0

Retiring in India— A shattered dream due to changes in tax laws

RANVIR MOHINDRA

Many people of Indian origin have dreamed about spending more time in India after they retire. Under the changes taking place in the U.S. and Indian tax laws, this dream may result in much higher taxes (sometimes more than double).

To understand all the changes that have taken place recently, as well as the severe civil and criminal penalties for non compliance, we are providing a quick snapshot in this article. This is not to be taken as tax or legal advice, but intended to guide readers on the relevant issues.

1. Tax coordination between US and India

Both countries have agreed on reporting of tax information to each other. Points of interest include:

  • The United States requires each U.S. citizen or permanent resident to report worldwide income. This includes reporting of foreign financial assets in excess of $10,000.
  • The foreign financial assets have to be reported annually on a form known as FBAR.
  • The foreign income has to be reported in the normal income tax filings on the Form 1040.
  • Special attention has to be paid to completing form 8938.
  • The penalties for not reporting are from 5% to over 100% of your foreign assets and may include criminal penalties.
  • Sometimes, people think that the U.S. government cannot find out about your foreign assets. This has also changed. Banks and financial institutions in India are required to report your earnings to the IRS under the FATCA (foreign account tax compliance act).
  • Once this information is reported, you may receive a letter from the IRS. There are severe penalties for every day that you do not respond.

2. Residency and taxation in India

The Indian government will normally tax foreign citizens only on income in India. However, this changes when you become a resident in India. In such a case, you will be taxed on your worldwide income.

Most people think that if you stay in India for less than half the year (182 days) you are not a resident. This may not be true. India has multiple tests that determine residency. In many cases, you will be deemed to be an Indian resident if you stay for more than 360 days over a four-year period. As a consequence of becoming an Indian resident is that your total tax bill may more than double. This is in spite of the double-taxation treaty between the two countries.

Take the example of a senior couple with a gross income of $100,000 per year. After personal exemptions and deductions, their taxable income would be about $75,000, resulting in a Federal Income Tax between $10,000-11,000 per year.

If they are also deemed to be residents of India, their taxable income in India would be above $22,000 per year. Under this situation, the couple would pay $11,000 to the U.S. treasury and an additional $11,000 to the Indian treasury.

3. Selling property in India

If an NRI sells property in India, the withholding of taxes is much higher than what is required for Indian citizens. In most cases, the buyer has to withhold and deposit up to 30.6% of the sales price. For Indian citizens, this requirement is only 1%. You are told that you can get the refund from the Income tax department, but that is very cumbersome. There are proactive ways to avoid this situation from happening to you.

4. Taxation of ancestral inherited or gifted property in India

If you inherit a property in India, you are required to pay normal capital gains in taxes. These gains are calculated as the difference in sales price minus the indexed cost price of the property. However you could have a big windfall under the U.S. tax laws.

In the U.S., the profit for inherited or gifted property is calculated as the difference in sales price and the stepped up cost basis of the market value of the property on the date of inheritance (or gifting). This treatment could result in a windfall of many thousands of dollars and the refund comes from the U.S. treasury and/or is given as a lifetime foreign tax credit.

5. Investing in India

Interest rates are higher in India, but so is the rate of inflation. If you keep money in a NRE account in India, there are no taxes to be paid in India, but they must be paid in the U.S. The same thing is true for capital gains and dividends in India. No taxes are due in India, but they must be paid in the U.S. With the coordination of taxes between the two countries, there is no possibility of avoiding these taxes. Also, many institutions will not accept investments from U.S. citizens because of the cumbersome reporting requirements.

I hope this article provides a brief summary of the new rules on income and taxes that have emerged. We will be covering some of these issues in greater detail in future issues. If you need additional information, please feel free to contact us for a no-obligation, initial review of your individual situation.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com

0

Why are FBAR and FATCA important to your financial health?

RANVIR MOHINDRA

We all know that knowing your blood pressure, cholesterol and A1-C numbers are vital to your health and well being. You could live a long life without knowing these numbers, but that is only because you are lucky and not because you are wise. In today’s complex world, it is very important to understand FBAR and FATCA. These are vital for your financial health and well being.

What is FBAR?

The United States government requires all U.S. Citizens and Permanent Residents to declare their Foreign Financial Assets on an annual basis. This information is collected by the Internal Revenue Service and Department of Homeland Security. The reporting threshold is a total of $10,000 that is held in foreign banks and securities (such as mutual funds and bonds). This information is to be reported annually on a form also known as Fin.Cen.

Many people of India Origin have not complied with this law and now face severe civil and criminal penalties. The penalties used to be 27.5% to over 100% of the value of the assets, but now there is a special amnesty program that reduces the penalty to 5%. There are, however, special conditions that must be met to qualify for this amnesty. The most important aspect is to prove that your neglect to comply was not willful (intentional).

What is FATCA ?

Since many people did not comply with the reporting requirement outlined above, the U.S. government passed a law that required the financial institutions to report your holdings directly to the Internal Revenue Service. This law was passed in 2014 and is known as FATCA (Foreign Account Tax compliance Act). If the IRS contacts you because they have received information from your bank or financial institution, you are generally in deep trouble. There is a fine for every day that you do not respond to the IRS letter. Further, if your bank in India does not comply with the IRS, it may be placed on a dirty banks list, which has bad consequence for the bank.

What is Form 8938?

This is a part of your Schedule B on the annual 1040 reporting of your annual taxes to the IRS. On this form, you are required to report any income received in a foreign country. All interest in NRO, NRE and savings accounts in India must be reported. All dividends and Capital gains must be reported, both from sale of securities and real property. If you own any real estate that produces income, that income must be reported.

What must be done if you are delinquent?

The main thing is to act quickly. The penalties are much lower if you report this information vs. if the IRS contact you. The actual actions vary depending on the facts of the individual situation.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com

0

Pros And Cons Of Retiring In India

mts_nov162016

MTS Golden Group members in Pearland TX listen with interest to Ranvir “Biki” Mohindra’s (right) presentation on retiring in India.

Wed, Nov 16, 2016

PEARLAND – Many seniors have thought about spending their retirement years in India. How practical is it in view of the changing tax policies of both the United States and India?

 A presentation on this topic was made by Ranvir “Biki” Mohindra, founder and principal of NRI Tax & Wealth Advisors on Sunday, November 13 afternoon before the Meenakshi Temple Society’s Golden Group, an organization of seniors and soon-to-be seniors.

 About 20 members of the Golden Group attended the presentation.

 After an introduction by Convener Ramamurthy Ramsunder, Mohindra explained the advantages and disadvantages of retiring in India. Among the advantages Mohindra cited were possible low cost of living, availability of domestic servants and drivers, religion and spirituality and high rates of return on bank accounts.

 As Mohindra explained it, each of these advantages has a built-in disadvantage.

 “It takes me a week to recover from visiting a temple in India,” Mohindra explained.

 “I would rather go to a temple in the U.S., such as the Meenakshi temple here.”

 Specific disadvantages Mohindra mentioned were not being close to children and grandchildren, traffic and urban congestion, cleanliness and sanitation, potential currency devaluation and demonetization, bureaucratic red tape (PAN, ADHAR cards, filing taxes) and corruption in daily life.

 Mohindra explained a Catch 22 situation regarding PAN and ADHAR cards.

 “You have to have proof of residency such as a utility or bank account to obtain a PAN card, but in order to set up a utility connection or a bank account, you have to have a PAN card,” explained Mohindra.

 There’s corruption in daily life, Mohindra explained.

 “If a utility bill is due on the 20th, you invariably get it on the 25th or later,” he explained.

 “As a result, your payment is always delinquent. To fix the delinquency, you have to pay a small bribe to the clerk. With the Modi government’s war against corruption, the government servants are asking for double the amount, in case of getting caught.”

 The biggest hurdles to retiring in India are residency tests and taxation both in U.S. and India.

 “Because of its one-year and four-year tests, you are in danger of being categorized as a resident if you stay past 90 days in a year. As an Indian resident, you could liable for paying global income taxes to both U.S. and India. A senior couple with $100K income could end up paying $11,000 to the U.S. government and another $11,000 to the Indian government.”

 Mohindra did identify Auroville in Pondicherry as a desirable retirement community in India and explained a possible loophole in getting a sizeable tax credit from the U.S. government for selling ancestral property in India.

 Mr. Mohindra is currently writing a series of articles on NRI taxes and generating wealth in India in India Herald.

This article was originally printed in India Herald.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com

Golden Group members in Pearland TX listen with interest to Ranvir “Biki” Mohindra’s (right) presentation on retiring in India.

Wed, Nov 16, 2016

PEARLAND – Many seniors have thought about spending their retirement years in India. How practical is it in view of the changing tax policies of both the United States and India?

 A presentation on this topic was made by Ranvir “Biki” Mohindra, founder and principal of NRI Tax & Wealth Advisors on Sunday, November 13 afternoon before the Meenakshi Temple Society’s Golden Group, an organization of seniors and soon-to-be seniors.

 About 20 members of the Golden Group attended the presentation.

 After an introduction by Convener Ramamurthy Ramsunder, Mohindra explained the advantages and disadvantages of retiring in India. Among the advantages Mohindra cited were possible low cost of living, availability of domestic servants and drivers, religion and spirituality and high rates of return on bank accounts.

 As Mohindra explained it, each of these advantages has a built-in disadvantage.

 “It takes me a week to recover from visiting a temple in India,” Mohindra explained.

 “I would rather go to a temple in the U.S., such as the Meenakshi temple here.”

 Specific disadvantages Mohindra mentioned were not being close to children and grandchildren, traffic and urban congestion, cleanliness and sanitation, potential currency devaluation and demonetization, bureaucratic red tape (PAN, ADHAR cards, filing taxes) and corruption in daily life.

 Mohindra explained a Catch 22 situation regarding PAN and ADHAR cards.

 “You have to have proof of residency such as a utility or bank account to obtain a PAN card, but in order to set up a utility connection or a bank account, you have to have a PAN card,” explained Mohindra.

 There’s corruption in daily life, Mohindra explained.

 “If a utility bill is due on the 20th, you invariably get it on the 25th or later,” he explained.

 “As a result, your payment is always delinquent. To fix the delinquency, you have to pay a small bribe to the clerk. With the Modi government’s war against corruption, the government servants are asking for double the amount, in case of getting caught.”

 The biggest hurdles to retiring in India are residency tests and taxation both in U.S. and India.

 “Because of its one-year and four-year tests, you are in danger of being categorized as a resident if you stay past 90 days in a year. As an Indian resident, you could liable for paying global income taxes to both U.S. and India. A senior couple with $100K income could end up paying $11,000 to the U.S. government and another $11,000 to the Indian government.”

 Mohindra did identify Auroville in Pondicherry as a desirable retirement community in India and explained a possible loophole in getting a sizeable tax credit from the U.S. government for selling ancestral property in India.

 Mr. Mohindra is currently writing a series of articles on NRI taxes and generating wealth in India in India Herald.

This article was originally printed in India Herald.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com

0

What are successes and failures of Demonetization?

demonetization

RANVIR MOHINDRA

There are many people who are giving strong opinions about the success or failure of the recent Demonetization in India. The Government will have you believe one way and the Opposition parties in the opposite way. To answer this complex issue question in a more practical and less political way, I think it is prudent to examine the question itself.

The purpose of Demonetization was multi-fold. So, it is very possible that some of these objectives were achieved more fully while there was partial success in other. I am going to examine each question in order of priority.

Q1. Is black money coming out of hiding?

Most certainly it is, as more money is being deposited than expected. Of the 15.4 lac crores. of the Rs.500 and Rs.1000 denomination bills, it was expected that about 80-85% would come back and the balance would be a credit to the treasury. Now, it appears that above 90% may come back by December 31, and this number could be higher by the final date of the new amnesty program, which is due to expire on March 31, 2017.

 

Q2. Is Demonetization a good thing or a bad thing?

It is both, but the positives outweigh the negatives. Higher the amount of black money that comes back, smaller the credit to the treasury. That is a loss, but at least the money is back in circulation. This is expected to lower the interest rates.

Q3. Was the demonetization well executed ?

The execution could have been better, but it was difficult to balance the need of secrecy and the planning for the implementation without bringing too many people into confidence. The long lines, shortage of cash and the tragedies of people dying waiting in line are regrettable.

Q4. What are the real, long-term benefits of Demonetization?

It is a fresh start,sort of like wiping the slate clean. Now, the people have a chance to decide their future. They can go back to the old ways of not paying taxes and hiding money, or living in a fair society where everybody pays their fair share of taxes. This will allow more resources in the hands of the Government to build a stronger country. Whichever party is in power, the government will be able to do a better job of growing the economy.

Q5. Will the cashless economy work?

It will be difficult, because old habits are hard to break. Nevertheless, there are signs of employers directly depositing salaries into bank accounts and retailers and consumers switching to electronic payments. The PayTM scheme of electronic transactions is becoming popular.

Q6. What is the latest amnesty program?

People have until March 31, 2017 to deposit their cash and request the amnesty. They will have to pay 50% in tax. Of the balance 50%, half will be held in a no interest account for four years. The balance (25% of the total) will be available immediately.

Q7. Will there be any criminal penalties?

As long as the people come forward voluntarily, there will not be any criminal penalties. However there have been weekly changes in the plans, so this too may change.

Q8. How long will it take for things to become normal?

There will be many stages. First, there must be sufficient amount of cash in circulation. This is expected to happen in January or February of 2017.  This will ease the day-to-day burden of holding cash for small transactions. But the cash-less economy will take a longer time and will be hard to implement outside the urban areas.

Q9. For NRIs, will U.S.-origin ATM cards work in India.?

Your credit cards will work, but there is a high transaction fee. The transactions also take an extended time for approval. A local card is a necessity. It takes your bank almost two weeks to issue the cards, so apply as soon as you can.

Q10. Was all the grief of Demonetization justified?

We will never fully know, but it was a very brave move and I support the Government in its efforts to usher India into the new, white and electronic era. The burden on the poor man is great. Lives were lost. Such hardships are difficult to justify. I hope they will put some serious efforts into teaching people how to live in the emerging financial system.

Q11. Have real estate prices dropped. Is this a good time to buy or sell?

The prices have dropped significantly. There are many sellers and few buyers. The market is not stable. People expect a direction in the market in about 3-6 months. However, there is as much of a chance that property values may decline further before they rise. We can give you a better assessment of the financial environment after March 31,2017, when the new amnesty is over.

If you are planning a trip to India, please make sure you have sufficient small bills to pay for a taxi to get to your home or hotel. We standby to answer any questions. Please call me at 713-805-0915 with any questions.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com

0

Understanding The Twin Financial Revolution In India

twinfinrevolution

RANVIR MOHINDRA

There is a twin financial revolution taking place in India. The first is Demonetization and the second is the General Sales Tax (GST).

No country can operate without being able to raise adequate taxes. The fall of innumerable nations is directly related to their inability to raise adequate taxes. The reasons may have been varied, but the result was the same. This is a sad truism.

Understanding fair taxation.

In India, the dilemma is that the tax base is very small, somewhere between 2-3% of the population Since majority of the economic transactions are based on cash, there is no opportunity for taxation. If India is going to become a major player in global affairs, and have a strong future, there must be a fair taxation system with substantial tax revenues accumulating in the national treasury.

The Modi government believes that India must transition to a cashless economy and a fair tax system must be put in place.

The first leg of this system is the General Sales Tax (GST). By having a uniform tax, the wastage in time, energy and graft taking place, as products and services move from one state to another, will be largely eliminated.

The second leg of the financial revolution is that by moving to documented transactions (to replace cash transactions), the resulting transparency will allow fair and more comprehensive taxation.

This is one major reason for the currency demonetization. The other reasons are to deal with counterfeiting and black money that is sitting idle that does not incur taxes nor enter the economy to provide national growth.

Most people in India seem to understand this dilemma and support the current set of solutions. The problems seem to be on the pain of this transition and the fairness issue. Since many people have legitimate cash holdings, they are lumped with people who do not.

The Government is sensitive to this issue and is constantly reviewing its policies to make it more fair to all. I was told that there have been over 100 amendments during the last month to make the system fair.

Understanding demonetization

How does one understand demonetization in India?

Here are some basic statistics.

Total currency in circulation in India was around $250-260 billion.

High value notes of Rs.500 and Rs.1000 denomination were 86% or about $220-230 billion (Rs.15.4 lakh crores)

About 85-90% of the currency is expected to come back. The balance 10-15% will disappear and act as a credit to the system.

NRO banking

An individual is able to withdraw Rs.2500 per day or Rs.24,000 per week. The problem is that there is an acute shortage of Rs.500 rupee notes and the Rs.2000 notes are hard to use in most transactions.

The small denomination notes are in very high demand and not readily available. There are daily struggles at the banks to get cash.

It is no longer possible to exchange of old currency at the banks, but these notes may be deposited into your NRO accounts. Checks may be written freely against your balance; however, you must be prepared to explain where you got the cash.

The paperwork associated with the deposit of old notes into your NRO account can take up as much as 1.5 hours. So, it helps to have a pleasant attitude and a friendly bank clerk. Arguing and showing frustration with the long-suffering bank employees will not serve your cause.

Please carry all your documents – U.S. passport, OCI card, bank statements, bank checks, etc. Senior citizens and foreign account holders are able to jump ahead of the long lines at the bank offices. On the other hand, if you happen to collapse and die in the line, the UP government will grant Rs.300,000 to your survivors.

There seems to some confusion on whether the threshold of explanation starts at Rs.200,000 or Rs.250,000 per person.

There is a final deposit date of December 31, 2016 for all Indians, though there may be opportunities for NRI’s to deposit at certain locations up to March, 31. 2017.

There is an amnesty proposed for high, unexplained deposits. The current proposal is 50% of the unexplained deposit goes to tax and 50% of the balance (25% of the total) will be withheld for 4 years at no interest. The remaining 25% will be available to the depositor. However, you must make a self-declaration, asking for the amnesty.

These proposals are under constant review and revision, so they may change at any time. If you plan to make a trip to India, please be updated so you do not have cash problems.

____________________

A resident of Texas for over 40 years, Ranvir Mohindra has been involved with many issues that are relevant to the South Asian community living in the United States. Whether you have money in India that you did not report or have inherited an ancestral property, there are new rules of compliance. Mr. Mohindra’s expertise is built on personal experiences and access to tax and legal professionals, both in Houston and in India, who can provide additional support to bring you in compliance and protect your assets. He can be reached at 713-805-0915 or nritax.wealth@gmail.com