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Mar 2018

FATCA impact on NRIs property in India

FATCA impact on NRIs property in India

The United States Foreign Accounts Tax Compliance Act is prompting numerous NRIs to sell off their property in India. Such extreme reactions, however, are viewed as premature by the experts. Thus, it is understandable that there is confusion in regards to the impact of the Foreign Account Tax Compliance Act (FATCA) on the non-resident Indian’s property. Numerous non-resident Indians are not sure about what exactly does the reporting needs are. Some of these may not have a clearer understanding of what exactly is FATCA? There are many such questions in mind such as must US NRIs report the Indian property under Foreign Accounts Tax Compliance Act? What are the reporting requirements? How can one avoid the double taxation on the investments? In order to put all the frequent questions to rest, here is some carefully gathered information you need regarding FATCA and hoe will it affect the NRI property in India.

What is FATCA?

It is an abbreviation for Foreign Accounts Tax Compliance Act which is issued by the government of the United States. The US legislation majorly focuses on preventing the tax evasion by the US taxpayers. Numerous people have attempted to evade the taxes by making use of the non-US financial instruments, offshore investments and Foreign Accounts Tax Compliance Act is an attempt to curb this practice. This was the primarily implemented in 2014. Since then, it was slated to be implemented in the financial institutions in the gradual timeline. Numerous non-resident Indians have been selling property in India fearing that they might be questioned on the purchase and because penalties and taxes might be levied on them.

Which kind of assets is subject to the FATCA reporting under from 8938?

Under the Foreign Accounts Tax Compliance Act, certain foreign assets have been reported in the form of 8938. The form is called ‘statement of Specified Foreign Financial Assets’. The assets required to report include-

• All the financial accounts with the Foreign Financial Institutions be it the deposit or the custodial account.
• All foreign hedge funds, mutual funds and partnerships interests held by you in any country other than the United States
• All the policies of the life insurance issued overseas by you, including annuity contracts
• All the securities and the stocks owned by you which are separate from the bank account or any other financial accounts

Which are the Assets not subject to the FATCA reporting?

There are some assets that are not subject to the FATCA reporting under the Form 8938. These include-

• The foreign currency held y you, provided that the currency is not held in any of the financial institutions. Form 8938, however, needs to declare all
the foreign currency if it is held in the financial institution.
• Safety deposit boxes that are held by you in the foreign financial institutions not to be reported as these are not considered assets of the foreign
• Various assets such as antiques, jewelry, art pieces, cars and various other collectibles aren’t required to be reported under FATCA. This is due to
the assets which are not considered foreign financial assets as of now.

What is the effect of FATCA on the properties held in India by US NRIs?

Good news for green card holders and NRIs living in the US is that FATCA cant and will not supersede Double Tax Avoidance Agreement. The treaty signed by USA and India in order to avoid the double taxation should basically protect from having to pay the double taxes on the assets. According to the provisions of the agreement, following rules will still have a hold-

• NRIs or the green card holders who earn incomes on the immovable property in the US will be taxed by US government for the same, completely
based on the US rules and regulations.
• Non-resident Indians ear income on the immovable property in India which will be taxed for same in India provided that income that is earned is
above the minimum slab of tax.

Since the income from property earned in India is not subject to taxation in the US, this certainly should not cause for worry for the non-resident India’s holding property in India.

Should the income from property in India be reported?

Even if you aren’t being taxed for income form the Indian immovable property in the US, you should still declare the income while filing for the tax returns. In case, one has paid the taxes twice for the similar income, there are provisions within the DTAA to ensure that receive tax breaks or tax credits for double taxation.


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