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.

Top #5 things to know about the 2020 IRS Form-W4

by Mounica Kota | May 24, 2020 | 2020 IRS Form W4, IRS, Tax credits, Taxation

Top #5 things to know about

the 2020 IRS Form-W4

Employees need to fill the IRS Form-W4 to intimate their employers about the amount which must be withheld from their paychecks. This amount which is to be withheld usually depends upon the filing status, tax credits, dependents, and deductions of an employee. In case the IRS Form-W4 of an employee is not filled correctly, then the employee might owe paying tax while filing tax returns.

The IRS has designed the new 2020 IRS Form-W4 by closely working with the payroll and tax community to help the taxpayers. By the new IRS Form-W4, taxpayers would be able to find out their correct withholding value. There have been various changes such as a reduction in the tax rates, changes in itemized deductions, the introduction of other dependent credits, etc. which led to the revamping of IRS Form-W4 in 2020.

Major 5 things to know about the 2020 IRS Form-W4

Major 5 things to know

about the 2020 IRS Form-W4

1.Different versions of Form-W4 on file

All the employees don’t need to fill the 2020 IRS Form-W4. The IRS has also designed withholding tables which can function with the new 2020 IRS Form-W4 and the previous versions of the Form W4.

The revamped 2020 IRS Form-W4 must be filled in by the below-mentioned employees.

Those employees who have been newly hired in 2020 or
Those who are willing to change their withholdings in 2020

2. The layout is completely different with new tax withholding tables

The layout of the 2020 IRS Form W4 looks completely different from systematic division into five steps and forms an entire page.

The first step would contain the entry of personal information and the anticipated filing status of an individual.
The second step is necessary for those employees who have either more than one job at a time or is married with working spouse and filing returns jointly.
In the third step, the child tax credit and credit for other dependents can be determined that can be claimed while filing returns.
This fourth step provides instructions for determining any other estimated income of the year, deductions other than standard deductions, and any other additional tax which the employee wants to be withheld.
The last step contains the employee’s signature and date below the penalties of perjury.

Moreover, two new tables align with the new IRS Form-W4.

For Automated Payroll Systems, percentage method tables can be used.
For Manual Payroll Systems, wage bracket method tables can be used.

3. Personal withholding allowances are eliminated

This is the most important change in the IRS Form-W4 which distinguishes itself from Form-W4 of 2019. Previously, withholding allowances were used by employers for the determination of the income tax withholding. Personal withholding allowances are the exemptions from the Federal Income Tax and the more allowances an employee claim the less amount would be withheld from his wages for income tax. However, now employees can easily claim dependents or other deductions on Form W4 rather than claiming withholding allowances for the reduction of federal income taxes.

4.Additional Adjustments

The fourth step of the 2020 IRS Form-W4 is associated with the additional adjustments that can be made. However, this step is optional and would be feasible in instances such as

Adjustments for additional withholding can be made if there are other income sources like retirement income or any income from dividends.
The withholdings can be reduced in this section if any such deductions are different from standard deductions like interest on a student loan, any additional tax deductions, etc.
Any additional income tax can be entered such as any amount which can be deducted from paychecks including any amount which needs adjustments.

5.Importance on dependents and other tax credits

The 2020 IRS Form-W4 helps employees in indicating if they are eligible for availing the Child Tax credit and any other dependent credits. Employees who are interested in the actual refining of their withholding amount more accurately can also include additional credits such as Education tax credits. These credits can be included in the Form W4 by Step 3 of the Five-Step Process.

Hence, it can be said that the new Form-W4 can be filled if there are any changes in the financial situation of an individual.

References

How can your credit card dues affect your taxation during a pandemic?

by Mounica Kota | Apr 23, 2020 | Credit Card Dues, Tax Laws, Taxation

How can your credit card dues affect your taxation during a pandemic?

Do credit card dues affect your taxation during a pandemic? The impacts of the pandemic COVID-19 have been worsening the lives of the common people across the world. COVID-19 has affected around 7.7 lakhs people only in the US with around 41000 amongst them losing their lives. The growing impacts of this pandemic are also leading to financial hardships among the people of the US. With many businesses closing down and several people losing their livelihoods due to the COVID-19, the negative economic impact on the US is quite evident.

In such adverse circumstances, payment of credit card dues and payment of taxes tend to act as nightmares for the Americans.

a.Adverse health conditions

In current times when the number of Americans affected by COVID-19 is going on increasing, it has become imperative to consider health as a priority. If an individual starts showing up symptoms related to COVID-19, then there would numerous expenses incurred for the COVID-19 test and then the treatment if he result comes up as positive. In such a scenario where the health expenses would be shooting up, it would be nearly impossible for him to think about the payment of credit card dues and taxes.

b.Loss of job or income

This situation is quite self-explanatory. When a large part of the American population are losing their jobs or livelihood due to slowdown/closure of business in various sectors, they can’t think about taxes and the payment of their credit card dues.

So, to alleviate the financial stress on the common Americans there have been several initiatives taken by the Federal Government and different financial institutions in the country.

Relief on credit card dues

a.During these difficult times, many banks and credit card companies in the US are offering temporary relief and assistance to those customers who have huge credit card dues or are facing financial challenges

b.The Bank of America has taken the initiative to work on a “case-by-case” basis and allow its customers to stop making the credit card payments, mortgages, small business loans, and even auto loans. This relief would not be hurting the credit score of the customer but they will have to make the payments gradually.

c.The customer can contact the bank authorities personally and discuss his issues. Discussions can be made on matters related to the elimination of monthly maintenance fees, overdraft fees, late payment fees, waiver of interest charges, increase in the credit card limit, etc.

d.Similarly, many other banks American Express, Ally, Capital One, Wells Fargo, Citibank, etc. are also encouraging their customers to contact them for financial assistance. Various provisions like lowering of interest rates temporarily, removal of late payment fees, lowering of monthly payments, no charge for overdraft fees, deferral of payments, forbearance programs, fee waiver for monthly services, etc. can be availed by the customers who are facing financial hardships.

e.Financial institutions can also offer their customers with other options for financial assistance like a reference for a low-interest personal loan, 0% APR balance transfer credit card, suggestions for use of emergency funds, community assistance programs, etc.

Change in tax laws

a. The Federal Government has extended the deadline for federal income tax return filing and tax payment which was due on 15th April 2020 to 15th July 2020.

b. The State Governments in different States have also extended their tax deadlines with alignment to that of the Federal Government. Different states have also taken additional initiatives for reducing the stress of Americans due to State taxes.

c.The deadline for making the quarterly estimated tax payments for the first quarter and the second quarter which were due on 15th April 2020 and 15th June 2020 respectively have been extended to 15th July 2020.

d.Moreover, the deadline for making contributions to the IRA, HSA, and MSA has also been extended to 15th July 2020.

e.Under the CARES Act passed by the Federal Government, various provisions such as Stimulus payments paid leaves, Student debt relief, etc. would help in alleviating the stress of the Americans caused due to COVID-19. The Stimulus payments are the most important amongst these which ensures a one-time payment to be received by the Americans based on their 2019/2018 federal income tax returns and their Adjusted Gross Income (AGI).

Hence, the extension in tax dates by the IRS has given the common people sufficient time to make arrangements for the finances. At the same time, the relief made available on the credit card dues would allow the Americans to save some considerable amount of money and thus, make their payment of taxes according to the extended deadlines.

References

How can the pandemic affect my taxation as an NRI in the US?

by Mounica Kota | Apr 21, 2020 | coronavirus, HSA, IRA, Stimulus payment, Tax Extension, Taxation

How can the pandemic affect my taxation as an NRI in the US?

The impact of the pandemic COVID-19 is on an increase across the entire world. Currently, more than 2 million people have been affected by COVID-19 out of which 1.7 lakhs have already died. taxation as an NRI in the United States has also experienced a very rapid spread of the coronavirus with the number of affected people being 7.5 lakhs approximately whereas the deaths due to COVID-19 have reached 40 thousand persons.

Not only the lives of the people in the US are being affected due to COVID-19, but there has also been a hugely adverse effect on the livelihoods of common people. Several businesses have closed down leading to many people including NRIs losing their jobs. However, the Federal Government has implemented several changes in the tax laws for the NRIs intending to reduce the stress in such troublesome times.

Changes in tax laws for NRIs

a.Deadline extension for filing tax returns

The IRS and the US Treasury had declared that the deadline to file for individual federal income tax return has been extended to 15th July 2020. For this extension of 90 days provided by the IRS, there would not be any penalties charged by the IRS.

b.Deadline extension for tax payment

The deadline for making the federal income tax payment has also been pushed to 15th July 2020. This means if an NRI has tax to be paid this season then there is ample time to make the payments. For providing this extension in the timeline for tax payment, the IRS will not be charging any penalties. Moreover, this deadline extension is also applicable for the first quarter payment of estimated tax payments which were due on 15th April 2020.

c.No necessity for additional forms

An NRI would not need to file for a tax extension to avail of the extended deadline for federal income tax return filing and federal income tax payment as well. However, if an NRI thinks that he would not be able to file the tax returns or pay the taxes even after 3 months then he would have to file for an extension by 15th July 2020.

d.Deadline extension for quarterly estimated tax payment

For the self-employed NRIs who had their quarterly estimated tax payment due on 15th April 2020 and 15th, June 2020 would obtain an extension for the payment till 15th July 2020.

e.Changes in the deadlines for payment of State Tax

In general, the deadlines for filing federal tax returns and payment of federal tax are different from that of the State tax. However, due to the outbreak of COVID-19 the deadlines for Federal tax returns and tax payment had been extended. Most of the States have aligned their tax payment deadlines with that of the new Federal deadline. Some states have defined their guidelines for the payment of tax and deadlines. Complete information on the State tax-related changes and deadlines can be obtained from the respective State tax agencies.

f.Deadline extension for contributions to be made into IRA, HSA, and MSA

Along with the extension in the deadline of Federal taxes, there has been an extension in the deadlines for making contributions to the IRA, HSA, and MSA. The deadline for contributing to the IRA, HSA, and MSA has been extended to 15th July 2020. However, in the case of IRA, the NRI must ensure that when he is making the additional contribution towards the IRA the custodian should earmark the additional contribution for the year 2019 and not consider it as 2020 return.

g.Stimulus Payments

Under the Coronavirus Aid Relief and Economic Security (CARES) Act, the Federal Government has announced the process of one-time payments to be sent in the form of Stimulus payments. These Stimulus payments would mainly depend on the filing of tax returns for 2019 and the Adjusted Gross Income (AGI) of an NRI.

NRIs filing tax returns as single filers and having an AGI below $75,000 would obtain $1200 as Stimulus payment. When the AGI is above $75,000 then the amount obtained reduces by $5 for every $100 increase in the AGI above $75,000. NRIs filing tax returns jointly as married couples and having an AGI below $150,000 would receive $2400 as Stimulus payment. If the AGI exceeds $150,000 then the Stimulus payment received would reduce by $5 for every $100 increase in the AGI above $150,000. In both cases, an additional $500 can be obtained if the filer claims a dependent below the age of 17 years.

However, along with these changes being implemented in the tax laws, the IRS is also processing the tax returns according to the normal procedures. So, it is advisable for the NRIs also to file their tax returns soon if they have not done it yet and obtain their refunds.

References

Extended Timeline For US Tax Filing

by Mounica Kota | Mar 27, 2020 | 401(k), COVID - 19, income tax, IRA, IRS, refund due, Tax Break, tax deductions, Tax Extension, tax filing, Tax Payers, Tax Planning, Tax Refund, Taxation

Extended Timeline For US Tax Filing

While the entire world is struggling to combat the effects of the dreadful COVID-19, the US Government has come up with new initiatives to provide some relief to the public who are paying the taxes. The Treasury Department in the US and the IRS have jointly announced last week that the US Government is extending the tax –filing deadline to 15th July 2020. This decision has been taken by the US Government to give the taxpayers extra time to handle their taxes amidst the outbreak of COVID-19.

The COVID-19 outbreak was declared as a National emergency last week by the President of the US. Also, the President had invoked the Stafford Act which gives him the power to mobilize the federal resources. The taxpayers would get an additional period of 90 days for filing their taxes and the IRS will not charge any interest or penalty for this time extension. However, for those taxpayers of the country who have already filed their taxes this year would not be affected in any means by these changes made.

File Tax Sooner If A Refund Is Due

Even though the US Government has extended the timeline, those taxpayers who don’t owe any money to the IRS can consider filing their tax by the original deadline of 15th April 2020. This would be wiser as the taxpayers would be able to collect their refunds sooner. This would be very helpful for those citizens who have already started seeing their economic condition and earnings being affected by the outbreak of the pandemic COVID-19.

Moreover, it is just that the Federal Government has provided this extension in tax filing but different states in the country have formulated different guidelines concerning the tax filing extension. It is advisable for those taxpayers who are planning to delay their federal taxes to understand in detail about the tax filing extension that their State Governments are offering as well.

The Due Date For Tax Filing In Case Of An Extension

There might be some taxpayers who may be concerned about their ability to pay the taxes even by 15th July 2020 due to the loss of a job or other financial issues related to the outbreak of COVID-19. These taxpayers can contact the IRS and discuss their options. The IRS has short-term and long-term payment plans which would help the taxpayers to pay their taxes conveniently. Short-term plans would give taxpayers around 120 days to pay the taxes whereas long-term plans taxes can be paid in installments over several months.

Earlier, when the tax filing deadline was 15th April and a taxpayer who would get an extension will not have to file his tax returns till October. However, now with the IRS pushing the tax filings date to 15th July 2020, it is quite not sure how long the taxpayers would be able to get if he is filing for an extension. But with the various options made available by the IRS, it is quite sure that taxpayers would have some relief.

Deadline For Quarterly Estimated Tax Payments

Many people are required to make quarterly estimated tax payments to the IRS in case of their income not being subject to the taxes of payroll withholding. This estimated tax payment is made by the division of the year into four payment periods with each period having its payment due date. Now, since IRS has extended the timeline for filing the taxes to 15th July 2020 it is quite uncertain that what would be the impacts upon the deadline of quarterly estimated tax payments.

Some Important Steps To Consider Before The Previous Deadline

Filing of 2017 tax return

If there is a refund due of the year 2017 for a taxpayer and the tax return has not been filed, then it must be filed by 15th April through the Form 1040 or Form 1040-SR to claim the money failing which IRS would keep the money.

Max out 401(k) by 31st December 2020

The contributions made towards the traditional 401(K) help in reducing the total taxable income of an individual. Many employers also contribute to the savings made by an individual; so, if there is enough contribution made then there are opportunities to obtain some money as well.

Contribution towards IRA and HSA

The contributions which are made to an IRA and HSA are eligible for a tax deduction. This contribution must be done by the April deadline every year. Now, even though the tax filing deadline has been extended to 15th July 2020 there have been no announcements made on the deadline for IRA or HSA contributions. So, it is advisable to accomplish this task by the April deadline to avoid any further hassles.

Conclusion

Hence, with the global economy coming to a standstill and numerous lives being affected due to the pandemic COVID-19, this action by the US Government is applauding. This would reduce a lot of pressure on those expecting to owe money to the US Government. However, if there is a refund expected then it must be claimed immediately so that the cash can be utilized during this period of emergency.

References

https://www.fool.com/taxes/2020/03/24/the-tax-deadline-has-been-extended-should-you-wait.aspx

https://www.cpapracticeadvisor.com/tax-compliance/news/21130318/irs-extends-2020-income-tax-filing-deadline-to-july-15

https://www.usatoday.com/story/money/2020/03/20/taxes-2020-irs-delay-april-15-tax-filing-deadline-july-15/2883840001/

https://www.cpapracticeadvisor.com/tax-compliance/news/21129714/when-is-the-new-irs-tax-filing-deadline-for-2020-coronavirus-delay

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/important-tax-deadlines-dates/L7Rn92V1d

https://www.nerdwallet.com/blog/taxes/april-deadline-taxes/

How business entities would obtain benefits from the suspension of tax compliance programs by the IRS?

by Mounica Kota | Mar 25, 2020 | COVID - 19, Deduction & Credits, global income tax, Investment & Income, IRS, Tax Break, Tax compliance, Tax credits, tax deadline, Tax Extension, tax filing, Tax implications, Tax Payers, tax return, Taxation, US Government

How business entities would obtain benefits from

the suspension of tax compliance programs by the IRS?

Tax Compliance programs by the IRS has been taking a series of steps related to tax legislation as an effort to alleviate the stress common people are facing due to the outbreak of COVID-19. The rapidly spreading COVID-19 has led to the reduction in sales, slowdown of businesses, people being laid off from their jobs and huge economic adversities. In such a chaotic situation, the IRS’s initiatives on the suspension of tax compliance would act as a boon for the taxpayers, especially for the business entities.

How business entities would obtain benefits from the suspension of tax compliance programs by the IRS.One such major initiative taken by the IRS is the implementation of the “People First Initiative” which would help in providing relaxation to those business entities who are facing uncertainties related to their taxes.

People First Initiative

The People First Initiative includes the postponement of certain payments that are associated with the installment agreements and offers in compromise.According to IRS, these measures included under the People First Initiative would start from 1st April 2020 onwards and would continue up to July 2020.The major changes which have been included in the People First Initiative are the postponement of the payments which are related to the Installment Agreements, the Offers in compromise, Audits, and other enforcement activities.

Installment Agreements

The IRS has announced that it has suspended the existing installment agreements that were due in between 1st April and 15th July 2020. Those taxpayers who are not able to comply with the terms of the installment agreement can suspend their payments due during this period. The IRS would also not consider any installment agreement of this period as a defaulter. However, the interest would be accruing on the unpaid balances.

Also, the IRS has made provisions by which taxpayers either individuals or business entities who would not be able to make payment for their federal taxes can take the help of the monthly payment agreement by the IRS.

Offers in Compromise (OIC)

The taxpayers who have pending OIC can provide additional information for support till 15th July 2020. Without the consent from taxpayers, IRS would not be closing any OIC which is pending before 15th July 2020.
Taxpayers who have accepted OICs can suspend their payments until 15th July 2020. However, interest would be levied on the accrued balances which are unpaid.

3.Those taxpayers who are delinquent in the filing of their tax return for the year 2018, the IRS would not issue an OIC as a defaulter for them.

4.Any delinquent returns of the tax year 2018 must be filed by the taxpayers either before or on 15th July 2020.

Automated Liens

and

Levies

According to the regulations of the IRS, no new automatic liens and levies would be carried out till 15th July 2020.

Activities related

to field collection

All activities related to liens, levies and any seizures associated with a personal residence that are initiated by the field revenue officers will be suspended till 15th July 2020.
The field revenue officers will, however, continue to perform seizures and similar activities for high-income non-filers whenever needed.

Passport Certifications to the State Government and Private Debt Collection

For the seriously delinquent taxpayers, the IRS would provide Passport certifications to the State Government. This procedure has been suspended currently till 15th July 2020.
Moreover, new delinquent accounts will also not be forwarded by the IRS to the other private collection agencies for working on them until 15th July 2020.

Field, Office and other correspondence audits

Any in-person field, office or correspondence audits will not be carried on till 15th July 2020. There can be audits or examinations remotely by the examiners of the IRS. Taxpayers should also co-operate with the IRS and provide all information that is requested for faster tax processing.
There might be some situations in which the taxpayers might be interested in the examination or audit. If the audit or examination is beneficial for the parties and the required IRS personnel are available then the audits/examination can start.

Refund claims

The IRS would continue to work on the processing of the refund claims without making any in-person contact.

Earned Income Tax Credit and

Wage Verification Reviews

The taxpayers have time till 15th July 2020 for responding to the IRS that whether they qualify for the EITC or their income has to be verified.
Through 15th July 2020, taxpayers will not be denied these credits if they have a failure in providing the requested information.

Independent Office of appeals

The Office of appeals would be continuing to work on their cases. There might be a conference which would be held by telephone or through videoconferencing. For all the cases of the Independent Office of appeals, the taxpayers should promptly respond to any request made for information.

Statute of limitations

There would no disruption in the protection of the statute limitations by the IRS. The taxpayers are encouraged to co-operate with the IRS in extending those statutes whose expirations may be jeopardized. Otherwise, notes of deficiency would be issued by the IRS to protect the interests of the Government in the preservation of these statutes.

Conclusion

Hence, with these several changes being implemented by the IRS in the tax regulation the plight of the individual taxpayers and business entities would reduce by a considerable amount. With these tax relaxations and suspensions, business entities are sure to cope up with the losses that have been incurred due to the outbreak of COVID-19.

References

https://tax.thomsonreuters.com/news/irs-suspends-certain-compliance-programs-due-to-covid-19/

https://www.forbes.com/sites/kellyphillipserb/2020/03/25/irs-will-ease-tax-payment-guidelines–limit-collections-activities-during-covid-19-crisis/#5a8cdb9c4dca

https://www.forbes.com/sites/robertwood/2020/03/25/irs-eases-installments-due-slows-audits-sweeping-relief-puts-people-first/#2eb525c93855

https://www.accountingtoday.com/news/irs-suspends-key-tax-compliance-and-enforcement-programs-to-adjust-covid-19-effort