2021 New Year’s Tax Resolutions that you must abide as an NRI in the US.

by | Dec 31, 2020 | 2021 Tax Returns, NRI, NRI business, NRI Norms

Planning for your taxes is very important and proper planning would help you in avoiding any further interest payment to the IRS due to missing tax deadlines.

With the annual fresh start which comes along with the New Year is approaching very rapidly, this is one of the best opportunities for the NRIs in the US to make certain resolutions. These resolutions can be related to finances and taxes as well. Tax Resolutions for a year can also be helpful in planning for the achievement of financial goals during a particular year.

If you are an NRI in the US, then it’s time for you to make your New Year Tax Resolution. Let us check out the major points which must be considered while making your New Year Tax Resolution for the year 2021.

Gathering your tax-related documents

Since you are a taxpayer in the country, you must gather the below-mentioned documents immediately before the tax season arrives.

  1. Income from the employment – Form W-2 meant for you and your spouse.
  2. Income from Investment – Various forms such as 1099 and K-1s.
  3. Income obtained from the State and other local Income Tax refunds – Form 1099-G.
  4. Alimony received is taxable – For those divorce cases which have been finalized before 1st January 2019.
  5. Income obtained from home businesses – Home expenses, Office expenses, Home size, Office size.
  6. Income obtained from the business – profit or loss statement.
  7. Benefits from Social Security – Form SSA-1099.
  8. IRA –Form 1099-R.
  9. Income obtained from the sale of the property – Original cost and the cost of improvement, Canceled Debt Information(Form 1099-C).
  10. Income or expense from rental income.
  11. Miscellaneous income – This includes scholarships, jury duty, Medical Savings Account, winnings from gambling, etc.

Income Adjustments.

You must be aware of these adjustments as they can help in the reduction of your taxable income. You must make these adjustments thus increasing your tax refund.

  1. Interest on Student loan
  2. Contributions made to the IRA
  3. Energy Credits
  4. Health insurance payments made by self-employed people
  5. Expenses of educator
  6. Contributions made to Medical Savings Account
  7. The alimony paid which is tax-deductible
  8. SEP, SIMPLE, and other pension plans purchased by self-employed people

Itemized Tax Deductions and Credit.

There are some tax credits or deductions which would be helpful in reducing the tax burden. If you have made a good tax plan then you must track this throughout the entire year.

If you are availing of the below-mentioned tax credits and deductions then you must have the related documents as well.

  1. Education cost – Form 1098-T and other documents to support education expenses
  2. The charity has done –The cash amount donated and the value of the donated property, expenses made out of your pocket
  3. Costs related to adoption – The Social Security Number of the child, legal, medical costs, and costs related to transportation
  4. Childcare cost – The name of the provider, address, the tax id, and the amount that has been paid
  5. Casualty and losses due to theft – Reimbursement of insurance, the amount of damage occurred
  6. Home Interest paid – Form 1098
  7. Dental expenses

Recovery Rebate Credit.

You can be able to claim the Recovery Rebate Credit if the below-mentioned criteria are met.

  1. You have not received Economic Impact Payment for this year
  2. If Economic Impact Payment was less than $1200 if you are filing your tax returns as Single individuals or $2400 if you are filing your tax returns jointly and are married.

EITC/ACTC Refund Availability.    

Before mid-February, the IRS will not issue any refunds if you are claiming the Earned Income Tax credit or Additional Child Tax Credit. The IRS has instructed the employer to hold the entire refund amount if a portion is not being associated with the EITC or ACTC. Most of the people would receive their EITC or ACTC related funds by the first week of March if there are no further issues related to the tax return.

Conclusion.

So, as an NR in the US, you must be aware of these factors and make New Year resolutions that would be helpful in obtaining the tax returns conveniently.

All you need to know about Paycheck Protection Program as an NRI in the US.

by | Dec 21, 2020 | NRI, NRI business, NRI Norms

All you need to know about Paycheck Protection

Program as an NRI in the US.

What is the Paycheck Protection Program?

The Paycheck Protection Program is a type of loan which has been created for helping businesses in the maintenance of their workforces during these adverse pandemic times. All types of loans taken by the business would be forgiven by the US Small Business Association (SBA) if the major criteria of retention of employees are met and the funds are being utilized for those business expenses which are eligible.

The Paycheck Protection Program (PPP) was a program of $350 billion whose major intent is to provide the small businesses in America with cash flow assistance of 8 weeks through 100% federal loans. In late April 2020, the Paycheck Protection Program was expanded by an addition of $310 billion into the funding of this program. The deadline for applying for the Paycheck Protection Program has expired since 8th August 2020 but there can be an extension if there is another relief bill that is signed into law.

Major highlights of the Paycheck Protection Program.

  • The Paycheck Protection Program loans would have an interest rate of 1%.
  • The benefits of the Paycheck Protection Program can be availed by all the small businesses of America.
  • No personal guarantees or collateral are needed for those businesses which are availing of this program.
  • The Paycheck Protection Program loan has a maturity rate of 2 years and an interest rate of around 1%.
  • No fees would be charged from the small businesses either by the Government or by the lenders who are availing of this loan.

What is the working procedure of the Paycheck Protection Program?

Small businesses that have around 500 employees or even fewer employees, other independent contractors, sole proprietors, or those NRIs who are self-employed are eligible for availing the benefits of the Paycheck Protection Program.

  1. Sole proprietors would need to submit Schedule C from their tax returns filed which would provide details of the net profit that has been obtained from the proprietorship.
  2. Those NRIs who are independent contractors must submit Form 1099-MISC along with the Schedule C.
  3. The NRIs who are self-employed need to submit their payroll tax filings which have been reported to the IRS.

 The Paycheck Protection Program loan would be completely forgiven if the fund from the loan would be utilized for interest on mortgages, payroll costs, utilities, and rent as well.  There is no necessity for making the loan payment until the forgiveness application of the NRI has been processed or 10 months after the covered period of the loan ends.

 How much money can be borrowed by the Paycheck Protection Program loan? 

  1. In case of being a small business, you would be eligible to receive a loan which would be up to 2.5 times the average monthly payroll costs for the previous year.
  2. In the case of the NRI being self-employed or a sole proprietor, the loan amount that can be obtained is mainly calculated based on the payroll cost of the proprietor incurred in the last year. The full amount is up to $100,000 which can be the maximum limit that can be claimed by the small businesses.

 What is the loan period for the PPP loan?

 The loan period is for 8 weeks from the date of loan origination. This is the actual date on which the NRI borrower would receive the loan amount in actual. The interest payments on the Paycheck Protection Program loan will be deferred by around six months. This loan is due in two years and no penalty is charged for pre-paying the charges. However, the loan period has been extended to around 24 weeks.

 How can your Paycheck Protection Program loan be forgiven?

 By loan forgiveness, the loan can be turned into a non-taxable grant. The entire loan or a part of the loan which would be received by small businesses under the Paycheck Protection Program can be forgiven if the owner would keep all the full-time employees on their payroll or if you are re-hiring your employees again within 24 weeks of receipt of the loan.

 For the loan amount to be forgiven a minimum of 60% of your loan should be utilized in funding the business payroll and the employee benefit costs as well. Only 40% of the amount that has been forgiven could be used for the non-payroll expenses like the payments of mortgage interest, payments of rents, utilities, etc. Forgiveness will not occur until the end of the 24-week employment period occurs after the loan amount has been received.  Businesses must ensure that they must keep proper records and have proper bookkeeping as proof of the business expenses that have been incurred during the loan tenure.

 Conclusion

 So, the Paycheck Protection Program would be of great help for those who have incurred losses in business due to the pandemic and these coronavirus relief plans are evolving at a constant pace.

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

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

by | 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. 

  1. 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.
  2. 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. 
  3. 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
  4. 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.
  5. 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.