instruments as well.

NRE Account

Holding your savings in an NRE account can be beneficial as well. Since the interest earned is tax-free and the benefits would be available for two years after you shift back to India.

The above would help you better plan and manage your taxes.

How is the Interest Income from NRE and NRO accounts taxed in US?

How is the Interest Income from NRE and NRO accounts taxed in US?

by | Mar 15, 2019 | NRE, NRO, Tax Extension, Tax Planning, Tax Preparation, taxes

How is the Interest Income from NRE and NRO accounts taxed in the US?

For NRIs who have shifted to the United States of America, there are usually two options when it comes to keeping their bank accounts active. They can either convert them into NRE or NRO accounts. Needless to say, your money in either of these accounts earns interest over a period of time. Thus, the first and foremost question that would crop into the mind of anyone is, whether or not this income is taxable. If yes, how to go about the same? Here are some easy steps that you can follow to ensure easy compliance and avoid being labelled as a tax evader.

Calculate Income

Income generated from any of the following means would qualify to be taxed in the United States of America.
  • Interest earned on NRE accounts.
  • Interest earned on NRO accounts.
  • Interest earned on NRE FD accounts.
  • Interest earned on NRO FD accounts.
  • Income generated from Mutual Funds in India, including any SIP’s (Systematic Investment Plan) that you might have.
You are liable to pay taxes on the above counts if you belong to any one of the following categories.
  • A holder of Green Card.
  • A Legal resident i.e. working on either an H1B, L1B, H4 EAD or any other work permits in the USA.
  • You are a PIO.
  • You are an OCI.

Dollar Amount Calculation

Once you have identified the income that might be taxed in the USA, it is now important to convert the same into dollars. The IRS publishes exchange treasury rates in the year-end. You can use these exchange rates to calculate your Indian income in dollars.

Taxes in India

If you hold an NRE account, you can breathe easy since Indian tax laws do not levy any taxes on the interests earned. Thus, banks will not deduct any amount from the interest earned. However, the interests earned on an NRO account is taxable at 30% along with applicable taxes.

Form 1040

To file your taxes in the USA, you need to fill Form 1040 and file it. You can either file your taxes on your own or take the help of professional services to do the same. The important thing to keep in mind during such transactions is to fill the Schedule B on your Form 1040. This includes the income that you have earned in India. You need to find out the total amount of tax (TDS in India) that banks have deducted from your accounts. Banks usually send a Form 16 in India which collates all this information.

Do Indian Banks Issue Form 1099-NT?

None of the Indian bank’s issue Form 1099-NT for the interest earned on your NRE or NRO accounts. Thus, you diligently have to file the information correctly in your Form 1040. As a matter of fact, none of the banks in the USA also issue Form 1099-NT, unless the interests earned is more than $10.

Do I have to Pay Taxes In the USA for the interests earned?

The simple answer is yes. You would need to pay taxes on the interests earned on your NRE or NRO accounts. Yet, if your bank has already deducted TDS from your account in India, you can claim the amount. You would need to declare that you have paid taxes to the Indian Government in your tax returns. If you wish to know the amount of interest that you have earned in your respective bank accounts, you should ask for bank statements. Indian banks usually credit interests once every quarter.
How will the new tax rates 2019 affect you?

How will the new tax rates 2019 affect you?

by | Mar 12, 2019 | Amendment of Tax Return, News and Social, Tax Extension, Tax Planning, Tax Preparation

How will the new tax rates 2019 affect you?

Changes to the tax regulations are a common occurrence. The landscape of income changes on a regular basis and it makes sense to adjust the income tax laws accordingly. tax rates usually are not much of a concern as long as you are aware of the changes.

The IRS (Internal Revenue Service) has revised the tax rates for 2019. These new tax rates are adjusted for inflation as the IRS does on a regular basis. If you were to compare the changes made in 2017 with the introduction of Tax Cuts and Jobs Act, the latest changes are almost negligible.

The inflation-adjusted tax rates would stand applicable from the 1st of January. Which means that taxpayers need not use these for filing 2018 tax returns filed in 2019. The changes would be effective for the filing of 2019 in the year 2020.

Per the IRS, they are going to follow a new method to adjust inflation into the tax rates. This would ensure a slower moving inflation measure rate and would affect the taxes that Americans must pay in the long run. The Congress’s Joint Committee on Taxation has revealed that the proposed changes would cost taxpayers a little over $133.5 Billion over a decade.

Adjusted Rates

  • There has been an increase in the standard deduction for single taxpayers and married individuals filing separately. The new deduction stands at $12,200 up by $200. The same for married individuals who file jointly has seen a $400 increase to $24,400. The standard deductions have seen a $350 rise for the head of households at $18,350.
  • The inflation-adjusted tax brackets for different categories are mentioned below.
    • Individuals with income above $510,300 and $612,350 for married couples who file jointly would have to pay 37% as taxes.
    • Individuals with income above $204,100 and $408,200 for married couples who file jointly would have to pay 35% as taxes.
    • Individuals with income above $160,725 and $321,450 for married couples who file jointly would have to pay 32% as taxes.
    • Individuals with income above $84,200 and $168,400 for married couples who file jointly would have to pay 24% as taxes.
    • Individuals with income above $39,475 and $78,950 for married couples who file jointly would have to pay 22% as taxes.
    • Individuals with income above $9,700 and $19,400 for married couples who file jointly would have to pay 12% as taxes.
    • Individuals earning less than $9,700 and $19,400 for married couples who file jointly would have to pay 10% as taxes.

Other Changes

  • Earned income credit is now up at $6,431 for taxpayers who are filing jointly and have three or more dependent children from the current $6,557.
  • The Alternative Minimum Tax exemption stands at $71,000 and is phased out eventually for individuals earning above $510,300 as single taxpayers. The same for married couples filing jointly is $111,700 and the phase-out begins with $1,020,600.
  • The earlier limit for employee’s contribution towards health flexible expenditure was $50. It has been increased to $2,700.
  • Apart from increasing the income tax levels and tax credits, the new modifications also get rid of a few things. The individual mandate is a good example of the same. It is the penalty that one had to pay for not maintaining the minimum health insurance coverage. It has been eliminated now.
  • And the personal exemption remains at $0 for the year 2019.

The above details should help you traverse through the waters of tax filing and returns for the current year without much confusion.

All you need to know about Capital Gains taxation and DTAA for your Indian and US investments

All you need to know about Capital Gains taxation and DTAA for your Indian and US investments

by | Nov 29, 2018 | capital gains taxation, DTAA, indian investments, tax deductions, Tax exemption, Tax Extension, Taxation, US investments

All you need to know about Capital Gains taxation and DTAA for your Indian and US investments

Capital Gains taxation To ensure that residents do not end up paying taxes at two different places, several countries get into a mutual agreement. The Double Taxation Avoidance Agreement is one such example. The United States of America and India have a rather comprehensive DTAA.

The DTAA is applicable to any individual, company, trust or partnership who have taxable income in both India and the USA. As per the agreement, the following taxes are levied by both countries.

  • The United States of America imposes the Federal taxes as per the Internal Revenue Code. It doesn’t include any accumulated earning taxes, social security taxes and personal holding taxes. The taxes are also applicable to insurance premiums paid to insurers in India as well as any private foundations.
  • India levies the Income Tax on the income that you a taxpayer earns in the country. It includes any surcharges but excludes undistributed income declared by some companies.

There are three major ways in which the DTAA can come into the picture.

Tax Credit

In the tax credit mechanism, your country of residence will offer you with tax credits for the taxes paid in the foreign country. This usually is divided as Tax Reserve method, Underlying Tax Credit method or Ordinary tax credit method.

Tax Exemption

In the tax exemption mechanism, the country of your residence exempts any income from the foreign country.

Tax Deduction

In this mechanism, the taxes that you pay in the country where your source of income is then deducted from your total global income and you need to pay taxes only on the residual amount.

Residential Status

Your residential status plays a crucial role in determining which country you should pay your taxes in or how to file your returns. According to Indian laws, if any individual stays for 182 days or more for a financial year, he/she is liable to pay taxes. Similarly, if they have stayed in the country for more than 365 days in the last 4 years and at least 60 days in the current taxable year, they need to pay taxes.

For the USA, the citizenship decides whether or not they should pay taxes. If a person is not a citizen, he/she is a non-resident alien. In such cases, either the substantial presence test or the green card test comes into the picture.

Immovable Property

If you have any immovable property such as real estate, the income generated on selling the same or other incomes from it such as forestry or agriculture will be taxed in the same State. This means, that your property and any earnings from it for a specific financial year will be taxed in India if it were done in India or the USA if it were present in the USA.

Income Through Interest

Any interest that you earn from financial institutions is subject to taxation in the country of residence. However, you might end up paying taxes in the country that you earn the interest owing to certain conditions. For example, if the interest that you earn does not exceed 15% of the gross interest amount that you earn.

Dividend Income

If are a resident of the USA and earn dividends from an Indian country, it will be taxed in the USA. However, it might be subject to taxation in India if it doesn’t exceed certain levels. These include:

  • 15% of the gross dividend amount if the individual own at least 10% of the stocks in a company.
  • 25% of the gross dividend in all other cases.

Being aware of the DTAA will help you avoid paying double taxes in both the countries.

Filing Income Tax Extension

Filing Income Tax Extension

by | Oct 17, 2017 | Tax Extension

Filing Income Tax Extension

 

Even though we know the billing date or due date for credit card payment or phone bill payment we at times miss the same. Though we are not being negligent regarding it, we tend to miss them amidst all the work and chaos in life. The same applies to tax filing as well. We all are aware that come spring, we need to file our taxes. But that never ending project, deadlines for meeting customer requirements, the problem at home, or just plain old Forgot can be the most common reasons for missing filing of tax returns.

Fortunately, IRS understands the same and has a provision in place for such situations. Unlike paying bills, the filing of tax can be a bit time consuming. So if it is already mid of April and you suddenly wake up to realize you are nowhere close to filing income tax returns, just don’t worry. All that you need to do is fill up the Form 4868 and file it.

This then enables you for an automatic extension of six months to finish up with the filing of your tax returns.

All that you need to know about Form 4868 and its filing is below.

What is it?

Filing a Form 4868 provides you with a six month extension for filing your tax returns. Given the fact that the last date for filing tax returns is April 15th, the extended date usually works out to be the 15th of October. However, you might get a few additional days if 15th April is a public holiday or weekend.

In order to benefit from the extension of tax return filing, it is crucial that you fill up the Form 4868 and file it on or before the due date of April 15th.

Details needed for Form 4868

Unlike most other things related to the filing of taxes and tax returns, Form 4868 can be a sign of relief with its simplicity. IRS asks for the following details:

  • Name of individual (spouse name also if married filing jointly)
  • Current address
  • Social security number
  • Estimated tax liability for the year in question
  • Sum total of all payments you have made towards the tax you owe
  • Outstanding tax amount

How to file Form 4868?

You can simply log on to the website of IRS and e-file your extension. On successful receipt of the same, IRS will send you back an acknowledgment. You can use this acknowledgment as a reference in the future, should there be a need for one.

IRS provides an online gateway for paying part of your remaining taxes or the complete amount through its website, specifically IRS Direct Pay.

You can also use your debit card or credit card to pay for the taxes, again by accessing the IRS website. There are provisions for payment over the phone, but that comes with some additional charges. For people who are not all that tech savvy, you can go the old-school way as well. Take a print out of the filled up form and send it across to the IRS center as per your area or region.

You do need to keep in mind that with the extension, IRS doesn’t give you more time to pay your taxes. You will still end up paying fines and penalties for any outstanding amount by the due date. However, extension lets you cut down on the fines and penalties drastically. If it weren’t for the extension, one might end up paying about 10 times more money in fines and penalties. During the spring, if you have that eerie feeling that you cannot complete your tax returns on time, don’t shy away from filing an extension. It will not only allow you to extend the timeline for filing tax returns but also bring down the penalties and fines.

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