Under what circumstances is it compulsory for an NRI to file his taxes?

Under what circumstances is it compulsory for an NRI to file his taxes?

by | Dec 23, 2018 | Tax Planning, Tax Preparation

Under what circumstances is it compulsory for an NRI to file his taxes?

It is a common understanding that anyone who has a source of income in India and falls into the tax complusory for an NRI brackets must pay income  taxes. But not many are aware of the fact that even NRIs might have to pay file taxes for their income in India. The NRI Taxation section of the Income Tax Act of 1961 governs thesetaxations. And there are a lot of differences when it comes to taxation for NRIs versus Indian residents.

Residential Status

The residential status of a taxpayer plays a crucial role in deciding the liability of taxes. Anyone who spends more than 182 days in India is considered as an Indian resident for that fiscal year. Similarly, if you have stayed for at least 60 days in the previous year and a total of 365 days or a complete year in the past 5 years in India, the status remains as an Indian resident. Otherwise, the taxpayer is considered as an NRI.
For Resident Indians, their global income is taxable in India. However, for NRIs the income accrued or earned in India is taxable. And irrespective of whether you are an NRI or resident, you must file tax returns if your income exceeds INR 2,50,000 for a fiscal year.

Taxable Income

If you earn money from any of the following avenues, your income is subject to income taxes. Of course, the actual amount of taxes largely depends on the income and the tax slab that you become a part of. Here are the incomes that you need to keep an eye on.
– Salary
If any of your services or employment is rendered in India and you are earning money on the same, it must be a part of income tax. For NRIs, if they receive income for the services that they provide in India, they will be taxed in India.
– Rental Property
If you own properties that you have rented out, you must pay taxes on the same. Tenants who pay their rent to their NRI must deduct 30% TDS. A tenant must submit Form 15CA to the income tax department. In certain cases, a certificate from a chartered accountant is needed (Form 15CB) in order to submit Form 15CA.
– Property
Any income that you receive from a property is also taxable as far as an NRI is concerned. The tax calculation remains more or less similar to that of a resident Indian. NRIs can take a standard deduction of 30%, benefits from any home loans on the property and deduct property taxes as well. NRIs can also seek for exemption under Section 80C for repayment of principal for any existing loans.
– Other income
Should you earn any interests in the form of fixed deposits or savings accounts which are held in India, you must pay taxes for the same. Any interest that you earn on NRE or FCNR accounts is non-taxable. However, for interests earned on NRO accounts, you must pay taxes. If you have any business set up in India and earn through them, the income is taxable in India.You must also pay taxes for capital gains of any form. Capital gain usually comes into the picture if you buy or sell properties, shares, securities etc. The profits that you make on these investments are taxable in India.
– Indian Assets
On investing in certain Indian assets, NRIs must pay as much as 20% in taxes. However, if it’s the only income for the fiscal year and TDS has been deducted, they need not file a return for the same.
These are some conditions where an NRI might need to file his/her taxes.

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 PFIC reporting – Form 8621

All you need to know about PFIC reporting – Form 8621

by | Nov 29, 2018 | Blog, Tax Planning, Tax Preparation

All you need to know about PFIC reporting – Form 8621

For any US resident paying taxes and keeping a track of the same is as important a duty as any other. Being on the top of your taxes will not you to plan and sort things out well in advance. On the other hand, it prevents you from getting under the scrutiny of the IRS.Form 8621 One such important aspect of your tax filing is Form 8621. Being aware of what it is and whether or not you should include it in your returns can be quite helpful. Form 8621 comes into the picture if you are someone who has invested or owns an interest in a PFIC or Passive Foreign Investment Company.

Why Should You File?

If due to some reason you forgot or intentionally did not attach a Form 8621 along with your returns, you might be looking at one of the stiffest penalties the IRS has. Your return would come under the category of an incomplete tax return. This, in turn, means that the IRS has the authority to dig deeper and audit your returns until they are convinced.

What is PFIC?

The following is a brief description of what fits into the description of a PFIC.

If more than 75% income of an organization for a taxable year is passive, PFIC would be applicable. For example, if you have a company that invests largely into stocks, ETFs or securities it would come under the passive income category. However, if you have a consulting company they income would fall into the category of earned income.

If more than 50% of the average assets held by a company is utilized to produce passive income or held for the sole purpose of creating passive income, it would come under the purview of PFIC. Rental income for an instance is passive income.

Threshold

Irrespective of whether you are filing your taxes as single or married jointly, if your income from PFIC is more than $25,000, you must report the same. For example, if your PFIC’s make about $50,000 for a taxable year or you have 6 PFIC’s each earning $7000, you will have to include them in your tax filing. On the other hand, if your income from PFIC is about $18,000 for a taxable year, you might not have to declare it.

How To Report PFIC

The first step to reporting your PFIC’s is identifying how many you have in the first place. You can then use any exchange rate to calculate the income. Usually, people follow the data provided by the Department of the Treasury exchange rates or the rates published by the IRS.

Once you have identified the PFICs and used the exchange rates, you can determine if the income has breached the threshold values or not. If it has, then you would need to file the Form 8621 along with your tax returns.

To fill the form, you would need to enter the following information.

  • The name of the shareholder.
  • The address of the shareholder.
  • The year of filing for the shareholder.
  • The type of shareholder.
  • The name and the address of the PFIC.

The last step is a bit more challenging one. It requires you to write a summary of the information provided for Form 8621. The usual summary includes the different classes of shares, the date on which the shares were purchased for a taxable year, the number of shares that a shareholder holds by the end of the year, its valuation and the gains or losses made on them.

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

by | Nov 19, 2018 | Tax Planning, Tax Preparation

Don’t Forget These 6 Steps While Filing Your US Taxes in FY 2018

On paper,the filing of taxes just limited to one day. However, in most probability, it takes much more efforts. Sometimes, even an entire year’s planning, if you wish to be on the top of taxes. US Taxes Whether you are filing taxes for the very first time or are a seasoned campaigner at that, there are few things not to forget while filing your US taxes in FY 2018. Keeping these in mind will help you file taxes more efficiently and avoid IRS from scrutinizing your filing closely.

Need to file

The first thing that you need to figure out is whether or not you are required to file for taxes. There are a few factors that decide the tax liability of an individual such as the status of filing, age, or dependency. An example of the same would be, an individual who is less than 65 years and has an annual income of less than $12,000 might not actually have to file for taxes. Thus, take a few moments to assess your tax liability and the need for filing taxes.

Be Organized

Whether you a first-timer or have prior experience in filing taxes, it is crucial to be prepared and organized. Staying calm and organized will make the entire process much smoother. If you wish to add deductions to your filing, ensure that you keep receipts or proof for the same. Maintaining a separate file for taxes is the ideal way to go. When you keep all tax-related information at a single place, it becomes easier to deal with it.

Exemptions for Dependents

As already mentioned, it is important to know what your status is while filing for taxes. The status is even more crucial for first-time tax filers or students getting into jobs. If your parents have added you as dependent on their tax filing, you must let go of exemptions. A qualifying child cannot claim for tax exemptions and neither can their parents.

Deductions

There are several clauses in the tax laws which allow citizens to deduct certain expenditures. One must not overlook or ignore these expenses or deductions. Simply because they can reduce your tax liability by a handsome margin. For the year 2017, the average deduction for single tax filers stood at $6,350 and for couples who filed together, it was $12,700. Being aware of the different deductions available can help you save a considerable amount of money in taxes.

State taxes

The tax laws vary depending on the state of which you are a resident. The state tax returns also follow a similar schedule as the federal taxes. Thus, it is important to find out whether or not your income is taxable as per your state tax laws and which expenses qualify as deductions as well. Some of these could be related to your vehicle or home while others could be related to your job.

Verify your documents

Firstly, you need to keep a close eye on your mailbox since most employers and companies send out the W-2 or Form 1099 via emails. Once you do receive them, ensure that you scrutinize the details. If something is wrong with the W-2, ensure that it is corrected at the earliest rather than waiting for the deadlines. Thus, take some time off and verify all of the supporting documents for their authenticity and accuracy. Some time spent on this upfront will save you from a lot of pain down the road.

These are a few things that you should not forget while filing your taxes for the financial year 2018-2019.

Last Minute Tax Tips Before Deadline

Last Minute Tax Tips Before Deadline

by | Apr 6, 2018 | Tax Preparation

Last Minute Tax Tips Before Deadline

 

Last Minute Tax Tips Before Deadline.Procrastination of tax returns is not a unique phenomenon. In fact, a lot of tax payers file their tax returns in the last two weeks before the deadline. Filing tax returns earlier than the deadlines is better as you are not rushed and chances of making mistakes is also lower. However, if you are racing against the deadline clock for your returns, here are some tips to help you get through.

Organize

Keeping all the stuff together can be a big relief while you are filing your tax returns, as you do not have to get into frenzy in the search of documents. Make it point to have documents such as Form 1099-INT (reflects any interests that you have earned), Form 1098 (reflects any mortgage interests that you have paid) and Form W-2 (usually sent by employers and contains your income).

Also, keep your social security number handy before you start filing for tax returns. If you are filing for taxes jointly, then you need to have the social security number of your partner.

Go Online

The moment you have gathered all your documents, and are ready for filing your tax returns, do it electronically. Do not take only our words for it, even experts recommend filing your tax returns electronically. Going online and filing your tax return, allows you for a more accurate filing process. It also ensures that tax refunds if any are faster as well.

Silly Mistakes

As you are filing up taxes at the last moment, the chances of making minor and silly mistakes can delay the process. Though you can always amend the same, it is going to make the refund process a tad lengthier. The most common mistakes that tax payers make while filing taxes in a hurry are:

Mathematical errors

Individuals fail to sign the tax returns or mention the date on the returns

Tax payers at times write their social security number incorrectly

Tax Savings Options

You might be really close to deadline of filing your tax returns, but that doesn’t mean you cannot take help of last minute tax saving options. Investing in a traditional IRA will help you bring down your taxable income amount by $5,500 if your age is within 50 years and by $6,500 if you are above 50 years.

Alternatively, you can use your health savings account for tax deductions as well. If you have made contributions towards health savings account, there is no reason you should be shying away from adding these to your tax returns.

Ask for Help

If you usually take the help of a professional tax preparer or just aren’t sure about some aspects of tax filing, worrying is not the solution. There are a few alternatives available for the same such as the Volunteer Income Tax Assistance program. These volunteers are certified by the IRS and can help you out with your basic income tax return filing. Also, they file the returns electronically, which ensures the process is faster and without any hassles.

Extend

If everything else fails and you are too close for filing tax returns, the safest option is to apply for extension. You need to fill up the Form 4868 before the deadline to get an extension on your tax filing. It is important to note that the extension is only on the filing of returns and not paying of taxes.

Though you can file at the last moment, preparing in advance is a good practice and will keep you away from any mistakes. Going online will save you a lot of effort and in the worst case, you should opt for extension. tag mercedes
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