The changes in the NRI norms in India 2020, resulting in higher tax liability

by Mounica Kota | Jul 22, 2020 | coronavirus, NRI Norms, Tax Liabilities, Taxation

The changes in the NRI norms in India 2020, resulting in higher tax liability

The novel coronavirus has been spreading across the world very rapidly making millions and millions of people sick. To put a brake on the speedily spreading coronavirus, domestic and international flights had been stopped on an interim basis by the Indian Government. As a result, many NRIs who had visited India had to extend their stay in India till the restrictions on flights are lifted.This extension in the stay of the NRIs and the foreigners in India due to the pandemic COVID-19 might lead to an increase in their tax liabilities. Non-resident Indians may be stuck in the country due to the restrictions imposed on travel, illnesses, or restrictions being imposed by the other countries. This extended stay can cause higher tax incidence if the stay exceeds the prescribed thresholds unless specific exemptions are provided by the Government to reduce the extra tax liabilities. In simple terms, the extended-stay by an NRI in India can bring him into the Indian income tax fold.

The taxation regime

According to the Income Tax Law, a person can be classified as a resident or a non-resident of India based upon his duration of stay in the country during a financial year.

An NRI who is visiting India becomes a resident of India if he stays in India for 182 days or more in a financial year along with a stay of 365 days or more in four preceding years. This criterion applies to an NRI who is either a citizen of India or a person of Indian origin.
However, according to the latest Finance Act, 2020 there have been certain amendments made to the tax residence criteria. From the Financial year 2020-21, the threshold for the period of stay for an NRI staying in India has been reduced to 120 days from 182 days.
So, an NRI can become a tax resident with a minimum of 120 days stay only if the NRI is earning above Rs. 15 lakhs in a particular financial year. In this case, the NRI would be taxed on his global income
However, the threshold of 120 days does not apply for those NRIs who have an Indian income of less than Rs. 15 lakhs and would become a resident only on a stay of 182 days in India.
The Indian Income Tax Law does not differentiate between the voluntary or involuntary stay of an NRI in India for the determination of his residence for taxation. NRIs staying in India beyond their prescribed thresholds would attract tax liability even if they wanted to leave India.

Extension of lockdown and implications of being a tax resident

Due to the ongoing lockdown and non-resumption of International flights, an NRI would be taxable on his Indian income. NRIs would also face problems related to dual tax residency or citizenship. However, an NRI who became a tax resident of India is not liable to file his tax returns in India immediately. The process of taxation would need an evaluation on a case-to-case basis.

An NRI who has a taxable income in India above the basic limit of exemption i.e. Rs. 2.5 lakhs should file an income tax return in India. NRIs becoming tax residents of India might also face other problems such as taxability of the interest on their NRE accounts. Moreover, there might be changes in the TDS rates on their Indian income.

However, the Government of India might give some clarification on the matter related to the tax residency of the NRIs who have been bound to stay longer in India due to the current COVID-19 situations. The OECD (Organization for Economic Co-operation and Development) has recommended for some exemptions in the threshold limits related to the tax residency of NRIs. However, there has been notification on this but the Government might issue relaxation on this.

If there are no relaxations from the Indian Government, then the NRIs will have to file income tax returns in India. But, the NRIs need not pay any tax in case of the absence of an income in India. Also, they do not need to pay any tax on their foreign income in India.

Conclusion

Hence, it is important for the NRIs who have been held up in India due to the lockdown to consult about the impact of the new regulations related to tax residency rules in India. They must understand the rules and fulfill the compliances if applicable in their case.

All you need to know about the Stimulus Package Relief for the deceased

by Mounica Kota | Jul 5, 2020 | coronavirus, coronavirus stimulus checks, Deceased persons

All you need to know about the Stimulus Package Relief for the deceased

Millions of people across the United States have already received their payments from the Coronavirus relief package and many are still waiting for their stimulus payments to arrive. However, a surprising fact which has come up into light is the receipt of stimulus payments by the deceased Americans. The beneficiaries of these deceased Americans have been receiving the stimulus payment and are in a dilemma about the next course of action.

The CARES Act was passed by Congress in March and since then there has been huge pressure on the IRS for the quick distribution of the Stimulus money amongst the people. This scenario of deceased persons receiving the Stimulus money has also been addressed by the US President as quite a normal happening which would be taken care of by the IRS eventually.

How are the deceased Americans receiving coronavirus stimulus checks?

If an American had filed his tax returns for the year 2018 or 2019 and has passed away then his beneficiaries might be receiving the Stimulus payments. The major reason underlying this is the use of the recent tax information by the IRS to determine the eligibility for the receipt of the Stimulus payment.

There is a master file of all deaths that have happened in the country with the Social Security Administration.

IRS could have cross-referenced with this master file and scrubbed the data for removing the names of the deceased individuals from the list of Stimulus check recipients. However, this would have taken a longer duration and the Stimulus payments would have been delayed for all Americans. Precisely, many tax and law consultants have stated that the IRS has followed the law because according to law the IRS needs to look at what has been reported by the taxpayer in his 2019 returns, his income, and his filing status. The payment would be based on these eligibility criteria and not on whether the taxpayer is deceased or not.

What to do if you receive a Stimulus check for your deceased relative?

The IRS FAQ page on its official website gives detailed information on what needs to be done if you are receiving the Stimulus payment for any of your deceased relatives or family member.

Based on the IRS’s instructions about repayments, any stimulus amount obtained for a person who had died before the receipt of the payment should be returned. However, there is a small exception in this case as well. In case, you are married and had filed your income tax returns jointly but your spouse had passed away before the receipt of the Stimulus check then you are entitled to return only that portion of the payment which was intended for your spouse and keep your portion of the payment. The amount which you need to return would be $1200 unless your joint AGI (Adjusted Gross Income) was more than $150,000.

How to return the Stimulus payment received for a deceased relative?

If you have received Stimulus payment for any of your deceased relatives and wish to return the payment, then you must follow the instructions specified by the IRS.

a. Payment received as paper check which has been cashed or payment received by direct deposit

You need to send a money order or a personal check to the appropriate IRS location in the state in which you are residing. The ‘Economic Impact Payment Information Center’ can be referred to obtain the mailing address on which the money order or check would be sent.
You need to mention ‘Payable to US Treasury’ on the money order or check. You must also mention the 2020 EIP and the Social Security Number or Taxpayer Identification Number of the person to whom the check had been addressed.
You should give a summary of the reason for which you are returning the check.

b.Payment received as a paper check but has not been cashed

If you have not cashed the check, then you need to mention ‘Void’ on the endorsement section of the backside of the check received.
You can mail the voided Treasury check to the appropriate mailing address of the IRS location.
You can put in a note which explains the reason for your return of the check.

Conclusion

Despite all the understanding about the return of the check, it can be said that the need to return the Stimulus payment made for a deceased person has not been officially stated in the IRB (Internal Revenue Bulletin). This has only been said in the FAQs of the IRS and the IRS may change its regulation at any time.

How does the coronavirus stimulus package help the NRIs in the US?

by Mounica Kota | May 18, 2020 | AGI, CARES, coronavirus, COVID - 19, IRS, US Government

How does the coronavirus stimulus package help the NRIs in the US?

The US Government has passed and signed a $2 trillion coronavirus bill otherwise known as the CARES Act. This is one of the largest emergency aid packages in the history of the country which has led to most of the taxpayers in the country receiving stimulus checks. These stimulus checks have helped in reducing the plight of the coronavirus affected Americans up to some level.

Along with the provision of all Americans receiving stimulus checks, this bill also includes $500 billion as loans for the struggling businesses, $150 billion for the local and state governments, $377 billion as grants for small businesses and $130 billion for the hospitals which are dealing with a very difficult situation as of now. To date, the IRS has sent around 140 million stimulus checks to the Americans who qualify for receiving the package.

Eligibility for receiving the Stimulus package

Major Queries

One of the major queries troubling the minds of the common people is what are the qualifying criteria for obtaining the Stimulus package? Are the NRIs living in the US eligible to obtain the Stimulus package or not?

All the US residents qualify to receive the Stimulus package as long as they possess a work-eligible Social Security Number (SSN) and can meet the income specific requirements.

a. The IRS will be determining the eligibility of an individual for the Stimulus package based on his adjusted gross income (AGI) on his 2019 tax return or 2018 tax return if not filed for 2019 yet.

b.The residents of the country who are filing their tax returns as individuals and have an AGI less than $75,000 would receive an amount of $1200 whereas residents who are married and are filing their tax returns jointly having an AGI less than $150,000 would receive an amount of $2400 as Stimulus payment.

c.An additional amount of $500 can be claimed for each dependent child who is below the age of 17 years, has been claimed in the tax returns of 2019 or 2018, and satisfies the other qualifying criterion.

d.Residents of the US who have nontaxable income such as Social Security benefits or Railroad benefits, etc. also qualify for receiving the Stimulus payment. These individuals do not need to file tax returns for obtaining Stimulus payment.

e.Residents filing tax returns as singles and having an AGI in between $75,000 and $99,000 would have their stimulus amount reduced by $5 for each $100 increase in the AGI above $75,000. Similarly, for married couples who have filed their returns jointly and have an AGI above $150,000 will have a reduction of $5 in their stimulus amount for every $100 increase in the AGI above $150,000.

Use of the Stimulus payment by NRIs in the US

a. The usefulness of the Stimulus payment obtained by the NRIs in the US depends upon various scenarios.

With the impact of the dreadful COVID-19 spreading rapidly across the US, many Americans have lost their jobs and livelihood. Businesses are being closed down and millions of workers across the country have become jobless. The Stimulus package announced by the Federal Government would include a weekly pay boost of $600 which is funded federally for the unemployed along with the regular State unemployment benefits.

However, for the NRIs in the US, there are no provisions to avail of the general state unemployment credit. So, if an NRI in the US loses his job during this pandemic it is difficult for him to manage his finances in the lockdown. The Stimulus package would be the savior for the NRIs at this point and can be used to meet the various financial needs.

b.In case an NRI in the US is into a profession where he would not be able to work from home during the corona times. NRI workers/employees from several industries such as Non-IT, retail, hospitality, restaurants, live entertainment, nightlife, etc. cannot perform their operations from home and thus, experience a partial or complete layoff from work. This would affect the livelihood and finances of the NRIs and the Stimulus checks can be used at this instance.

c.Moreover, since the pandemic COVID-19 is spreading widely across the country; an NRI might experience the situation of his family member or close relative being affected by the disease. In such a scenario, for availing the medical facilities good financial backup is necessary. The amount received by NRIs through the Stimulus package can be utilized for availing good medical facilities for their family members

References

https://www.cnbc.com/2020/04/01/whos-eligible-for-covid-19-stimulus-checks-your-questions-answered.htm

lhttps://www.forbes.com/sites/advisor/2020/04/28/real-stories-of-filing-for-unemployment-during-covid-19/#7b11b36715dd

https://www.forbes.com/sites/advisor/2020/03/25/what-you-need-to-know-about-expanded-unemployment-benefits-for-covid-19/#3e56a0436e4a

https://www.latimes.com/business/story/2020-03-27/who-qualifies-for-the-stimulus

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

by Mounica Kota | May 15, 2020 | CARES, coronavirus, COVID - 19, IRS, tax return

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

Under the provisions of the CARES Act, the Americans have been provided with Stimulus payment for certain relief from the economic distress caused due to the pandemic COVID-19. The amount you would receive as Stimulus payment or as the Economic Impact Payment (EIP) is being calculated by the IRS based on the information provided while filing tax returns for the year 2019.

However, there can be instances in which even if the tax returns for 2019 have been filed but the amount received as Economic Impact Payment (EIP) is quite different from the amount expected.

Economic Impact Payment (EIP) is quite different from the amount expected

a.If the 2019 tax returns have not been filed or the processing of the 2019 tax returns have not been completed by the IRS

The calculation for the amount you would receive as Economic Impact Payment is done based on their data of 2019. In case you have not filed his tax returns for the year 2019, then in such a case, the IRS would consider the information of the tax returns for the year 2018.

Moreover, suppose you have already filed your tax returns for the year 2019 but the returns have not been processed by the IRS. In such a case, the IRS would use your information of the year 2018 and calculate your EIP. This might lead to receipt of a different amount as the various life events which might have occurred in 2019 would not have been included during the calculation.

b.If the qualifying criteria for the additional $500 are not clear

You would receive an additional $500 if you have claimed your children for the Child Tax Credit during filing your tax returns. To claim a child for the Child Tax Credit, you must be related to the child, lived with him for more than half of a year, and must be bearing half of his expenses. The child must be below the age of 17 years at the end of the year for which you have filed the tax returns.

You can also claim your foster/adopted children, your siblings, your nieces, or nephews if they satisfy the qualifying criteria. If the claimed child has an individual taxpayer identification number (ITIN), then he would not be considered for an additional payment of $500 in the EIP. You would receive an additional $500 only if the claimed dependent has a valid Social Security Number (SSN) or an Adoption Taxpayer Identification Number (ATIN).

c.If you have claimed a dependent who is a college student

According to the CARES Act, if you have claimed your child or dependent who is a college student then you would not be eligible for receiving the additional $500. Suppose, you have claimed your dependent who is a college student in your 2019 federal income tax returns. However, your dependent is more than 17 years of age and would not be eligible for getting you the additional $500 in the EIP.

d.If claimed dependents are above the age of 17 years or are your parents/relatives

In case during your tax return filing, you have claimed your parent or any other relative who is of the age 17 years or older, then that dependent will not be eligible to receive a $1,200 Stimulus payment. Also, you will not be eligible to receive an additional $500 in your EIP because your parent or other relative is not satisfying the qualifying criteria i.e. being above the age of 17 years.

However, if you are not claiming your parent or relative as a dependent and neither anyone else is doing so for their tax return of 2020, then your parent or relative would be eligible to obtain the $1200 stimulus payment on the tax return filed for 2020 next year.

e.If past-due support to a child is deducted from the EIP

Your past-due child support can be a reason for the offset of your EIP. In such a case, if an offset occurs you would receive a notice from the Bureau of the Fiscal Service. In case you are married and have filed your tax returns jointly, along with filing an injured spouse claim during your tax returns of 2019 or 2018(in case the tax returns for 2019 have not been filed) the payment would be equally divided and sent to you and your spouse. Your EIP or your spouse’s EIP would be offset depending on who owes the past-due child support.

If you received an incorrect EIP

You need to be very clear about the eligibility criteria, know the eligibility requirements of your family, and ensure that you meet the qualifying criteria.
You might have received a lesser amount of EIP than that you expected. However, you might be eligible to receive an extra amount of EIP next year while filing your tax returns for 2020.
If you are eligible, you can claim additional credits on your tax returns for the year 2020 while filing for the tax returns.
You must keep the letter you receive by mail after obtaining your EIP as records for future use.

References

https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated

As an NRI in the US, if your business is affected by the Coronavirus, these 3 credits can be of help

by Mounica Kota | May 11, 2020 | coronavirus, Employee retention credit, Family relief credit, IRS credits, paid sick leave credit

As an NRI in the US, if your business is affected by the Coronavirus, these 3 credits can be of help

The pandemic COVID-19 has had a disastrous impact on the economic lives of the people in the US. The NRIs in the US who are having their businesses have incurred huge losses and many are even on the verge of being shut down either temporarily or permanently. Coronavirus In such difficult times, the Internal Revenue Service (IRS) has introduced three different and new credits which would be helpful for the business owners and their employees as well.

Employee Retention Credit
Paid Sick Leave Credit
Family Leave Credit

The Internal Revenue Service (IRS) has introduced three different and new credits which would be helpful for the business owners and their employees as well.

Employee Retention Credit

1. The major objective behind the design of the Employee Retention Credit is to motivate various businesses to continue keeping their employees on their payroll rather than opting for a lay-off.

2. The Employee Retention Credit would be in the form of refundable tax credit which is 50% of up to $10,000 in wages which are paid by a business owner whose business has been affected due to the outbreak of COVID-19.

3. All business owners inclusive of those organizations which are tax-exempt are eligible to avail this credit irrespective of their sizes.

4. Any business owner whose business has undergone suspension either completely or partially due to COVID-19 is eligible to avail the Employee Retention Credit.

5. Moreover, an employer or a business owner would receive the Employee Retention Credit until the gross receipts of his business are below 50% of the comparable quarter of 2019. However, once the gross receipts are increased to 80% of a comparable quarter of 2019 then the business would no longer receive this credit.

6. Small businesses who might be taking small business loans and other State/Local Government instrumentalities are not eligible for availing the Employee Retention Credit.

Paid Sick Leave Credit

1.Paid Sick Leave Credit would enable businesses to obtain credit for those employees who are unable to work during COVID-19 due to either being self-quarantined or exhibiting symptoms of COVID-19 and are under medical supervision.

2. These employees would be paid sick leave credit for up to 10 days which is equivalent to 80 hours. This credit would be paid at the regular rate of up to $511 per day and $5,110 in total.

3.Those employees who work on a part-time basis would be eligible for receiving paid sick leave based on the number of hours the employee works on an average in two weeks.

Family Leave Credit

1.Business owners or employers would receive credit for those employees who are not able to come to work due to the need for taking care of family member who has been affected by the Coronavirus or due to need for taking care of a child who is below the age of 18 years whose school/daycare is being closed due to the pandemic.

2.These employees are eligible to avail paid sick leave for up to 80 hours i.e. up to two weeks at the rate of 2/3 of his regular pay or up to $200 each day i.e. $2000 in total.

3.Employees can also receive paid family leave and medical leave which is equal to 2/3 of the regular pay obtained by the employee that is up to $200 each day and resulting in $10,000 total. Family leave credit can be calculated towards up to 10 weeks of qualifying leave.

How can business owners/employers obtain credit?

1.The business owners/employers can immediately obtain the entire amount of sick leave credit and family leave credit along with the expenses involved in health care plans plus the employer’s share of the Medicare tax on the leave for the period ranging from 1st April 2020 to 31st December 2020.

2.The business owners would be able to reimburse these credits immediately by making a reduction in their required deposit of payroll taxes which have been withheld from the wages of the employees by the credit amount.

3.Those business owners who are eligible to obtain these credits can report about their total qualified wages and the costs incurred in health insurance for each quarter either by filing Form 941 or by filing their quarterly employment tax returns.

4.In case, the tax deposits of a business owner are not sufficient enough to cover the credits then the owner can receive an advance payment by submitting Form 7200 with the IRS.

Hence, these credits would be of immense help to the NRI business owners to support their employees during this difficult economic period caused by the pandemic.

References

https://www.irs.gov/newsroom/irs-three-new-credits-are-available-to-many-businesses-hit-by-covid-19

https://www.dol.gov/newsroom/releases/osec/osec20200320

https://www.foxrothschild.com/publications/irs-issues-guidance-on-tax-credits-for-required-paid-leave-under-ffcra/

https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs

What does the Coronavirus Stimulus Package mean for you?

by Mounica Kota | Apr 27, 2020 | CARES Act, coronavirus, Stimulus payment

What does the Coronavirus Stimulus Package mean for you?

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law by the US President on 27th March 2020. This is an economic relief package worth $2 trillion which commits of protecting the Americans from the hazardous impacts caused by the COVID-19. The Coronavirus Stimulus package would help provide some amount of relief to the Americans affected by the pandemic.

Let us talk about the different facets included within the Coronavirus Stimulus package which would help provide economic assistance to the Americans.

Stimulus Checks

Through the CARES Act, around 80% of the American population would be eligible to receive a one-time payment in the form of Stimulus Checks. The amount that would be received as Stimulus payment is mostly dependent on the Adjusted Gross Income (AGI) of the taxpayers. AGI of an individual can be obtained from Line 8b of Form 1040. It is calculated by the Gross income of an individual minus the adjustments made for eligible deductions like IRA deduction or interest on the Student loan, etc.

If you are filing your tax returns as a single filer and your AGI is below $75,000 then you are eligible to receive Stimulus payment of $1200.
In case, you are claiming a dependent below 17 years of age then you would be eligible to obtain an additional $500 for the dependent.
However, there would be a reduction in the Stimulus payment by $5 for every $100 rise in AGI above $75,000.
In case, you are married and are filing your tax returns jointly then your AGI must be below $150,000 to obtain a Stimulus payment of $2400. You can also obtain an additional $500 if you can claim a dependent below the age of 17 years.
Moreover, in this case, also there would be a reduction of $5 from the Stimulus check for every $100 increase in AGI above the $150,000.
For individual tax filers, if the AGI is above $99,000 and no dependent has been claimed by the individual then Stimulus payment will not be received by the individual.
Similarly, for married couples filing tax returns jointly if the AGI is more than $198,000 and no dependents are being claimed then the Stimulus payment would not be received.

Unemployment payments

There would be an increase in the unemployment payment for four months through 31st July 2020 by an amount of $600 per week.
This increase in unemployment payment would be applicable for those who were not qualifying for any employment including freelancers, self-employed individuals, gig workers, part-time employees, etc.

Relief on the payment of Student Loan

The employers would be able to make the payment of the Student loan on behalf of the employees in a tax-free manner. This payment of the Student loan could be up to $5250 in a year.
This implies that there would be an exclusion of the loan payment done from the income of an employee.
This provision is being implemented from the date of signing of the CARES Act into law i.e. from 27th March 2020 until 1st January 2021.

Delay in the payment of Social Security Payroll tax

A portion of the Social Security Payroll tax needs to be done by the employers and this is even applicable to the self-employed individuals. According to the provisions of the CARES Act, the employers can make a certain delay in the payment of their part of the Social Security payroll tax for the rest of the part of the year. The liability can be paid easily over the next two years.

Economic assistance for Small businesses and Self-employed individuals

By the CARES Act, the Small Business Administration has been provided with $349 billion for distributing it among self-employed individuals, independent contractors, and non-profit organizations by the Paycheck Protection Program (PPP).
The Federal Reserve Lending Program would also be receiving support in the form of $454 billion. This amount has to be utilized in providing economic support to non-profit/small businesses that have a workforce of around 500-10,000 employees. The major objective of providing aids to these Small businesses is to retain their workforce by providing them compensation and benefits.

Waiver of penalty for the early withdrawal of retirement funds

A qualified individual who has been affected by COVID-19 might need to withdraw money from his retirement funds. In such a scenario, the individual would get a 10% waiver of the early withdrawal penalty. This waiver would be applicable for up to $100K of retirement funds.
An individual would be qualified for this waiver only if

An individual, his spouse, or his dependent have been diagnosed with COVID-19.
An individual has been experiencing adverse financial conditions due to being quarantined.
If an individual’s working hours have reduced or he is not able to work for taking care of his child as child care/schools have been closed due to COVID-19.

Hence, the Coronavirus Stimulus Package is an effective initiative by the Federal Government which would help reduce the stress of Americans caused due to the pandemic COVID-19.