NRIs and FATCA- Do's and Dont's

Fatca has finally become a reality for NRIs resident in the US. The CAs, lawyers, law firms, media all writing and giving lot of information and articles on how it is going to impact the NRIs. Without going into the details of Fatca, it would be sufficient to list out the Dos and Don’ts for NRIs living in USA to help them in understanding the implications of FATCA.

Dos:

·         Disclosure of income earned in India to IRS as per the prevalent schemes in the US

·         Different types of incomes as stated in earlier posts here and here , will either continued to be taxable in both the countries or in one of them depending on the nature of the income.

·         NRIs having income in India should pay tax on it in India and file income tax return in India. At the same time, this income should be disclosed to the US IRS and tax paid on it in the US after taking credit for the tax paid in India.

·         To disclose the world-wide income to IRS.

·         Provide Form W 9 to Indian financial institutions with which any financial account is held. If the Form W 9 is not submitted your account will be closed by the FI.

Don’ts:

·         Do not sell any asset whether real estate or financial held in India.

·         There is no need to surrender either the Green Card or the US citizenship except those who do not want to pay their taxes in respective countries.

·         There is no point in closing the financial accounts now, since the first information flow deadline is already passed. Further, any financial account closed now will not help since the information as on the date of the account closure will be passed on to IRS.

·         The income earned in US is not to be disclosed to Indian tax authorities and is not taxable in India.

·         There is no change in the income tax regulations of USA nor the DTAA between India and USA. 

Please contact ruchira@preyorri.com for all your FATCA related querries. 

Non-Resident Indians (NRIs), FATCA and FBAR

Every non-resident Indian (NRI) resident in United States of America (US or USA) has an obligation to timely file true and accurate returns and forms to IRS. Any non-compliance may invite penalties or even criminal prosecution.

To give effect to FATCA, Indian financial institutions will either seek self-certification from the NRIs about their status. In case the NRIs have US indicia, the institutions will ask them to provide Form W - 9 which apart from other details have provision for disclosing US TIN. All these details will be reported by the financial institution to Indian tax authorities which will share it with IRS.

The financial institution will also, on an annual basis share the details about the value of the account maintained by NRI as on December 31. Thus, an NRI’s income in India will get reported to IRS by the Indian financial institutions. Since, US follows a world-wide income tax concept and the DTAA between India and US mostly provides for taxation of the income by both the countries, it becomes mandatory to disclose all such income in the income tax return filed with IRS. Of course, it is open to them to off-set the income tax liability in the US by the amount of income tax already paid in India.

American residents are already required to annually file Foreign Bank Accounts Report (FBAR) to the Department of Treasury. FBAR is to be filed when a US person has a financial interest in or signature authority over foreign financial accounts if the aggregate value of the foreign financial accounts exceeds USD 10,000 at any time during the calendar year.  The financial accounts to be reported are bank account, brokerage account, mutual fund, trust or other type of foreign financial account.

It can be seen that there is a self (FBAR) as well as third party (FATCA) reporting for foreign financial accounts. Though the definition of financial account is not the same between the two requirements but there is substantial over-lap. Other differences pertains to the minimum value threshold and the period for which the value shall be reported. At the same time, the two reports can be compared to seek information in case of any difference between the two.

For more details and to know if you are compliant, get in touch at ruchira@thejurisociis.com

Big Push to FDI Reforms in India

The Indian Government has come out with radical reforms to the Foreign Direct Investment (FDI) in order to give a boost to many schemes launched by Prime Minister Narendra Modi since his coming to power in 2014. These schemes are Make in India,Skill India, and in the pipeline are Startup India. Another reason for these changes in FDI reforms can also be linked to the poor show by the BJP in the recently held elections in Bihar. The detractors may term the timings of these reforms as to take away the attention of the people from the shameful defeat of Modi government in BJP and toward the much-needed economic reforms. The people of India have started to be disillusioned by the policies of the Modi government and the communal tensions and disharmony in the society off late, and the push in FDI is the much-needed distraction the Modi government needs at the moment.

The Government has announced opening of the following 15 sectors with either increasing the investment limits in the sectors or putting these sectors in automatic route rather than in the approval route. The following sectors have been opened up:- 

• Investment in private banking – Foreign Institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs)/Qualified Foreign Investors (QFIs) can now invest upto 74%
• Cable TV networks – 100% FDI is allowed with upto 49% under automatic route
• DTH TV - 100% FDI is allowed with upto 49% under automatic route
• Plantations of coffee/rubber/cardamom/palm oil – 100% FDI under automatic route
• FM Radio – upto 49% under approval route
• News/current affairs TV Channels – upto 49% with government approval
• Non-news TV Channels – 100% FDI without prior approval, that is, under automatic route
• Duty-free shops – 100% FDI under automatic route
• Same Entity for single brand retailing/wholesale – 100% under automatic route
• LLPs – 100% under automatic route
• In the aviation sector, the sectoral cap of 49% without prior approval has been increased to 74% without prior approval for foreign general aviation charter operators and large ground handling companies to set up their own bases in India. The Government has also allowed 49% FDI in regional air transport services thereby giving a boost to its initiative to grow the regional air transport services in India.
• Investment in defence sector has also been eased from 26% earlier to 49% now.
• The construction sector has also been opened up by removing all restrictions on FDI except for a three-year lock in period in select projects.
• The companies owned and  managed by NRIs can now invest in Indian companies.
• Beside opening up the various sectors as above, the Foreign Investment Promotion Board (FIPB) has now been empowered to give single-window clearance to projects worth up to Rs. 50 billion or USD 753 million

There is no doubt that the government appears to be committed to push the economy and the industry has taken these reforms well and in a positive manner. It is to be seen how much these reforms convert into real economic growth.