Updated Norms For Global Tax Filing for NRI’s Residing In the US

Updated Norms For Global Tax Filing for NRI’s Residing In the US

by | Oct 3, 2019 | Double taxation, income tax, NRI, tax reforms, taxes

Updated Norms For Global Tax Filing for NRI’s Residing In the US

The tax liability of an individual in India relies on the residential status of the individual. Taxpayers who qualify as resident Indians are taxed a bit differently than taxpayers who qualify as non-residents. While the definition of resident and non-resident has been around for quite some time, the Income Tax Department only recently has started looking into it with a lot of scrutiny. Global Tax Filing For NRI’s Residing In The US.

The following conditions will help you to determine whether you qualify as a resident or non-resident.

  • Individuals who have stayed for a minimum of 182 days in the current financial year, or
  • Individuals who have stayed for a minimum of 60 days in the current financial year and a total of 365 days in the previous 4 years, qualify as residents.

If you do not meet the above conditions, you are a non-resident Indian. The IT department has started looking into the residential status of individuals and it is the reason why quite a few NRIs have been receiving notices from the IT department. The tax implications are one of the major reasons why residential status is important. While residents are taxed on their global income, non-residents only have to pay taxes on the income that is generated or accrued in India.

New Forms

India and the USA have signed the DTAA or the Double Taxation Avoidance Agreement. This agreement ensures that taxpayers do not end up paying double taxes on the same income in both countries. There have been certain changes as far as claiming tax relief under the DTAA is concerned. Individuals who benefit from the DTAA will now have to furnish additional details before being able to claim the benefits.

Taxpayers now much provide additional details to the Income Tax department such as the Tax Identification Number of India, all the assets that they hold both in India as well as the USA. The directors or shareholders of an unlisted organization must disclose the same in their tax returns along with the Permanent Account Number of the company in question. NRIs must now also mention the number of days that they have stayed in the country versus the number of days that they have stayed out of the country.

The tax reforms intended to bring about more transparency to the tax filing process by disclosing additional details. And this is particularly for individuals who claim benefits under the treaty signed between the two countries. By implementing these changes, the Income Tax department hopes to reduce the need for further investigations by the tax authorities.

As per the new norms, residents now have to provide additional details of the salary received, its breakdown, any unlisted securities that they hold, list of agricultural land that they hold and the income generated from it, should it exceed a certain threshold, any donations made, etc.

There haven’t been any changes to ITR-1, which is primarily for individuals whose annual income doesn’t exceed INR 50 lakhs. This is for individuals who draw a salary and have a house apart from other income sources such as interests earned and income from agriculture up to INR 5,000. ITR 2, 3, 5, 6 and 7 have undergone minor changes.

ITR-2 is for taxpayers and HUFs who do not make any profits or gains from a business while ITR-3 is for individuals and HUFs who make profits and gains from business or their profession. Thus, it is essential that you take some time to access the right ITR before you can file your taxes to ensure that you do not receive any notification or notice from the IT Department.

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Top #5 Life-Changing effects and their tax implications for NRIs in the US

by | Sep 19, 2019 | federal income tax, income tax, NRI, tax deductions, tax rate, Tax Refund, taxes

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Tax implications,Life is a storehouse of changes; every person experiences certain life-changing events that can bring a transition in the entire course of the life of a person. These life-changing events can also bring a great transition in the taxation methodologies of an individual. Tax implications moreover, life-changing events and changes in the rules of taxation are the two major factors that will always cause either an increase or decrease in your taxes.

You can face this type of situation in your life when you have numerous changes happening together in a year. These changes will affect the payable taxes and you need to adjust to these changes.

When you are an NRI in the USA, you will have a number of taxes to be paid such as Medical Care Tax, Federal Income Tax, Social Security Tax, Global Income Tax, etc. These numerous taxes will reduce your take-home salary considerably and on top of this, when you have life-changing events and their implications to be addressed you will really have a tough time in handling these issues.

Let us have a look at the top 5 most crucial life-changing events and the impact they can have on the tax of an NRI in the USA.

Tying the knot

Mostly, all married NRI couples receive tax benefits in the US as they would file the taxes jointly now. This results in lower tax rates and more tax benefits.  But, sometimes if both the spouses are earning too high and are filing their taxes jointly then there might be a scenario of penalty. This might occur due to the reason that by filing joint tax returns, the couple is paying much more taxes than they should have paid as singles. But, there have been various tax reforms that have lowered the tax rates for these couples.

Welcoming a little bundle of joy in your life

This is, in fact, a real life-changing event and would be a crucial phase in life. Your little bundle will not only bring happiness into your life but also will help you in reducing your tax liabilities. The Child Tax Credit helps NRIs in the US in reducing their liable taxes. By this, if your child is below the age of 17 years then you can get a tax credit of $2000 known as Child Tax credit. Moreover, other additional credits are associated with this i.e. Child and Dependent Care Credit and the Earned Income Tax Credit. All of this would be helpful in saving a substantial amount of money.

Separation

Getting separated legally or getting divorced is a tough phase of life and has certain implications related to your taxes as well. According to the new tax laws in the US, the spouses who will be receiving the alimony do not have to pay tax on the received alimony. However, the spouse who will be making the payment cannot claim this as a tax deduction. Precisely, alimony paid is not a tax-deductible component for the payer and also is not included in the income of the spouse receiving it.

This will be the law implication for those married couples who got legally separated after 2018 or before 2019 and then later certain modifications were made into the deductions associated with alimony.

Death of a partner

There is nothing more painful than losing your partner or spouse, but the laws of paying taxes related to this are even more hurtful. You will need to file for an estate tax return depending on the size of your estate and the assets in your estate. Moreover, new tax law states that you will need to pay estate tax only when the value of your estate is above $11,400,000.

Buying or selling a house

There are many additional deductions that you can claim if you are buying a new home or selling a home. When buying a new house, you will be able to claim deductions like paid points, interest on the mortgage, other real estate taxes, etc. However, while selling a house you will not be liable to pay taxes above $500,000 on the gains in case of filing tax returns jointly along with your spouse.

Hence, these life-changing events not only bring a change in your mental state but also affect the state of your tax liabilities. After these events, either you tend to pay more taxes or pay fewer taxes in some respect depending on the taxation laws.

The Top #5 Tax saving tips from your new job as an NRI in the US

The Top #5 Tax saving tips from your new job as an NRI in the US

by | Aug 23, 2019 | global income tax, NRI, tax deductions, tax rate, tax return, tax savings tips, taxes

The Top #5 Tax saving tips from your new job as an NRI in the US

If you are an NRI working in the US, you will need to pay taxes in US and you will be considered as a Resident alien with respect to tax purposes in US. You will be liable to pay taxes in US if you are a green card holder or you were present in US for a total period of 183 days i.e. you can count on the actual number of days you were present in US in the current year i.e. it should be at least 31 days , one-third of the number of days you have been in US in the first year preceding the present year and one-sixth of the number of days you were present in US in the second year preceding the present year. This is known as the Substantial Presence Test (SPT) used by the IRS to find out your liability to pay tax in US. Tax saving tips from your new job as an NRI in the US

Types of taxes to be paid by an NRI in US

Let us have a look at the types of taxes NRIs need to pay in the US.

  • Social Security Tax

Social Security Tax is to be paid by every individual who is working in the US. Half of the amount will be contributed by your employer in US and the other half is given by yourself. 6.2% of your gross salary would be deducted as your contribution to Social Security Tax.

  • Federal Income Tax

Since you are a non-resident in US you will have to pay tax on all income earned in the US without any deductions that the US citizens can avail. However, if you are availing the deductions which the US citizens are enjoying you will have to pay tax on the income earned outside the US as well.

  • State Income Tax

You will have to pay State Income Tax based on the state of the US in which you are working

  • Medicare Tax

This tax is paid by you for the health care services which will be availed by you after your retirement and is irrespective of the fact if you would be in the country then to avail them or not.  You and your employer will have to contribute 1.45% of your gross salary for this purpose.

  • Global Income Tax

Any dividend obtained by you on shares and mutual funds in India are to be taxed in the US.  Moreover, this rule of taxation is also applicable to any agricultural income and capital gains obtained in India. A foreign tax credit in your US tax return can be claimed by you, in case of tax payment done for the above-mentioned income sources. Form 8938 (Statement of Specified Foreign Financial Assets) and

Form 8621(Passive Foreign Investment Company) can be filed along with the US Tax return for this purpose.

Tax Saving Tips for NRI in new jobs in the US

Some of the tax-saving tips for NRI working in new jobs in US are mentioned below.

  • Form W-2 must be present with you

This form is a major document required while filing your US tax returns. You can obtain this form from your employer and it will contain details related to your annual payroll. You should collect your Form W-2 from each employer for whom you have worked in a particular year.

  • Spousal exemption to be claimed and declaration of dependents

An important tax-saving method is by claiming a spousal exemption. For this, you will have to file Form W-7 and apply for an ITIN i.e. Income Tax Identification Number.

While filing for US tax returns, you can declare your dependents even if they are residing in India. However, there are certain laws by which they will have to qualify as your dependents.

  • Declaration of all financial interest

You will have to submit Form TD 90-22.1 in case of having financial accounts outside US with a value of the accounts exceeding $10,000 on a yearly basis.

  • Medical deductions should be claimed

You can claim your medical deductions by filing Form 1040; Schedule A in case of your medical expenses exceeding 7.5% of your Adjusted Gross Income.

  • Make investments or take mortgage loans

You can make investments into retirement schemes, stocks or fixed deposits to save taxes. Also, you can save taxes by taking mortgage loans or by making donations.

Since you are an NRI and new at your job, your income in the US would be reduced up to a large extent due to the payment of taxes. However, these tax-saving tips will help you in reducing your tax liabilities up to some extent.

The income tax complication with the financial New Year for the NRI’s residing in the US

The income tax complication with the financial New Year for the NRI’s residing in the US

by | Apr 30, 2019 | Blog, federal income tax, income tax, NRI, Tax Planning, Tax Preparation, Tax Refund

The income tax complication with the financial

New Year for the NRI’s residing in the US

As India is developing rapidly, globalisation has resulted in more opportunities. Stronger economic ties with developed markets like the US has made many Indian’s studies and work overseas. Such Non-Resident Indian’s living in the US, juggle between two different tax jurisdictions. NRI taxation rules are completely different as compared to the rules applicable to ordinary Indian residents. Hence, the tax provisions for Non-Resident Indians are separately dealt under ‘NRI taxation’ section of Income Tax Act, 1961. NRI taxation involves the host of obligations and reporting requirements along with changing tax provisions each year which makes it quite complicated. With the beginning of the new financial year, NRIs residing in the US may have to face challenges or tax complications in below areas.

Determining tax residential status in India

Primary challenge for NRI wanting to undertake tax compliance is determining the tax residential status for the year in India. Residential status is classified as Non-Resident Indian (NRI, Resident but not Ordinarily Resident (RNOR) or Resident and Ordinarily resident for tax purposes depending on number of days spent in India. It could get quite complicated to understand the status.

An individual is deemed to be non-resident in India if any one of the conditions below is satisfied.

  • Your stay in India during the previous year is less than 182 days
  • Your stay in India during the four years immediately preceding the previous year is less than 365 days and you have been in India for less than 60 days in the previous year.

A resident individual is considered as RNOR, if any of the below conditions are not satisfied or only one of the below condition is satisfied.

  • You are resident in India for at least two years out of 10 years immediately preceding the relevant year
  • Your stay in India is for 730 days or more for seven years immediately preceding the relevant year.

Important thing to consider here is previous year is period of 12 months starting from 1st April to 31st March.

Income tax return forms

Which ITR (income tax return) form to use for filing is the next challenge that you would face being NRI. With the change in norms, NRIs are now required to use either ITR2 or ITR3 for filing income tax. NRIs with no business/profession income can file income tax in ITR2. ITR3 needs to be used if you have business/profession income to report.

Tax treatment of investments and income

For NRIs, only income earned in India is taxable. When it comes to understanding exchange control norms and tax implications on making investments, it’s quite complex. To understand complex income tax provisions relating to income and investments in India comprehensively, it’s wise to seek expert help. As income earned by NRIs is subjected to double taxation, it becomes imperative for NRIs to understand tax implications before making investment choices. Also, there are provisions to save tax liability to an extent which needs to be carefully understood. With the complexities involved and time constraints, liaising with banks and other financial institutions where investments are held also could get challenging.

Tax relief claims

After understanding the tax treatment, there are also many provisions available for saving tax liabilities which can be beneficial for NRIs such as Double Taxation Avoidance Agreement (DTAA). However, the process of claiming benefits under DTAA could be challenging as one needs to provide extensive disclosures such as overseas tax residency certificate. Tax identification number of home country and details of assets held abroad etc.

Conclusion

A strong economy needs more stringent tax regime for the increased development. As India is aiming towards strengthening economy, tax regimes are getting stricter and stringent. Understanding the taxation process and keeping yourself updated on change in provisions and norms can help you effectively adhere to tax laws and stay tax compliant. Being an NRI, seek help of professional experts to file income tax returns and plan your taxes for the year ahead efficiently.

 

How to claim your TDS refund for the NRI’s residing in the US

How to claim your TDS refund for the NRI’s residing in the US

by | Apr 22, 2019 | Blog, income tax credit, IRS, NRI, Tax Payers, Tax Planning, Tax Refund, tax savings, TDS

How to claim your TDS refund for the NRI’s residing in the US

TDS refund For an NRI residing in the US, income tax is applicable for the income that is earned in India. Be it salary earned in India or for services rendered to India or on earnings from investments and assets, NRI is liable to pay income tax if the total income for the financial year is more than Rs. 2.5 lakhs.

In India, It’s not very simple when it comes to income tax rules for NRIs.As per tax rules, any payment to non-resident Indians (NRIs) is required to be made after deduction of tax deducted at source (TDS) even if the income of that person is less than Rs. 2.5 lakhs. However, NRIs are allowed to claim refund of TDS deducted at the time of income tax filing if he/she falls below the minimum taxable income i.e. 2.5 lakhs.

Here are some of the major income types on which TDS is deducted for NRIs.

  • Payments received for services rendered in India
  • Interest income earned on bank savings and deposit accounts – NRO accounts
  • Rental income from property owned in India
  • Sale of bonds, mutual funds and shares
  • Sale of property in India owned by an NRI

TDS refund can be claimed by NRIs residing in the US by filing the income tax return in India. Income tax filing is quite a simple process. As the new financial year begins, it’s also important for NRIs to know the time limit to file the income tax for claiming refund.

NRIs are required to file income tax return before 31st July of the new financial year. Any delay would attract penalty. For example, for the financial year 2018-19, income tax filing needs to be done by 31st July 2019 for claiming TDS refund.

Here are the few easy steps for NRIs to file income tax return in India

Reconcile your incomes and taxes with Form 26AS

After determining the residential status for the financial year, NRI‘s need to reconcile their TDS credit or advance taxes paid with the data reflected in Form 26AS.

Keep the necessary documents ready

Keep important documents such as PAN card, bank details, investment details, TDS certificates, passport and Form 26AS ready as these documents give you relevant information required for income tax filing.

File your income tax return through income tax e-filing portal

  • Log on to income tax e-filing portal with your e-filing account user ID and password. Download ITR2 or ITR3 form depending on your type of income.
  • If you earn any income from business in India, ITR3 would be applicable. ITR2 would be applicable if you are not earning any business income (excludes capital gain on sale of assets/property) in India.
  • Fill in all the relevant details and calculate your tax liability.
  • Once all the details are filled validate your form by entering one time password (OTP) sent to you on your registered number.
  • Save the validated XML file on your system and then upload the saved file with adding your digital signature to it.

Verify your income tax return

Once you are done with uploading your tax return file on income tax portal, ITR-V will be generated which needs to be submitted to IT department. On receipt of this, your income tax return will be processed.

It’s important to note that, refunding of TDS will take about 6 months’ time or more. However, the refund is issued with interest of 6% p.a which is applicable from the end of financial year.

NRIs residing in US can save on TDS through DTAA (Double Taxation Avoidance Agreement) as both the countries have signed tax treaties. In this case, as an NRI taxpayer you can avoid paying tax twice for the same income. DTAA either eliminates or reduces your tax implication on the income earned and taxable in India.

Conclusion

As an NRI, adhering to two different tax laws at once can be quite challenging. Knowing and understanding the process involved in the taxation can help you save tax liabilities. Keep yourself updated and seek a professional help whenever needed.

The income tax implications of selling your property in India for the NRI’s residing in the US

The income tax implications of selling your property in India for the NRI’s residing in the US

by | Apr 16, 2019 | Blog, global income tax, NRI, Tax Planning, Tax Refund

The income tax implications of selling your property in India for the NRI’s residing in the US

Indian real estate market is the third largest in the world. Attractive real-estate opportunities, RBI’s general permission and falling rupee value against dollars in recent times have created more interest among Non-resident Indians to invest in immovable properties in India. Along with buying a property of their own, many NRI’s may even have inherited properties in India. When it comes to dealing in property transactions for NRIs, taxation is one of the vital aspect to be considered. Let’s take a look at the income tax implications of selling property in India for NRI residing in the US.

Tax implications of selling property in India

Under the Income Tax Law in India, income from selling property is taxed under the head ‘capital gains’. Taxability on capital gains will be based on the period of holding of the property. Capital gains are taxable in the year of property transfer irrespective of receipt of sale consideration. Here are the tax treatment for capital gains arising out of selling of property in India.

  • Short-term capital gains: If you are selling the property before 24 months from the date of property purchase, gains are treated as short-term capital gains which are taxable at the normal tax slab applicable for you as an NRI. The buyer is liable to deduct TDS (tax deducted at source) at 30% rate irrespective of the tax slab.
  •  Long-term capital gains: If you are selling the property after 24 months or two years from the date of property purchase, gains are treated as long-term capital gains. For which, tax will be applicable at the rate of 20% with applicable surcharge and cess.

Capital gains are calculated as the difference between the sale value and cost of purchase. In case of inherited property, date and cost of purchase to the original owner (from whom the property is inherited) need to be considered for computing capital gains. In case of long-term assets, cost of purchase is indexed to adjust for inflation.

Tax exemptions to reduce tax-outgo

NRIs can claim tax exemptions under Section 54 and section 54EC on long-term capital gains arising out of sale of residential property in India.

  • Section 54: As an NRI if you sell a long-term residential property, you can claim tax exemption on the gains if you acquire another residential house either one year before the sale or two years after the sale of property. Exemption can also be claimed if you construct another residential house within a period of three years from the date of transfer of such property. However, exemption claim is limited to the lower of total capital gains on sale of property or cost of purchase/construction of new property. And, no exemption can be claimed in respect of property purchased or constructed outside India.
  • Section 54EC: As an NRI, you can also save tax on your long-term capital gains by investing in tax saving bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI). To claim the tax exemption on long-term capital gains on sale of property, you need to invest in these bonds within six months from the date of transfer of property. Maximum of Rs. 50 lakhs is allowed to invest in these bonds which are redeemable after three years.

In order to avoid the deduction of TDS, it’s important to produce the relevant proofs or certificate of exemption to the buyer. However, you can claim refund of excess TDS deducted at the time of filing income tax return.

NRIs residing in US needs to keep in mind the tax implications applicable for them in US (country of residence) while selling property in India. It’s important to report the income and related details without any errors. Erroneous tax returns can land you in trouble. IRS sends out more than 9.1 million of notices every year to tax payers for erroneous tax returns. Failing to respond to notice can attract penalties.

Conclusion

Selling property for NRIs is not really a complex thing if taxation and legal aspects are dealt properly. Seeking professional help can smoothen the process and help in saving the tax liability to certain extent.