In a Historical turn of events, India has reached FATCA agreement in substance with the USA and has consented to be included in the list of jurisdictions that are treated as having a Inter-Governmental Agreement (IGA) under Model-1 with an effective date of April 11, 2014..…THIS IS HUGE….I have been telling since last 1 year AND FIRST TO POST it on this BLOG as it is NOT in the news yet……
I have seen increased interest in NRIs to understand the Foreign Account Tax Compliance Act (FATCA) rules and regulations of USA. However, very few (less than 5%) of US based NRIs are serious or showing an interest to learn or comply with FATCA. The deadline is approaching very fast, currently June 30, 2014. Believe me, USA is very serious about its implementation. FATCA is here to stay and if NRIs from USA are not prepared now, it is going to hit them before they know it.
I apologize that the blog is twice as long but I wanted to have EVERYTHING – ALL there is to know – about FATCA for NRIs for better understanding and compliance in one blog. You may also refer my other blogs on FATCA for details: FATCA is coming; Start Planning and What to expect from bilateral FATCA Agreement between USA and India.
1. Brief Background/History:
Before you know why FATCA is here to stay or why I think India will sign the FATCA, it is very critical to understand the background/history of the US tax system and the importance of offshore account compliance, FATCA and agreement with India to the USA.
(i) US Tax System: Any income sourced in the USA is reported to IRS and to the tax payer who in turn disclose the same for in his 1040 as his income. Any income that is not sourced in the USA, IRS rely (trust) the residents/citizens to honestly declare the income, source and voluntarily pay the tax. How many do that?
(ii) What if no income?: Now, what if you have $100 million in a Swiss account but not generate any income? To monitor or track such transactions or accounts, Reporting of Foreign Financial Accounts (FBAR) was introduced, wherein you would report your foreign financial accounts if the balance in the account exceeded US $ 10,000. For more on FBAR requirement and compliance, please refer to my three blogs at Understanding and Complying with FBAR, Foreign Financial Accounts-whether reportable and Required Information for compliance with FBAR.
(iii) FBAR penalty: The form TD 90-22.1 (FBAR) is to be filed by June 30 of next year with the Department of Treasury and NO extension is allowed. If you are not sure, file the form and later revise the same but you must file the FBAR form. Also, for non-filing, severe penalty – 50% of balance or $100,000, whichever is higher and criminal prosecution. Also, the penalty is per year. So if you have $1,000,000 in a bank account for 5 years, you would end up paying $2,500,000 in penalty and could also go to jail.
(iv) Non-Filing: Now, if you didn’t know about the requirement or did not comply for say 2-3 years, you may not start complying thereafter. While there is no tax or penalty had you done it from start but because you didn’t, you may think why bother now as the penalty, if caught, is way more than the balance now. On the other hand, while many offshore accounts were presumably open for decades, practical reasons prevented IRS from auditing and collecting unpaid taxes from all of those years.
Furthermore, during the financial crisis of 2008-09 and thereafter, all countries, including USA were trying to increase the revenue. During the period, many money laundering schemes/ scandals were exposed, two mostly publicized being UBS (overall) and HSBC (for NRIs). IRS realized that while the FBAR requirement is there, it is not being implemented so they saw the potential.
(v) UBS and HSBC cases: UBS and HSBC both banks accepted that they were involved in practices of money laundering, intentionally circumventing the laws, or not reporting of accounts or financial transactions. Both banks paid huge fines, promised not to solicit US residents’ investments abroad AND declared information about the account holders to the IRS. Can you believe when I tell you that, the UBS banker, who was one of the accused and went to prison after telling IRS, received US$ 104 million reward, HIGHEST in US History, under the whistleblower program? Just imagine how serious USA is.
(vi) Overseas Voluntary Compliance/Disclosure Program/Initiative (OVCI/ OVDP/OVDI/OVDP): Four Offshore Voluntary disclosure/compliance program/initiatives have been issued by the IRS in 2003, 2009, 2011 and 2012. While the 2003, 2009, and 2011 programs had a specified period to join, the 2012 program is, at present, open ended. The reason for the 2003 program was information shared by promoters who used offshore bank card to access hidden offshore income. The main reason for 2009 program was the summons for UBS Bank and 2011 program was the summons for HSBC and other foreign banks. The reason for 2012 Offshore Voluntary Disclosure Program is the FATCA and increased actions against a number of foreign financial institutions. And, it is a great source of revenue for the USA.
As per the program, US person is to disclose all the foreign financial account and related income, revise all previous years’ tax returns, pay tax, interest, penalty as well as pay FBAR penalty based on the highest balance in foreign financial accounts. While there was no offshore penalty in 2003 program, the offshore penalty on the highest balance was 20%, 25%, 27.5% for 2009, 2011 and 2012 programs respectively.
NRIs, who had not filed FBAR or voluntarily disclosed the foreign assets had to face severe consequences in terms of paying back taxes, huge penalties and also went to jail.
(vii) GAO Report: As per the GAO report of March 2013, IRS has collected about $5.7 Billion from 34,000 delinquent US persons as of December 31, 2012. Out of which $4.1 Billion is from OVDI 2009 and $1.4 Billion from OVDI 2011 programs. As all cases not completed as of December 31,2012 the collection, which already is a significant amount, is expected to increase.
As per the January 6, 2014 GAO letter regarding locations of the foreign bank accounts in OVDP 2009, India has the 10th highest accounts as per the FBAR forms with Switzerland in the top spot with 42% of accounts (UBS is a Swiss bank). With HSBC and India being the main factors for OVDI 2011, India could be in top 3 countries with number of offshore accounts and may be top 5 overall in all the programs. This shows India’s prominence in offshore accounts.
2. FATCA:
Foreign Account Tax Compliance Act (FATCA) was enacted by the US in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by US nationals holding investments in foreign accounts. The objective of FATCA is the Reporting of Foreign Financial Assets (FFA) to IRS.
The reporting objective of Foreign Financial Account under FATCA is two-fold. The US tax payers report foreign financial assets and income in Form 8938 to IRS and Foreign Financial Institutions (FFI) to report certain information to IRS in the same manner any US Financial Institution reports to IRS.
Following the enactment of FATCA, Treasury published the Model Inter Governmental Agreement (IGA) for simplified reporting wherein the country would enter into a FATCA agreement with USA either providing combined information of all FFI (e.g. RBI in India) or allowing respective FFI directly report to IRS (e.g. SBI).
Requirement for Form 8938 was introduced from calendar year 2011 tax return and is required if the US person (filing as Single) has Foreign Financial Assets above US $ 50,000 at year end or US $ 75,000 at any time during the year and US $ 200,000 at year end or US $ 300,000 for individuals living in USA or abroad respectively. The limits are doubled for married filing jointly taxpayers.
FFI reporting to IRS was originally effective from January 1, 2014. Look at the planning…3-4 years in advance. While Form 8938 was effective as planned from calendar year 2011, convincing all other countries having different laws and legal system in different geographies and language, having different culture and banking laws is a unimaginably challenging task. So while it was planned to be effective from January 1, 2014 with pre-existing account analysis date of December 31, 2013, it is just been delayed by 6 months to June 30, 2014.
3. FATCA Update:
On November 8, 2012, USA identified 50 countries and jurisdictions with which they want to enter the FATCA agreement for sharing of financial information. As of March 11, 2014, FATCA agreements have been signed with 25 countries.
The countries include major developed countries such as UK, Japan, Germany, France, Italy, Canada, Norway, Denmark, Finland, Netherlands; tax heaven countries such as Switzerland, Isle of Man, Cayman Islands, Guernsey, Jersey, Malta, Bermuda, Mauritius and other countries such as Chile, Hungary, Spain, Costa Rica, Ireland and Mexico. Also, while an Agreement with Australia is not currently available on the FATCA website, news reports already mentioned that Australia signed the FATCA agreement at the time of hosting G20 summit in February 2014.
So there are only 25 countries to go, including India to enter FATCA agreement by June 30, 2014.
4. US – India FATCA Agreement Update:
On November 8, 2012, USA identified India as one of the 50 countries or jurisdictions for FATCA agreement. At that time, USA has been working with India to explore options for intergovernmental engagement. Since then, a lot of progress has been made.
It started in October 2012 with then US Treasury Secretary Tim Geithner and then US Fed Chairman Ben Bernanke meeting with Prime Minister Dr. Manmohan Singh and India’s Finance Minister P. Chidambaram. Since then, there has been lot of dialogue continued between two countries. By November 2013, the Finance Ministry had asked RBI and SEBI’s views and suggestions on the proposed FATCA agreement. SEBI in turn had also met with Mutual Fund Houses, Foreign Institutional Investors (FII) and the brokers regarding FATCA.
Officials from the RBI, SEBI and the Income-Tax department have traveled to the USA and held consultations with their counterparts to finalize the framework. A team of the US Treasury officials also met Indian Income Tax and CBDT officials and are negotiating an Inter-Governmental Agreement (IGA) between two countries.
The Department of Treasury has already added India as one of the jurisdictions that have reached agreements in substance and have consented to being included in the list as Model 1 IGA beginning from April 11, 2014. Please click here for the link to Treasury’s website. I think the USA-India FATCA agreement will soon be a reality.
5. What a typical NRI thinks:
After talking or giving consulting to a lot of NRIs, what I learnt is that 95%+ NRIs are not serious about FATCA. In spite of having lived in the USA, they still think as an Indian that it would not affect them and are still in the denial. I have listed below TOP 10 common defenses (excuses):
- India will never sign. OR India will get additional benefit as Indian population in USA is huge.
- I only have one account, another NRI has 5 accounts. I am a very small and have only $60,000. I know many people who have more than $6 million. They will catch them and not me.
- Indian banking systems are not so advanced that they will find my information. With so many NRIs, it will take years to collect all the data.
- I will say I didn’t know about the rules or requirements.
- I will see when I get there or act only after receipt of notice.
- I am on H1B visa OR I am a US citizen but living in India, and requirements do not apply to me.
- All my investments are as a resident only OR my account is with cooperative bank which does not report any income or information.
- I do not have a PAN and do not file tax return in India so they would not know anything about me.
- I will sell everything and transfer money here.
- I will tell that I received gift/inheritance in the current year and start reporting from now.
6. What if India signs:
The question should not be “What if”; it should be “When”. I expect India to sign Model 1 agreement wherein RBI and not individual bank will report the transactions to IRS.
When India signs the FATCA agreement and RBI reports to IRS,
- whether you have accounts or investments in NRO, NRE, FCNR, or Resident account;
- in foreign, private, nationalized, co.op. bank or Post Office or PPF;
- in single or joint name;
- as NRI or resident;
- have PAN or not have PAN;
- KYC compliant or not;
- with domestic or foreign mutual funds;
- with domestic DP or PIS account;
- with local or international brokerage firms; or
- with private insurance company or LIC……… wound NOT matter.
Whether you have 1 account as NRI and other accounts as resident also would not matter as PAN on all account would be the same…….
In Short, IF YOU OWNED ANY FINANCIAL ACCOUNT ON JUNE 30, 2014, EVERYTHING WILL BE REPORTED IF YOU MEET THE CRITERIA.
7. TWO IMPORTANT THOUGHTS TO PONDER:
A. NOTHING will happen NOW as the deadline for identifying and reporting of pre-existing accounts is June 30, 2016, which may be extended. Once USA gets all these data, a special team will analyze it for let’s say 6-12 months or more and then start issuing notices. So, you may not get a notice from IRS until 2017 or 2018. While you are happy giving your examples to your friends that you did not disclose or report or were not proactive and still nothing happened to you in 2014, 2015 or 2016 but it will hit you later.
B. You wouldn’t be a “US person”, if you don’t know how strict and sincere USA is about laws and to what extent they can go for compliance. USA is NO India when it comes to legal system and compliance. In India, the VDIS (Voluntary Disclosure of Income Schemes) have tax of 30% for any versions and no penalty; whereas under OVDI/OVDP, not only you pay tax, interest and penalty, the penalty also increases in later versions (20% à 25% à 27.5%), rewarding anyone who came early. And, even after paying big shot lawyers and paying taxes and huge penalties (in million $s), NRIs have also gone to jail for FBAR violations in the USA.
8. My Advice:
- Don’t take FBAR and FATCA requirements lightly.
- INDIA WILL SIGN THE FATCA AGREEMENT.
- Come out of denial that it will not happen to you.
- ACCEPT the realities and ACT.
- Be proactive. Start planning, SEEK GUIDANCE and COMPLY.
Please read our disclaimer. Please post your comments, questions and views. Thanks.
Comments
Jeev
Jigar ji
Thanks for such an excellent article. I read recently that Indian MFs will start dis-allowing US NRI mutual fund investments due to the cost of compliance with FATCA.
This must indeed be a great loss to NRIs.
Please share if you know of such an agreement being planned by UK with India.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
While most MFs have stopped, there are few MF houses that do accept MF investments from US based NRIs. Currently the FATCA agreement is one-on-one i.e. USA and UK or USA and India. However, I expect in few years, it would expand and would be among all countries i.e. USA and UK, India and USA, UK and USA. Thanks.
Kal
Jigar,
Thankyou for the very good analysis. I have been reading details about FATCA and had a question regarding your statement : “IF YOU OWNED ANY FINANCIAL ACCOUNT ON JUNE 30, 2014, EVERYTHING WILL BE REPORTED IF YOU MEET THE CRITERIA.”
As I understand/have questions:
1. Reporting will happen for year 2013 onwards. Not sure if this is applicable if the FII is a signatory in another year (say 2014)
2. Closed accounts will be reported too.
Kindly share your interpretation of the above items.
Thanks
Kalpendu
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. The requirement will be consistently apply to ALL countries/FFIs as there is a separete article in the agreement that specifically mentions that any benefit given to any other jurisdiction, will also be given to the country. So even if UK signed agreement in 2013 with an effective date from January 1, 2014. Because the reporting/effectie date was extended to July 1, 2014, it would automatically apply to UK and UK FFI will report from July 1, 2014. Now with 56+ jusrisdictions already agreed for July 1, I doubt it. India has already agreed for FATCA in April.
2. I do not think so but there is no guarantee. The mandatory requirement is of accounts as of June 30, 2014 with balance over US$ 50,000 but FFI/country may report lower or closed accounts if they so choose. Thanks.
R. Narayanan
Very nice and comprehensive article, indeed
I have a query. Would NRI investments in Fixed deposits or debentures of companies (not listed) be reported under the proposal? I presume listed debentures, tax-free bonds etc. would be reported by the concerned Dep. participant
GAURAV
Account details :
– Opened NRO account in August 2011 with FD deposit of $215k @ the rate of Rs 46 per USD/Interest rate 9.25%. As of Dec 2013 the USD rate was approx $62. So I was losing on this transaction overall.
– I was also paying 15% tax on this FD as part of DTAA agreement.
– In Feb 2014 I cancelled my NRO account and made NRE FD by filing 15 CA/CB form. I paid TDS on the interest I earned in NRO for the year 2011,2012,2013 @ 15%.
– Currently that account has approx $240k in there in NRE account.
Questions :
– Will my previous NRO account opened in 2011/2012/2013 be reported as part of the FACTA agreement or only the current NRE account with open date of Feb 2014 reported to IRS.
– Does me paying the 15% according to DTAA agreement help
– Should I close the account. What to do with the money. Should I xfer it back.
– What other option do I have?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. According to FATCA agreement, your balance as on June 30, 2014 to be reported if it is over a threshold ($50,000). Countries/bank may voluntarily report more information, which I doubt.
2. TDS at DTAA is related to IRS only. Also, if you are in the higher tax bracket, you may have to pay tax in the USA as per IRS rules.
2a. As your investment in foreign financial accounts is more than US $ 10,000 you would file the FBAR form to the Department of Treasury and as your investments are $240,000, you would also need to file Form 8938 with your 1040.
3. You may want to disclose and come clean under OVDI scheme.
4. Please call to discuss. Thanks.
Surendra Dhir
Very informative and helpful indeed.
Would banks like SBI start issuing something similar to 1099s to make it easier for US tax payers to report the overseas income?
How would tax payers report annual income from long term FCNRs when they receive the entire interest amount only at maturity?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Currently, there is no provision in FATCA that would require SBI to report in 1099 or similar form to investor or tax payers. That taxpayer is supposed to do themselves. FATCA would only require SBI to identify and report the transactions to RBI, who will then consolidate the amounts and report to IRS. In future, it may be introduced. Thanks.
Surendra Dhir
Very helpful analysis!
Can you please comment on the following.
I opened a special five year fixed deposit in USD with SBI in November 2013. I will receive the interest only at maturity. The account can not be closed prematurely. So, in FBAR reporting, should I report the original face amount in succeeding years or perform my own calculations to add on the interest because SBI statement shows only the face amount or the amount at maturity.
The face amount on this deposit consists of my base amount plus nine times the base amount in the form of a loan from SBI. So, under this special scheme a base amount of $10000 becomes a total face amount of $100000 where the $90000 along with the accrued interest is paid back to SBI at maturity after five years. The interest on the fixed deposit is about 5.6 % but on the loan it is about 4% thus the actual return on the base amount at maturity becomes about 13%.
So, the other question for FBAR reporting is whether account value is $10000 or $100000 where $90000 actually belongs to SBI?
Thanks for your comments.
Surendra
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. In India, usually, interest accrues and compounded on a quarterly basis. Only that you choose to let it accumulate and be paid at the end of the term. That is your choice and does not affect taxation. If you ask for a statement from a bank of your FD, the statement would show the interest accumulated as well.
1. In FBAR, you report your foreign financial accounts. Whether they are leveraged or not (loan taken or not), it may not matter.
2. For IRS, your income matters, so while youwould show 5.6% on your $100k investment, you can claim the interest paid on loan @ 4% and only net will be taxable. Thanks.
Suresh
Dear Sir :
I am 63 years old. No job right now. Instead of declaring investment and income in India and paying taxes and penalties, I prefer to surrender the USA passport and come back for good. I have house here and money in bank around 100K.
Please guide me what should I do? and how ?
Should I sell the house and transfer all money before I surrender the passport ?
I am confused. I have about 100K in Indian bank.
Thanks.
Suresh
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
We do not provide any Immigration advice. Please hire an experienced immigration lawyer in USA and he will guide you better. Thanks.
anon
Mr. Suresh:
I am not an immigration lawyer and you should consult an immigration/tax lawyer in the US. In some cases, you might have to pay an expatriation tax to give up US citizenship. It’s not free..
here’s a good place to start!
http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax
krishnan
Jigarji Namaste !
Thanks much for such an enlightening piece.
Just a clarification, am I to understand a US citizen living outside USA and having bank accounts balance of less than $200,000 doesn’t have to worry about FATCA ?
Your reply will be much appreciated.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
If you have bank account with foreign bank of over $ 50,000, it would be reported to IRS. If you have filed your taxes showing interest on this account, file FBAR and also file 8939 if applicable, you wouldn’t have to worry. Else, you may have to. Thanks.
Nanda
Namaste!
Here are my details: I have less than $10,000 in big Indian bank with overseas branches in a NRE account and $168000 equivalent in rupees in FD in a local cooperative bank. The original account in cooperative bank was opened 30 years ago before I left India for US. I don’t believe my cooperative bank knows if I am a US based individual.
My question is should I be reporting my account in the local Indian cooperative bank to IRS? Also, should I be reporting the interest to IRS on my NRE account from big Indian bank?
Thank you
Nanda
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Personally, I do not recommend putting so large amount with a co-op bank.
2. Legally, you are supposed to inform your bank that you are now NRI and bank would re-designate your account as NRO.
3. You should be reporting all your income and your accounts – resident and NRE to IRS. By not reporting, you are taking a risk and hoping or praying that IRS won’t be able to track your investments or financial accounts. If they do, there could be severe penalties.
Ramesh
Mr. Patel – this is one of the most informative post that I have found on this very confusing topic. If you could help with a query – I’m a US citizen, but before coming to the US, my father had put me as a nominee or joint holder on a number of mutual funds while in India in the 1990s. We are seeking to redeem these funds, but they now need a PAN card for all the nominees and joint holders. I already have a PAN number which I got in 1999 while in India but have no physical card – this PAN is already linked to NRE/NRO accounts with a total holding of less than $10k. If I apply for a duplicate card using US address and US citizenship, will RBI or CBDT be obliged to report under FATCA on all accounts referenced by this PAN?
From my reading of FATCA model 1, the requirement is on the bank or the financial institution to make a compliance report to CBDT on all accounts held by US persons. My concern is if CBDT decides to go one step further and sweep all 170 million PANs issued till date and determine US person PANs and report on all holdings “referenced” by these PANs.
My intention is not to skim any tax. My father will redeem these funds (probably over $200k) and will hold/use the proceeds and pay taxes in India on the gains. My concern is on my FBAR or FATCA reporting requirement in lieu of 1) getting duplicate PAN card as a US citizen, 2) reporting this PAN to the financial institutions to enable my father to redeem these funds in India. The funds are not aware of my US residency.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. No PAN is required for redemption.
2. Having two PAN is illegal and not allowed. You may change your PAN with updated information.
3. I would thing RBI would report and not CBDT as all financial accounts – Bank, Demat, Equity, MF, etc. are to be reported to IRS.
4. While CBDT already combining information for its use (through Annual Information Report), I do not think they would report to IRS. This is compliance, i.e. you are doing it because it is agreed/required. Who will do more for others? CBDT/RBI may use it for own purpose (identify all NRIs and enforce compliance as NRIs still have 2 PAN, invest like residents, have PPF account, etc.) and not for reporting to IRS for only US based NRIs.
Jeetu
Thank you Mr Patel for the informative article.
My balance in ICICI account did not exceed $10k in 2013. I have however received inheritance money in the account in June 2014 amounting to ~ $60k. I did not fill up FBAR form before June 30 2014. Will I be in trouble?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You are okay as the FBAR deadline of June 30, 2014 was for 2013 calendar year only i.e. Jan 1 2013 – Dec 31, 2013. You would report your financial accounts of calendar year 2014 by June 30, 2015. Thanks.
Mohan
Thank you so much for this excellent article that clarifies a lot around the FATCA act. Hope you can advise me as I’ve moved to the US from India on a L1 visa on the 4th of May 2014.
I’ve always kept my savings of around $125K (in INR of course) in liquid funds in india and linked to my residential local account. Do the same rules of FATCA compliance apply to Mutual fund houses? Also, how do mutual funds (or banks) decide on criteria for accounts to be reported to RBI (and then to IRS). Especially if accounts are local and the PAN card is not required of in the US. Thank you again for your time
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you will become resident in 2014 only, you do not have to worry as long as you comply with the US rules and regulations from this year (filing in 2015). If your status is resident, the bank or other financial institutions would not know that you are a US resident and may not report. As per FEMA, you are supposed to inform the institutions of your change in status from resident to NRI. Thanks.
Mohan
Thank you for the explanation
N_J
Hi Jigar,
I am US Citizen. I have opened NRE/NRO account back in 2008. All I have is Fixed Deposit (Mainly NRO) in these accounts. Bank Deducts ~33% from the interest I am receiving from NRO FDs. Between two accounts, I have about $100K.
I have recently transferred money from NRO to NRE by filing 15CA/CB form.
Eventhough I am paying 33% taxes in India on NRO account, I have never declared this income while filing taxes in USA. What exactly I am suppose to do now?
I do not have any hesitation declaring all the income, as I am paying taxes anyways but do I really have to go back last 6 yrs or so?
Thanks for your advice.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You may want to consider OVDI (Overseas Voluntary Discrosure Initiative) or the Streamlined Filing Compliance Procedures to come clean and comply with the rules and regulations and follow procedures specified in the respective schemes. If question, please email us. Thanks.
Aniruddha
Jigar,
Thanks for the informative and comprehensive blog. I am a US citizen, resident in India for a few years. I have been meticulously reporting my income in India as well as filing TDF-90 since 2004. However, I have not reported about PPF account in TDF-90 as this was the advise that I got from someone in US. This account was opened well before I had any connection with US. I would like to know if it is necessary to report about PPF account in TDF-90 (FBAR) and/or 8938.
TIA !
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would think all the foreign financial accounts, including PPF, need to be reported. Thanks.
Mohan
Excellent presentation on a subject which is of great concern to NRIs in USA. You have done great service to all of us. I would like to seek professional consultation regarding OVDI scheme for my NRE (FCNR) deposits amounting to about $30,000 in Nationalized Banks in India. How do I contact you?
Thank you
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Please contact through email or phone as mentioned in the “Contact Us” page. Thanks.
Deep
Jigar,
Thank you for breaking this down little better for those of us who aren’t tax professionals. I’ve tried reading/researching FATCA in relation to “Foreign-issued life insurance” (Form 8938) but unable to fully understand it. I’m hoping you might be able to help me with it.
1) I’ve an NRE account opened in 2008 which always had balance less than $5K.
2) I’ve an active LIC life insurance policy (commenced in 2008), Sum Assured Rs. 2100000 with premium paid annually.
My question do I need to report or worry about the filing/compliance requirements? Any advice how do I figure out or obtain the cash value of the policy? My understanding has been that since the assets value is below the threshold and I’m not in the higher tax bracket I don’t need to report it.
It is unfortunate that while there is fairly enough information on FATCA compliance from IRS, there is very little communication or information coming from my bank and insurance company in India.
Again, thank you for putting this out for us.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The cash value of life insurance policy is equivalent to a surrender value of the policy. Please contact your LIC agent to provide the surrender value of the policy as on December 31 every year. If your total assets in India do not exceed the threshold, you do not need to file form 8938. Thanks.
Jignesh
My us citizen Son in law has bank accounts in india worth $ 41000 as on 30th June 2014 & my daughter who lives in usa with him has worth $ 43000 as on 30th June 2014.
Under FACTA agreement with india, is indian bank report their accounts to IRS THROGH INFIAN INCOME TAX NEXTYEAR?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Currently, India-USA FATCA agreement is not signed. Also, while the Finance Act No. 2 amended the section related to collection of statement of financial transactions and reportatble account, the rules or procedural requirement is not available. In this light and on review of other FATCA agreements which included the threshold for the reporting foreign financial account of $50,000, it may not be reported. Thanks.
Sri
Hello Jigarji – I am amending my 2013 tax return (1040) now because I didn’t report foreign interest income generated in SBI savings account in 2013, which was Rs 34000. I am using the exchange rate provided on the US treasury website which comes to $578.
Although, I didn’t report the interest income earlier this year, I did file FBAR in June 2014 for the first time as the amount in bank in India was > $10000 for 2013 tax year (but less than $50k).
As I amend my 2013 tax, I am filling out Schedule B form indicating that I submitted FBAR. Do I need to file form 8938 as well? I don’t have any other assets to my name in India. Just a savings account that generates interest. Please let me know if I am missing anything else before I submit an amended return.
Thank you.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
For amending return, you would file 1040x and explain the difference/reasons and follow instructions in the form. You do not need to file 8938 if it is not applicable. Please consult an experienced CPA. Thanks.
Murthy
I am a USA citizen living/working in India (as Resident) since 2005.
One of the Indian Brokerage/trading firms through which I invested in some Mutual Funda, suddenly stopped taking new investments in to the Mutual Funds siting FATCA as the reason. Is there anything in the FATCA that prohibits USA citizens living outside USA to invest in Indian Mutual Funds?
I do report the Capital gains/losses in my USA, Indian tax returns.
Thanks for clarifying.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
US residents are only allowed to invest in securities approved by SEC – Securities Exchange Commission. RBI allows NRIs, and PIOs, including Indian residents to domestic mutual funds in India. FATCA requries foreign financial institutions (FII) accepting US residents money to report certain information (amount of investment, income, etc.) to IRS. However, there is no clarity as India has not yet signed the agreement. That is the reason, while some mutual funds stopped accepting any new money, whereas other stopped only lumpsum but still accepting SIP and there are some which still accepts and no one has refunded any money to investors. This is a precautionary measure or steps taken due to ambiguity or unknown implications.
If you have moved to India and living/working since 2005, you are considered as a Resident both under FEMA for investment purpose and under Income Tax Act for taxation purpose. As a US citizen, you are also considered a resident of the USA for tax purpose. Thanks.
sudarsan
do investments in land in India need to be disclosed under FBAR
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
FBAR only required investment in foreign financial accounts. Investment in India in any immovable property is not required to be disclosed in FBAR. However, if you are paying from a bank account in India, that bank account needs to be disclosed in FBAR. Thanks.
Peter
I am an Indian citizen living in India but have accounts with brokerages in the US where I hold my employee stock options and also other stocks that I have bought / sold etc. What will be the impact on withholding tax on dividends and gain from sale of stocks – 1. if India signs the FACTA and 2. if India does not sign FACTA
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you are an Indian citizen living in India, your global income is taxable in India so you would need to declare your income and pay tax, if any, on the income in India. You may also need to report foreign investments/securities to the Income Tax department in India. India will sign FATCA agreement but you need not worry as it is for US citizens not reporting their income in the USA. Thanks.
Hyderabadi
If India signs then the one who will be hurt the most will be India. India will lose all the taxes on US investments in India. India could just adopt whatever is earned in India is taxed in India while whatever is earned abroad is taxed abroad. Its a win win situation for both. FATCA is not win win situation as it is where US gets everything and India loses everything. India shouldn’t have high hopes for black money abroad with FATCA as black money with in India easily equals the amount of black money abroad and white money in and outside of India combined.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
India does not lose anything. India has been deducting taxes on the income already. I think India will benefit as USA will also share information of Indian residents abroad now or in future. Only people / investors who have not been disclosing and paying taxes would lose. India is trying to increase the tax net and reduce loopholes. Combining IT (Information Technology) with IT (Income Tax), India as a whole will be able to increase the tax revenue and find people who have been avoiding taxes or not/under reporting income. Thanks.
navin
Hi,
I move from India to US in Dec’13. Have withdrawn my PF to an account which was normal resident account in india in Feb’14. Now in Nov’14, I have few questions on this :
1. Do I need to pay tax to IRS on PF?
2. Haven’t converted my account to NRO yet. Will converting to NRO mean, the bank will report PF as income to IRS?
Thanks for your help?
Navin.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Only interest on PF from Jan-Feb (until you withdrew) would be considered as your income and you have to pay tax on the same.
2. Converting resident to NRO is just re-designation of your account for RBI to track. As India has not yet signed FATCA and procedures not final yet, it would be premature to speculate but I think whether you have resident or NRO should not matter as your PAN would say you are an NRI.
Thanks.
P. Menon
Hi Jigar,
This blog of yours is a great contribution that is earning kudos from its NRI readers in USA for clarity and precision. Congratulations!
My wife and I are GC holding nris residing in U.S for last 10 years. Prior to becoming u.s residents we had enrolled in an equity based growth MF of G.I.C India in 1994 – subscribing to two accounts in our joint names for Rs 3 lakha and 2 lakhs initial value. As this mutual fund was steadily losing value we did not pay any f/up attention on it for several years. In 2008 the fund was taken over by Canbank MF into one of its open ended equity diversified growth plans. It thereafter had remarkable gains in NAV resulting in crossing of the Fatca threshold on Jun 30,14 in combined value on aggregation of both our joint accounts. Please note that no divident was ever distributed and that we never did redeem fund units at any time. Also no reporting to IRS has been made.
I am very concerned on how to presently deal with the above situation while Fatca is looming high. Any suggestion in this regard and also your valuable comments on the following will certainly be of great help:
1. Whether proceeding with full redemption of both the accounts asap would be helpful in any way to minimize risk of Fatca reporting considering likely delays and various procedural choices that might be involved in the due diligence process?
2. I presume once the accounts are redeemed that the gains are to be tax filed in u.s per the complex PFIC regime.
3. In view of the long term lack in updating our accounts are presently not linked to any PAN or currently valid bank acct number. In this situation what could be the impact of adopting a ‘do nothing’ policy on fatca reporting?
Thanking you for the service you are rendering to nri community in u.s, and
With regards.
P.Menon
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. FATCA is here to stay so with “do nothing”, you are not solving the problem but are postponing it and increasing the risk.
2. As a US resident, you need to report all your income and pay tax. If your investment crossed $10,000 FBAR limit this year (2014), I suggest you sell it this year, close your account, report the same to IRS and file FBAR to department of treasury, remit the funds to USA and close the matter before December 31, 2014.
3. I also suggest you to talk to your CPA who would be in a best position to guide you. Thanks.
Milind Kulkarni
Jigar,
I am in US for last 3 years. Before that I was working in India. Few questions:
1. When I discloses the assets/funds to IRS to comply with these laws, will these funds be taxes by IRS?
2. Do I need to pay taxes in US for the funds saved in India by me for so many years i.e. till 2011? Those are post-tax funds and hence should not be taxed in US, right?
Regards,
Milind
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. As a US resident, your worldwide income including any interest or capital gain income from India, is taxable in USA. So you should have disclosed this from the year you became US resident as per their income tax laws. Your immigration status and residential status are two separate requirement. Even if you are on H1B, or L1, you are a US resident as you live in USA for the whole year.
2. There is no tax on income you earned while you were Indian resident. The tax is on income while you were US resident i.e. interest, capital gain or rent income during last 3 years. Thanks.
Alok
I work in the usa and am currently on H1b visa. i pay state and federal taxes and file returns as mandated.
I have parents in India and I occasionally send some money (1000-2000 usd) to them for support. Maximum I have sent in this calendar year is around 7000 usd
This money is sent by bank transfer to father”s. bank account in a nationalised bank like SBI,PNB,BOI,etc
What is my reporting obligation. and what is my parents reporting obligation?
Will FATCA deter me from sending money or will there be tax implications to my parents?
regards
Alok
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Your reporting obligation is only if the value in YOUR account is more than $10,000. Also, as a US resident, you are allowed to give gift of up to $14,000 per year to any person during the calendar year. If you transfer $1,500 per month to your account and amount not withdrawn, you would have reporting obligation after the balance exceeds $10,000.
2. As your parents are not “US resident”, they do not have any obligation. However, if they are filing tax return in India, it would be prudent to report/mention that he has received gift from their son during the year with amount. Thanks.
3. FATCA does not deter anything. It only increase reporting and compliance with laws. Thanks.
Rajesh
Hi Jigar,
Thanks for sharing all this info. I am already an NRI but will be shifting to US in a few months and have some questions. Request your response.
1. What steps can I take now if I have bank deposits outside India? Can I break them to below 50k?
2. I include income from interest and house property (rent) in my Indian tax return but eventually the total income after deducting interest on housing loan is not in the tax limit. Would I then have to pay tax on the entire income at US tax rates despite DTAA?
3. Would income on sale of immovable assets also need to be reported and will be taxed in US?
Thanks
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. The US requirement is not related to balances or deposits outside India but related to accounts or deposits outside USA.
2. The tax exemption is as per the Indian laws. As a US resident, you are eligible for standard deduction and personal exemption. Any income more than that would be taxable. You would convert all your world income in USD and report all your income in USA and then pay tax accordingly. If you have paid taxes in India, you may get credit for the taxes paid.
3. Yes. ALL your world income for a US resident is taxable in USA. Thanks.
Shamin
Hi Jigar,
I’m a US citizen and my mother is resident in India. If I’m the 2nd holder (under ‘Anyone or Survivor’ holding status) on my mother’s mutual fund accounts in India, do I have to report these accounts in the US under FATCA? The 1st holder on these accounts is only my mother.
Thanks very much.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you have a signature authority on the account, you need to report. Please check related FAQs and you would know. Thanks.
mo
Jigar ji:
Is the FBAR filing threshold doubled for married filing jointly, i.e., $20,000 as opposed to $10,000?
Thank you
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
FBAR requirement is per person. No double threshold for married filing jointly. Technically, they both own $20,000, i.e. more than 10,000. Please read the FBAR FAQs for details. Thanks.
Randy
Dear Mr Jigar:
I shall be grateful if you could let me know if the following account would be reportable:
a) No US indicia at all
b) balance on June 30, 2014 less than $50,000
c) balance in Jan to March 2015 more than $50,000 but less than $ 100,000
d) account closed in April 2015
Thank you.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
If there is no US indicia, it may not be reported in your case. However, as the agreement is not yet signed and guidelines not issued, I may not be able to confirm or deny anything. Thanks.
TNRao
Hello Sir
Thank you for helping on FBAR. I got below questions.
1> I have couple of ICICI bank accounts and one is used for sending money from USA to INDIA for a property loan EMI purpose. Another account is for DEMAT transactions and have stocks worth of Rs 6 lakhs in ICICI demat account. (stocks bought 5 years back and now the value is Rs 6 lakhs).
I filed FBAR paper copy for the year 2011 with all these details once. I did not file after that that for the years 2012/13. Do I need to file the FBAR every year for the above?
2> Do I need to include ICICI prudential insurance taken for my son (worth of Rs 1 lakh per year) in FBAR $10k limit?
3> Also sending money to family members (parents and brother who reside in India) thru my ICICI account, are required to show in FBAR?
4> Is the $10,000 limit is total transactions (in and out) per year or balance in accounts?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. FBAR is and annual requirement and needs to be filed by June 30 of next year and no extensions.
2. FBAR needs to include all your bank and investment account (including Demat) as well as cash value of YOUR insurance policy. If insurance policy / investment is in your son’s name and you are not a joint holder, it is your son’s asset/financial account.
3. Sending money to your family members is a gift/loan. If your gift over gift tax limit, you need to report to IRS.
4. Yes, $10,000 limit is for YOU. If you have 10 accounts with $1500 totalling $15000, all your 10 accounts need to be reported. Thanks.
Randy
Dear Mr Jigar: If possible could you please clarify how due diligence is to be done in India:
1) Will the FFI look at all accounts they have with $50,000 or more on or after June 30, 2014 and then determine from their database if these accounts have US indicia.
2) Or, will the FFI then ask for new KYC information from these account holders that have more than $50,000?
3) Or, will the FFI first look at accounts having US indicia and then look at the balance and report if greater than $50,000?
Many thanks for the clarification. Thank you!
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The detailed procedures or guidelines have not been issued so I won’t be able to say for sure. Thanks.
arvind
we are an Indian entity having only domestic sales and promoters are indian. do we still need to sign FATCA form w8
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I don’t think so. It is only for banks or financial institutions that maintains accounts or investments of US residents. Even if you export to US, I don’t think it applies to you. Thanks.
krishna
I have closed all my NRI accounts as 2013. Will there be still a issue.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I don’t think so but there is no guarantee. Thanks.
Randy
Dear Mr Jigar:
My mother had me as third joint holder after my father in one of her accounts for many many years way before I moved to the US. I never knew of the account and I never used it even once in my life. After reading your blog, I asked her to check if my name was on any joint account and even she didn’t remember but on checking she found my name as third joint holder. The balance on the account is less than $10,000 but she has wired money to me from this account in the past. Is this a problem? What should I do?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
If the balance is less than $10,000, it is not required to be reported. If you are not operating the account, it is advisable to close/remove yourself from being a joint holder. Thanks.
Ashok
Dear Mr Jigar:
1) Would an Indian FI report an account above 50K if it has an Indian address, Indian phone number and PAN card, and no other US indicia?
2) The due diligence is to be done for the balance on June 30, 2014. How about the balance after June 30, 2014? If the balance on June 30, 2014 is less than 50K, and the account is closed before March 31, 2015 – would it be reported if the balance between June 30, 2014 and March 31, 2015 was above 50K for a short period of time?
In an earlier blog you wrote:
Due Diligence for identifying Pre-existing Accounts:
(a) Account balance or value upto $50,000 – Exempt unless FFI elects otherwise
(b) Account balance or value between $50,000 and $1,000,000 – subject to only electronically searchable data that indicate US status of an account holder such as:
(i) Identification of account holder as a US person
(ii) US place of birth
(iii) US address
(iv) US telephone number
(v) Transfer of funds to an account maintained in the US
(vi) POA or signatory authority granted to a person with a U.S. address
(vii) US “in-care-of” or “hold mail” address
(c) Account balance or value more than $1million – review of electronic and non-electronic files e.g. inquiring account relationship manager.
3) From this it appears that if there are no electronically verifiable US indicia in an account above 50K on June 30, 2014 – it should not be reportable. Could you please clarify?
Thank you
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The information / blog was written based on studying FATCA agreement with other countries. US-India FATCA agreement is not signed but I would assume it would include similar provisions/requirements. However, it may change.
1. If your balance is between $50,000-$1 million as on June 30, 2014, and you do not have any US indicia, it may not be reported. However, if your bank relationship manager knows of your status, he may inform the bank and bank may report.
2. for any account opened thereafter, I think every bank/financial institution specifically ask you to fill the details if you are a US resident before opening the account. Thanks.
Priya
Hi Jigar,
1)For considering maximum account values should we consider the Jan-Dec period or as on June.
2) Also If I am a nominee/2nd Holder (Former or Survivor Basis) to fixed deposits, do I have to report that?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Maximum balance is the highest balance during the reporting year e.g. 2014. June 30, is just the deadline for filing the form.
2. All joint accounts are also required to be included. Thanks.
Priya
Thanks jigar…..do I have to report the bank accounts where I am nominee…?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Nominee have no signature authority to transfer/withdraw funds and not required to be included. Thanks.
Nitin
I have NRE and NRO accts totaling $24000 for the last 2-3 years.. I have never reported these as of now. I’m visiting India at the moment. What are my options? Should I close the accounts, file the related FBAR and FATCA forms and amend all previous returns? IF SO, what forms? How many returns do I amend?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You need to evaluate all your options, understand the pros and cons of each option and then make a decision. If you have not done, you may amend old forms, start reporting or close your accounts. Thanks.
Venky
Thanks Jigar for the information. I have closed all my NRE accounts in Govt banks as of 2013. I heard the cut-off is in July 2014.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The date for identifying and reporting pre-existing accounts is June 30, 2014, assuming India-US agreement is singed in the present form. Thanks.
Ramesh
If a person is nominee for financial assets is it necessary to report under new requirement? Is it necessary to give foreign addresse in form 1040?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Nominee does not mean ownership so if you do not have any signatory authority, it is not required to be reported. Yes, if the account is with a foreign financial institution you need to give foreign address. Thanks.
Dexter
Dear Mr Jigar,
Thanks for the useful information. Appreciate it.
I wanted to get your opinion on whether you think resident bank accounts that one had before moving to US should be declared even if the legal name in US and the name on the bank accounts do not match (last name is not expanded in Indian account). These banks are not aware of the fact that I have moved to the US. My father is a joint account holder with me and transacts on my behalf.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would think all the bank accounts that you own or have signatory interest needs to be reported. If not, I would suggest you to close it or remove your name as a joint holder and become a nominee of the account. Thanks.
N
Jigar,
Do you offer phone or in-person consultation? How does one go about setting that up?
Thanks,
N
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Yes, we do provide consulting in on phone. Please email your request at jigar@nareshco.com. Thanks.
Hari Iddamsetty
Hello,
Thanks for the detailed information. I am green card holder since 2011 and I moved to US back in 2002. Since then I haven’t acquired any property or opened any account in my name in India. However prior to 2002 my mom did have my name as a joint account holder in SBI. There is nothing more than Rs.3000/- in this account as of date. Other than this my mother purchased a 1 acre farm land under my name in 2005 in India. In 2008 I purchased a insurance policy from LIC for a premium of Rs.24 lakhs for which I pay Rs,120,000 yearly. My mom also purchased a LIC policy ( Rs 11 lakhs) on my name and she pays Rs44,000 annually towards it from her savings.
So far I havent declared any of these to the IRS while declaring my taxes. So which of these should I declare now. Please advise.
a ) Should the 1 acre farm land be declared ?
b) Should the SBI account be declared ?
c) Should the 2 LIC policys ( totalling Rs 35 laks) be declared ?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. The foreign real estate property is not required to be reported in FBAR or 8938.
2. Insurance policy with cash value needs to be reported if it is above the threshold of the respective requirements.
3. When you calculate the threshold, you would also need to add the SBI balance. The reporting requirement is only if it is above the threshold.
4. You are above the FBAR threshold of $10,000 and may be above the 8938 threshold – $50,000 for single and $100,000 for MFJ.
5. If you have not declared the same, you may want to consider reporting and voluntary disclosing the accounts by paying penalty or redeeming and transferring the balance to your mother. Please contact your CPA. Thanks.
Priya
Hi Jigar,
If there are 25 Fds in one customer id which are renewed during the year, should we report the maturity value of the closed fds and add the highest balance of the renewed fds to it?
Regards,
Priya
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You would follow the reporting consistently. As Foreign financial accounts need to be reported, you may choose the customer ID as an identifying number and report all the balance information in aggregate. However, if you have reported the investments/FDs individually in previous years, you may want to continue the same as you would have reported by the FD number in your last year’s forms. If the account was not closed last year, the system may flag that FD number as not being reported in current year. And, in case of an inquiry, you may need to follow up, reply and explain the same to the IRS. Thanks.
Priya
Hi Jigar,
I became NRI in 2014. I will be reporting by customer ID since there are numerous fds. So if my Fds have matured in June 2014 and I have renewed them in the same month, I will have to add the maturity value of closed fds in June and the balance of renewed fds as on December 2014 to report the maximum account value. Am I correct? Kindly note the renewed fds will have new account numbers.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As this is your first year, you may report by your customer ID. Please contact your CPA for any detailed clarifications. Thanks.
Amit
Jigar:
Thanks for the information. Couple questions.
Do i need to file fbar for a 50k usd ac for fdr e or s with my mother as primary?
Also, i have never had a pan no as this a/c was opened before pans came into being – do i need to create one to efile past FBARs?
Interest income on e or s belongs to primary holder, so should not have impacted my tax returns in us – is that correct?
Thanks – amit
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you are joint holder, you would need to include it in the FBAR. The limit for FBAR is $10,000. The limit for Form 8938 is $50,000. Also, PAN is not required for FBAR. Thanks.
Ramesh K
Hello,
Thanks for this detailed information. I am in the U.S since last 3 years. A PPF account was opened in my name by my father much before when I was in India and to which he was contributing. This was closed last year and the amount withdrawn. Is the interest earned during the period I was resident in the U.S taxable in the U.S.?
For considering the interest, do I take the interest amount credited each year for the last 3 years together and add that in my U.S returns in the absence of 1099-INT.
Does the maturity amount of PPF have to be shown in Fincen 114 under the PPF account or under the NRO account in which it was deposited as it is the same amount
Thanks
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I suggest you to contact your CPA for declaring and/or filing previous years returns or forms. The forms and returns are to be filed every year for annual reporting. You may not combine it in one year. If amount matured in 2014 and transferred to NRO account, you would need to report both accounts in Fincen 114 – FBAR and Form 8938. Thanks.
Naresh
hello sir,
I have a NRE account since 2012 over threshold amount but never filed an fbar or 8938. I am planning to file delinquent fbar from 2012. also if I close the account in march 2015 and transfer the money in my relatives account in india, will it have any complications for me. can the IRS ask me where the money went if I closed the account. am I supposed to transfer the money back to USA.
I appreciate your kind guidance.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I suggest you contact your CPA and take professional advise. If you are planning to file delinquent forms and pay tax, there is no need to transfer money and close accounts. Else, while you may transfer funds and close account, you may be taking a risk of IRS not finding out your accounts. You need to plan properly after evaluating all available options. Thanks.
raj
Hi Jigar,
Thanks for all the good work. I plan to relocate to USA shortly and have some queries:
1. Is the insurance premium paid in India treated differently and are there any deductions on it? Same for Mutual Funds.
2. How are the investments made in equities directly i.e. having stocks in DP account treated by IRS for taxation and reporting?
3. IS there a deduction on home loans to reduce net rental income from house property?
4. What are the drawbacks of keeping cash in a bank account and reporting it to IRS (if the interest earned is very low)?
5. Is the income earned in a foreign country for a say 3 months taxed in USA if the person relocated in say, April?
6. A typical NRI would have insurance, property, housing loans, stock accounts etc. How can he prepare for FATCA and FBAR before leaving for USA?
7. Is the Exit tax applicable only after 8 years? Any implications if someone leaves US in less than 8 years (green card holder)?
Thanks for your help.
Raj
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. No deduction for insurance premium paid in India for US taxes.
2. Yes, it is considered a Foreign Financial Account and you would need to report to IRS and Department of Treasury.
3. Only in India
4. No. Only, you would have to pay tax on the interest income in USA
5. Yes as the residency is for a year. USA follows calender year so you would have to report whole year’s income.
6. If possible gift to your relatives before leaving. However, seek professional help for the same to avoid any legal complications.
7. Exit Tax is on US citizenship. So if you leave as greencard holder, I don’t think you are covered. However, it may change in future. Thanks.
Sundar
Dear Shri Patel,
I never had $10000 in my Indian NRE accounts until Nov-2014. So I never had to report either FBAR or 8938 so far. We are US citizens and are planning to India for good around June-2015. Nov-2014 my wife transferred $70K to her NRE account.
(1) I am NOT joint holder of her account. But we are filing jointly taxes. I guess therefore 8938 Joint filing limits $100K / $150K applies to us and therefore we need not report 8938 correct?
(2) However, my wife need to report FBAR (because of $10K limit) – by June-2015 – correct?
and we need to report nothing along with our 1040 – correct?
(3) Once we return to India and earn there – Should we continue to file 8938 and/or FBAR?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
For 2014, you would need to file FBAR. Yes, $100K limit will apply for Form 8938. But you still have to report any interest income in your tax return. As you are a US citizen, you would still need to report FBAR and/or 8938, if applicable, even after your return to India. Thanks.
Sudesh
I am an NRI based out of Dubai and will be transferred by my company on an L1-A visa to our US office in May 2015. My NRE savings to date are invested in NRE FDs, mutual funds in INR and USD, physical gold and some real estate in India.
I do not pay any taxes now in India, except maybe what is deducted as TDS directly, so am quite concerned on the move to US as I understand as a U.S. resident, all my global income is liable to be taxed under U.S. laws.
Some queries as below
1. If I am moving to the U.S. in May 2015, at what point in time do I have to declare all my accounts, investments and sources of income to the IRS?
2. If I liquidated a portion of these investments today and invested in some Indian real estate, do I have to report it in future in the US if I do not earn any rental income on the same?
3. Would it make sense to use up my NRE savings to buy a house without loan in the US on arrival or take a loan for funding this purchase?
4. I also have multiple NRE accounts with various banks over the years, and most are still active, so is it advisable to consolidate this into just 1 or 2 accounts?
Really appreciate your kind advise on the above.
DS
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. As your stay in USA would be more than 182 days, you would start reporting all your income and/or accounts from 2015.
2. Any and all income needs to be reported and tax to be paid. If you keep investments, pay tax on interest or capital gain; if buy property, pay tax on rent.
3. It would depend on what you plan to do or goals in life. Never make any life decision based solely on compliance requirements.
4. While I like to have minimum number of accounts; for compliance or taxation purpose, it does not matter, except that you would have multiple account numbers and entries; the total amount would still be the same. Thanks.
Sudesh
Dear Jigarji,
Thanks for your immediate reply and do appreciate the advise as provided on my earlier mail.
I had one more query on carrying personal gold jewelry or gold bullion with us when we arrive in the US as a family, on the L1/L2 visa later this year – is there any restriction / limit / reporting for physical gold that can be brought by individuals and their families into the US? Will I have to pay taxes or customs duties on arrival?
Similarly for USD transfer from my USD NRE accounts in Dubai to the salary account I would need to open in the US, is there any restriction on incoming funds transfer?
Thanks & Best Regards,
DS
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I don’t think if there is any restrictions on gold jewellery. However, I would suggest to check US Customs Department website for details. Also, as long as you can prove your source of funds, there is no restrictions on wire transfer out of NRE account to USA. Thanks.
Priya
Hi Jigar,
1) I will be filing Form 8938 & FBAR for 2014. This will be my first year. Can I report by customer ID in both Forms since there are numerous FD’s?
2) Do I have to report both ICICI Demat & ICICI Online Share Trading Account or only the shares? How do I find out the maximum account value of shares? I sold all shares in March 2014 & closed my Demat & Online Share Trading Account
3) Do I have to report the Debit Cards and Credit Card that I held. Credit Card was linked to my FDs?
Regards,
Priya
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Yes
2. Trading account would not have any balance as you would use it just to settle the transactions so it is always net 0. The investments are held in Demat account. If trading account is not net 0, you may have to report.
3. Credit card is not an account but a facility to use the account.
Thanks.
Rao
Hi Naresh,
can you please throw some light on capital gains declaration to IRS.
How do capital gain calculation works for NRIs?
I live in USA, own a property in India before coming to USA. Sold property after 5 years. I pay capital gains taxes on the property after deducting depreciation etc. to Indian IT department.
How the capital gains is calculated for reporting to IRS ?.. How do sale – purchase price is calculated for IRS ? can I take depreciation credit for the property in India ?
Can I take credit for the tax paid to Indian IT ?
I bet lot of NRIs falls in this kind of situation.
Also I have question about holding Cash.
Neither 8938 nor FBAR forms does not enforces reporting of Cash held overseas. Where else we need to report the cash held in our house with parents in India ?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You would need to convert your cost and sale price in USD and add to your other income and calculate the tax on your global as if it were a US property. From the total tax payable, you may deduct the tax you paid in India as foreign tax credit in your 1040 and reduce your tax liability. Yes, there is no reporting of physical cash, however, you would need to prove the source of the cash in case of any inquiry by the income tax department. Thanks.
raj
Hi Jigar ji,
Is it ok to have a property in India with rent being taken in a relative’s name and therefor not paying tax on it in US?
For rental income, are there no deductions given in US laws. afterall any income would have a cost associated with it. The interest on housing loan is that cost.
Thanks,
rajesh
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. It is not okay as your intention is not to pay tax in India or in USA or comply with RBI/Income Tax/IRS/Treasury department rules and requirements.
2. If you have taken a housing loan, as per FEMA, ALL of your rent income should go to service the housing debt, even if it is higher than your EMI.
3. As you are an NRI, the person who is paying you rent needs to deduct TDS @ 30.9% on the rent any pay you only after tax amount to you.
4. While you need to report your rent income in USA, you may claim the TDS/tax paid in India as credit in your US tax return.
5. You may have to report your assets/bank account in FBAR or Form 8938 if it is over the threshold as specified by IRS or Department of Treasury. Thanks.
Mallikarjun ch
Hello,
I have been staying in US on H1b for the past 2 years and have been filing tax returns and FBAR every years. However, I forgot to report interest earned on my NRE FD accounts. I am bit panic now that IRS finds it if my FBAR gets audited. I need your suggestion on what could be done in order to avoid the risk of penalties.
Thanks,
Mallik
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Please revise your income tax returns for last 2 years and pay tax/interest/penalty, which won’t be very high as you have filed FBARs. The penalties for non-filing of FBARs is severe but it does not apply to you. Thanks.
Satya
Great article & following Q&A – would help if you could write an article on what IT professionals transferring to US on H1-b, L1 etc. should keep in mind when planning their transfer.
My question which I am hoping you can answer is
1. I will move to the US on L1 visa and also to US payrolls of my company from April 1, 2015 – would income (salary, capital gain, rent) earned by me from Jan-Mar 2015 in India become taxable in the US for the 2015 year?
2. As my transfer is not for a definite period, if I close my EPF account which are tax free in India as I have been with my org for >5 yrs, will the proceeds to my salary account be treated as taxable income in India? If yes, from what point?
3. I have some systematic transfer plans into Equity MFs from liquid funds in India – these were started by me as a Indian tax payer – when I become a “US person” should I inform the MF houses to discontinue these STPs or can they continue?
4. I know NRIs cannot open PPF accounts – but can I open one while I am an Indian resident and continue to contribute it after being classified as NRI? Is interest earned by the PPF account taxable on yearly basis in the US?
Request your input on these queries.
Thank you
Satya
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Yes. However, you will be able to claim the foreign tax credit on the tax you paid in India.
2. Only the interest portion in USA.
3. You need to change your KYC. Also, you would need to report your assets to IRS, file Form 8621 and report income and pay tax on unrealized income for notional gain as on Dec, 31 of every year.
4. Yes, interest would be taxable in USA. I would suggest to invest through NRE account than to open PPF as interest is higher, interest on both tax free in India and more liquidity or use of NRE funds. Thanks.
suresh
i am US residence and have INR account in indian bank, for the calender year 2014, if i had $51000.00 at any point of time but at the end of the 2014 if i have only $9000.00, will my account be reported to IRS under FATCA provision.
Thank You
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I think the account would be reported if your balance was over $50,000 as of June 30, 2014 as pre-existing account/balance. However, India has not signed the FATCA agreement so this is based on the FATCA agreement signed by USA with other countries as FATCA is to be applied consistently to all countries. Thanks.
Sabby
Hi Jigar,
Nice article and thank you for replying all these follow-up queries.
I have a specific question.
I came to US in 2012. I haven’t filed FBAR then for 2012 and for 2013. Now I am planning to go for the streamline offshore process to comply.
I have couple of resident bank accounts in India as joint account with my parents. When we calculate the 5% penalty computation, the entire balance is considered or only my share of the total balance is considered? I have $20K in the account and the account is jointly owned by myself, my father and my mother. Should I pay the 5% penalty of $6.6K ($20k/3) or on the $20k itself. I am the primary holder of the account (first name is mine).
regards,
Sabby
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I suggest you not to do it yourself and hire an experienced CPA having experience of streamlined process before making any decision. Thanks.
Karthi
Hi Jigar,
I have LIC policy of 75 lks and 50lks for both my kids (paying in INR every yr). I’m a green card holder. Do I need to declare these policies? Do I need to pay additional taxes when it matures? Will I be able to get money in USD without trouble? (LIC says that they will deposit in any country accout when it matures). Or would you adivce to move my LIC policy to Gulf coutries policy which pays back in USD? Please advice. Thanks in advance.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Cash value of insurance policies needs to be included and reported. The taxability would depend on the policy and tax laws. Moving LIC policy to Gulf country or receipt in USD may not change the taxability of the policy as per IRS laws. Thanks.
Tandhiri
Hi. This blog is A-M-A-Z-I-N-G. You are doing such a great service to NRI community. Thanks a lot for your time.
We spoke to you a few days ago. Just a quick question:
Our balance is $20-25K during 2009-14. It is UNDER the threshold of $50K.
Hence, it may not be reported under FATCA.
Is there even a slight chance that the ‘less than $50K highest balance’ information may be transmitted to IRS; and IRS subsequently contacts us about FBAR violations (no 8938 reporting requirements).
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
It is voluntary on the financial institution to provide more info than required. If your bank or income tax department in India or RBI so chooses to report, it will be transmitted. I don’t think so but there is no guarantee. Thanks.
Raj
Dear Jigar,
If one’s Employees Provident Fund (EPF) account be reported, should it be reported as “Other” in the account type and explain it as “Retirement” or “Pension”?
What address should be given for this account? Should it be the head office of EPFO, which is in New Delhi?
Thanks!
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would think EPF as retirement account and not pension account. For address, please contact your employer’s HR department. Thanks.
Jay
Hi Jigar,
Your blog is really informative and very helpful. Thanks so much for providing this service for NRI community. I have a question regarding capital gain tax. I have sold my stocks in India and paid the tax, how to claim the tax credit here in the US for the same?
For example if I had made 2 Lakh short term capital gain & 1 lakh long term capital gain, I would be paying 15% tax in India on short term capital gain, i.e. Rs30K and no tax paid on long term capital gain as it is exempted.
Now when I file taxes in the US, here the tax for long term capital gain is 15%. Since I had not made any tax payments is India for long term gains , I will have to pay 15% on 1 Lakh long term capital gain.
On short term capital gain, the tax in the US is 28% and since I have already paid 15% tax in India, I believe here in US I need to pay only 13% (28-15)? Is that correct?
Also please clarify if we can get tax credit in USA on advances tax paid in India? Since the current FY is not completed in India, I was planning to make advance tax payment till Dec quarter and take the tax credit here in US. Please suggest if this is the right approach. Thanks in advance for your help.
Regards,
Jay
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Your understanding about the taxes and credit is correct. Also, You would need to re-calculate the gain and taxes for the calender year. You would not get any credit for advance tax. However, being an NRI, TDS would have been deducted from your income. You may use the TDS certificate as a proof for paying taxes in India and claim rebate. Thanks.
Jay
Hi Jigar,
Thanks so much for clarifying. I’m in US on H1B visa since 2012, as I was not sure of the duration of my assignment in US, I continued my resident accounts (both bank & demat) in India and hence do not have TDS certificates. Is there any other way to claim tax rebate when I file tax in US? Please help. Thank you.
Regards,
Jay
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Once you leave for employment, you are an NRI under FEMA and you would need to change your status from resident to NRI with banks, Demat and other financial institutions. Anyway, if there is no TDS, you would have filed your tax return in India. If you paid any tax, you may use that for your foreign tax credit. If you did not pay any tax i.e. income below basic exemption limit, you can not claim any tax credit as you have not paid any tax in India. Thanks.
Leena
Amazing article. I really appreciate.
I am USA citizen with a NRO account with FD in India.
USA tax year is Jan-Dec but India Tax year is April-March.
1. In India FD interest has TDS deduction when during a year and it becomes difficult to figure out the timing to file USA taxes. How does it need to handled when filing USA taxes
2. Also if I need to take deduction in USA for Tax paid in Indian , again the tax year timing causes issues. How to handle that.
Thank you again
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You may ask your bank to issue you an interest certificate for the calender year. Also, as the TDS certificates are issued quarterly so you would need to manually calculate the interest and TDS for the calender year. Thanks.
Sunildutt Madav
Dear Jigar ,
Once again i am looking fro your professional expertise in the below query .
Query : one of My Client Indian Citizen and resident (50 years old) , was working for IBM in the US for over 6 years. He has got a pension fund from IBM and will be active when, he will about 60 years old. There is another pension amount too from IBM which he plan to activate later (~at age of 60).
As any pension fund derived from Employer is Taxable , as the same will be taxable t him . Want to understand the benefit under DTAA if any , how he can plan to receive and pay the tax . Is any exemption available , dose he should file any global return ?
Regards
Sunildutt
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You would need to understand the pension schemes and DTAA for determining the taxation. For determining if global income is taxable, please determine your client’s residential status whether Not Ordinary Resident or Ordinary resident. Global income is taxable for Ordinary residents. Thanks.
Raj
Hello Mr. Jigar Patel,
My mother-in-law became a citizen last October. She has savings and fixed deposits in rupees in banks in India totalling about $80,000. Do I need to file FBAR for her? Also do I need to pay tax on the earnings on interest in the US when I file her taxes for 2014 in US. Please let me know.
Thanks.
Raj
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Yes. There is no tax on FBAR. If you do not file FBAR, penalty is huge. As she is a US resident, her global income would be taxable so I would sugges to include the interest income in her US tax return. Also, if she is filing single, she may need to file form 8938 as her foreign account balance is more than $50,000. Thanks.
robert
Thank you so much for your blog. I did not realize this reporting requirements till now.
I did not realize my Mutual fund account had crossed the 50K$ limit because I had put in mutual funds that did really well. This happened in late 2014. I also have a NRE account ~25K$.
a) Since banks are required to comply by FATCA by 2017 (I think), if I liquidate all my accounts will the bank still report to IRS.
b) The mutual fund account doesn’t earn any interest. Its all capital gains. Maybe they give out dividends but I let it just re-invest in the MF. If I don’t earn any money on that am I still liable for penalities? I understand that I should have paid money on the NRE accounts but why mutual fund?
Thanks so much
robert
Still modification. My MF account is actually 47K US$. However the combination of MF account and NRE cash account is > 50K $
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As total investments is over $50,000, if you file your tax return as single, you would also need to file form 8938 to IRS. Thanks.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
a. The FATCA compliance start from July 1, 2014. The banks/financial institutions have until 2016 to report your accounts/investments.
b. Dividends are taxable in USA. you would need to include your dividend income in US and pay tax. When you select dividend or dividend re-investment option, you pay tax twice – Dividend Distribution Tax (paid by companies, bourne by investors) in India and tax on dividend income in USA. you may end up paying more thn 50-60% of gross dividend as taxes.
c. Mutual funds are considered as PFIC and you would need to file Form 8621 and pay tax on the unrealized gain based on value of year ends (Dec. 31). Thanks.
averma
Is below $25K MF amount also requires form 8621 ? I read this in one of the IRS pdf’s “an exception has been granted by the IRS from reporting when PFIC stock that is worth under $25,000 ($50,000 for joint returns) has been incorporated. “
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You file 8621 for selecting the way how you want your income/taxes in PFIC to be calculated. MTM is the easiest/cheapest way to pay tax. If you do not file/elect, it will be taxed as per default method and you would have to pay more tax. I would suggest you to contact your CPA before making any decision. Thanks.
priyesh
Hello…Sir. I went to usa on student visa on 2001 and then came back in 2003 in india..During that time I had opened account with brokerage firm with 90000$. Do I have to report here or not and if not than what are chances that it will be reported in income tax authority by Fatca signing in September ..tks
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you are an Indian resident, you would need to disclose your brokerage account as Foreign Asset in your income tax return. Also, as you are an ordinary resident, your global income would be taxable in India. If you have paid any taxes in USA, you may also claim the credit for taxes paid in USA in your Indian income tax return. Thanks.
P. Menon
Hi, Jigar Ji,
Many thanks for your highly informative blog on the subject of Fatca.
News reports indicate that the Indian Govt has recently approved Fatca IGA signing with the U.S.
In this context, is it anticipated to have any likely revisions to be included for the timelines of implementation such as for due diligence and reporting schedules that may have to coincide with India’s Apr-Mar FY ?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Yes, the Cabinet has approved signing of FATCA in March 2015. However, I think the effective date would be the same i.e. July 1, 2014. As FATCA is to be applied consistently by ALL the countires in the world and as India already agreed substantively last year, I do not anticipate any revisions in the timeline. However, you never know. Thanks.
Sriharsha
Hello,
I have a question about investing in mutual funds – SIP plan in India. I was told that I would not need to pay any taxes in India on those returns. But , do I have to pay taxes on those returns when I try to get that money back to the US ?
Thanks,
Sriharsha
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Only 2 mutual funds are accepting investments from US residents. The long term capital gain on equity based mutual funds is exempt. Any short term gain or gain on sale of debt based mutual fund will be taxable. Your MF investments in India are considered as PFIC and you would have to report income based on December 31 valuation and pay tax on the unrealized gain in the USA. The investment and gain is to be calculated in USD based on currency rates declared by the Department of Treasury, USA. Thanks.
mahesh
Dear sir,
I have salary earned in US where federal tax, Social security tax and medicare tax is already levied in US. I was in US for 3 months and returned to india. while filing tax returns in india, can I get tax exemption for tax paid in US along with SSN and Medicare tax?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You would only get tax credit for your federal tax. SSN and Medicare are not taxes. Thanks.
Ramesh Sharma
Hi Jigar,
I have few basic questions on FBAR and FATCA as below :
1. Considering I have 2 accounts which have $10k maximum value(combined) at any point of time, which I transfer to and fro between the accounts. Do we need to show 2 accounts with maximum value as 10k or show only one account, since maximum value in both accounts was 10k at any point of time.
2. I have a demat account, how should I show the maximum value within a year for that account ?
3. I am married and file taxes jointly with my wife. Where do I mention that in FBAR. It just says individual while filling the form.
4. Since, I am filing taxes jointly with my wife(she does not work) does the maximum account value for filing FATCA is still $50,000 or is it something else?
Is there any way we can talk on this . Please let me know. Thanks.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Yes. both accounts with maximum balance in respective accounts.
2. If you can’t determine, use year-end December 31 amount as maximum amount.
3. Filing taxes jointly is not to be mentioned in FBAR. For jointly filing FBAR, certain conditions needs to be fulfilled. If not, you would file FBAR separately. If an account is held jointly and if you file separately, the account is to be added in both of your FBARs.
4. Form 8938 (FATCA) limit for married filing jointly is $100,000.
5. The ‘Contact Us’ page includes our contact details. Thanks.
ArunJS
Dear Mr. Patel,
Thank you very much for such an informative blog and deliberately answering all the questions.
I have two NRE savings accounts in ICICI bank in India since 2000. I opened another NRE savings account in HSBC in India in 2007. Together in all accounts in 2014, I had balance between $10K -$11K and received interest of about $370. My wife also has two NRE accounts since 2001 but she never had total balance in all of her accounts over $5K. She had an interest of $45.
We have been filing taxes as “married and jointly” since 2000 and never filed FBAR or FATCA 8938 because we never had total assets over $50K also not reported interest income because it was less than $100 in previous years.
Three questions:
1. Since I had assets over $10K in my ICICI accounts so I have to eFile FBAR this year and report all three NRE accounts? Honestly, I was eFiling taxes via HR Block online and not aware of FBAR (only thing we knew about Form FATCA 8938). How to find out about penalties?
2. My wife does not have to eFile FBAR because she never had or have assets more than $10K?
3. I had interest income from ICICI bank $370 so I should report it my taxes this year? My wife had only $45 interest, is that also need to be included?
Thanks
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. If your account balance is not more than $10,000 there is no requirement to file FBAR so don’t worry about the penalty. As your balane is more than $10,000 in 2014, you would file FBAR for that year only. You start reporting your income in yor 1040 from this year.
2. Yes, if assets not more than $10,000, your wife wouldn’t have to report FBAR. However, if she is a joint holder in your accounts and even as a joint holder, if her balance is more than $10,000, she would also need to file FBAR.
3. Yes. Thanks.
Misc
Dear Sir,
Thank you for this wonderful service. I have some questions that I am hoping that you will help me with.
I have never had a GC or been a U.S. Citizen. I used to be on H1b from 2002 to 2005, and then again for a year in 2009. I relocated permanently to India in late 2009 and have no filed a tax return in the US from 2010 onwards as I wasn’t living in the US, had no income there.
Does FATCA and FBAR apply to me?
Thank you very much for your help in clarifying this matter.
Misc
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
FATCA and FBAR only applies to US residents. As you do not have GC or US citizenship and you have not living in USA since 2009, you are not considered a US resident and these requirements do not apply to you. Thanks.
Kab
Jigar Ji,
Excellent article. I have been filing my FBAR for a few years. However, it came to my knowledge that I have accounts (I thought were no longer active) that have not been reported on FBAR. What are my options? The accounts have nominal value in them i.e less than $800 combined. Should I file an amendment to FBAR and disclose the accounts in previously unreported years.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would suggest you to close the account. However, please consult your CPA. Thanks.
PK
I earned 1 lakh interest in banks each of the years 2011, 2012, and 2013 In India
Banks deducted 10% TDS each year.
Until now I haven’t filed income tax returns in India to get tax refund. And I also haven’t show this income in my US tax returns.
1) So am I supposed to amend my US income tax returns for each of these years and declare income of 1 lakh INR ( converted in $) and then claim foreign tax credit of INR 10K ( converted in dollars ) . Also when I am amending say 2011 US tax return with an additional 1 Lakh = ~1650$ , that makes me liable for a 30% tax( $560 ) – INR 10K ($160) = $400. Am I also required to calculate interest on this $400 which I did not pay originally in 2011 returns ?
2) Or will it be correct if I file my pending Indian income tax returns this year , Apr 2014 , and then next year in the US FY 2015 returns I declare all the income together( 3 lakhs) and TDS together ( 30K INR of foreign tax credit ) .
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. You are required to re-designate your accounts from Resident to NRO. TDS @ 30.9% will apply on the interest on NRO deposits. You are also required to report the interest income to IRS.
2. You need to amend respective US tax return and file FBAR or other compliance. I suggest you consult your CPA about reporting of Income. Thanks.
Mohan
Thanks so much for this article! I had a quick question:
I’m a US resident. I didn’t know about FBAR before 2011 and didn’t file them. I’ve been doing so since 2011. With FATCA coming in, will Indian banks need to report my accounts held in India before 2011 too? Or just accounts that are currently held?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The reporting will be as of June 30, 2014 and thereafter from July 1, 2014. Thanks.
Sailaja
sir,
whether income from house property to non resident of india should report on Form 8938. and whats the difference between FBAR and Form 8938.
Thank you
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
FBAR is reporting of Foreign Financial Accounts and Form 8938 is reporting of Foreign Financial Assets. Any income generated from those foreign financial assets are reported in Form 8938. Please check http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements for more details about the differences between FBAR and 8938 and which assets to be reported where. Thanks.
Devjani Sengupta
My mum has and NRO and an NRE account to which I became a joint holder after my father died. I do not make any transactions as for all practical purposes the money belongs to my mum. Do I report this in my US tax, FBAR, FATCA just like my normal bank accounts. My mum already pays indian tax on them and claims them in her US Tax .
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
As you are a joint holder of the account, you would need to report all the accounts and pay tax. I would suggest you to remove your name and just became a nominee to avoid the hassle. I would suggest you to transfer all NRO funds to NRE to save Indian tax as there is no tax on NRE account. Thanks.
Joy
Hello Sir,
Thank you so much for such a great posts. I have been searching answers for this . It would be of great help if you can throw some light on the following questions:
1. My husband is on H1 and has been in US since 2013. He had few investments made while in India.Does he still have to declare his ppf and other FD accounts in India?
2. I am on dependent visa and not working in US. I was working in India before moving to US. I had made a few investments in PPF,MF, FD and ULIP while I was in India. I received some money from my employer after I quit work and moved to US in my Indian account. I invested that in MF and FD. Should I declare all my investments as well? I have not received any capital gain from any of these yet.
3. We haven’t opened an NRE account. But planning to open a NRE FD account. For eg, if we are planning to invest in a FD for two years, should we declare the interest after we receive it or while opening the NRE FD . We are planning to maintain less than 10k in NRE account. Should we still declare it?
4. We are not planning to apply for Citizenship or GC . We are planning to return. So does all this apply for us too?
5. If we have to declare, do we have to declare only when we have a certain amount invested in these schemes or do we have to declare it all immaterial of the amount. For eg, even if I have Rs.5000 in my Indian Bank saving account.
6. Should we declare rents from Indian property? Even if the rent is only Rs. 50,000 a year?
7. Should we declare ppf and other long term FD for 15 and 10 years respectively. Even if we haven’t taken any interest out of it because of the lock in period. In that case how will the tax be calculated in US?
Thank you so much.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
1. Yes. I would think so.
2. Yes.
3. $10k limit is all your financial accounts including resident, NRO, NRE, insurance, FD, ULIP, MF, etc.
4. Citizenship has nothing to do with the requirement. The requirement is for “Residents” as per IRS (where you stay). As you are on H1B, file 1040, you are considered a resident of USA.
5. ALL accounts
6. Yes, all income to be reported even Rs. 50
7. It is your decision to take interest on maturity. Interest accrue daily but you chose to receive on maturity. The interest for the year to be calculated and added to your US income on annual basis.
I would suggest you to consult your CPA or experienced CPA for the same. Thanks.
Sam
I have question about fbar and fatca-
Since Indian banks will only report account balance post June 2014, and the time to file fbar for 2014 is upto June 30 2015, if one has accounts in India for number years where the aggregat amount at end of 2014 is less than $40K, if they file fbar for 2014 without filing for previous years or amending returns for past years or going in to OVDP what are the chances of being questioned about years prior to 2014 ?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would say the chances would be higher if you have not transferred funds from USA in 2014. As per FATCA, the reporting would for balance over $50,000. Please consult your CPA. Thanks.
Vijay
Sir,
I am grateful for your informative article.
I have a question regarding my tax situation dating back to 2011. I traveled to US on a work visa on 15th November 2011 and stayed in US through the year. From January 1st 2011 till my travel to US, I was in India.
I finished filing my taxes for 2011 in 2012. Since I was in the US only for 45 days during 2011, was FBAR applicable to me at that time?
Thanks
Vijay
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The question is “Are you a resident of USA”. If yes, it will apply. If not, it may not. I think it may not apply but suggest to consult a CPA. Thanks.
Rahul
Sir, assume this scenario with OVDP process. What could happen if one enrolls in OVDP program, gets pre-clearance and also gets preliminarily accepted, all bank statements,documents,OVDI package,etc submitted to IRS and waiting on them to look into the case (or an agent to get assigned), but however in the meanwhile, due to FATCA, the banks/RBI started sharing all US persons’ account info to IRS (and IRS starts having info of ALL NRI people’s foreign accounts at its disposal). Would this result in the person becoming ineligible for OVDI and all his current OVDI process getting voided? Or would the penalty now become 50%? Please advise. Thanks.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I don’ think so but I would suggest you contact your CPA for the same. Thanks.
Mark
Do you have to report Life Insurance Policy even if it is term life Insurance? And what would you report ? the Maturity Amount?
Was this a requirement earlier with FD22 form it is requirement after they have started FATCA?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
Only life insurance that have cash value needs to be reported. The term life insurance does not have any cash value so not required to be reported. In Term life policy, maturity is only on death of person and is given to the relative, which is exempt from tax. Thanks.
jaggu
How about money back LIC policies where you pay premium, after 5 yrs, you get some amount back, I believe maturity is upon death.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
If any policy has a surrender value, it would be included. As money back policies has cash value (money back) , it would need to be reported. Thanks.
Mark
Also do you know what is the agreement between India and US? Say I have $3k FD and I close it, does it get reported to US IRS? How about the checking and saving accounts? I know if the aggregate balance is over 50K then it becomes reportable event. What are some of the criterion for reportable events?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The agreement between India and USA would be same as any agreement between USA and any other country as FATCA is to be applied to all countries consistently and uniformly. The limit for reporting is $50,000. However, financial institution may report lower amount, which I doubt. Also, all accounts, whether savings, checking, FD, mutual fund,life insurance, etc. would be covered. The detailed guidelines and procedures are not final or known yet. Thanks.
Manoj
Thanks Jigar Bhai for the fantastic blog!
I have heard India in principle have agreed to comply with FATCA, but hasn’t actually signed the treaty, that means they are not complying with regulations. I have heard the implementation is extended to Sep 1, 2015 , is this correct?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
No. If the implementation is extended for India, it is also extended for ALL the countries as it needs to be applied uniformly. Thanks.
Manoj
If India hasn’t signed the treaty then how can they start implementing FATCA? Parliament has to sign it into law. I think banks are registered but actual implementation has not started till it becomes law. What do you think?
Manoj
I think there is difference in implementing and exchanging information, you meant they have started implementation but exchange of information between the two govts can not start till it becomes law.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
It is an agreement and not a law. The mechanism (registration of Indian financial institution as FFI with IRS and a section in Income Tax Act that require FFI to report certain information) is already in place. Thanks.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
FATCA is not a law but just an agreement to share information. India signs a lot of agreement and they don’t need to be passed by the parliament. The Union Cabinet of India has already approved signing of FATCA. Also, Income tax act has already changed a section relating to “Statement of Financial Transactions and Reportable Accounts” (previously Annual Information Report) indicating how it will be implemented. Also, 746 financial institutions – banks, mutual funds, insurance companies, etc. from India have already registered (and approved) with IRS as Foreign Financial Institutions as of April 27, 2015. So I think the mechanism is already in place. The waiting is only for actual signing of FATCA agreement and issue of official communication. Thanks.
Manish Kapoor
Hi Manish,
I have a question which is very specific. I had bought house in India and have a sought a loan to keep myself safeguarded from any cash crunch in future. I took 7.5 crore loan under Home Savor account on this property. I took this loan even when I did not needed it to be keep funds handy for any business opportunity in future.
So what bank did they opened a loan account for me for 7.5 Crore. Then Also created another account called NRE current account and put those 7.5 Crore in that account. and this current does not bear any interest but what it does it takes every month EMI from this Current account and pays towards my Home loan automatically.
If my balance in current account is same as my loan amount then I am not charged any interest on the loan nor is any interest given to me from that deposit. Current account is basically a zero interest account .
However if my balance in the current account is less than the loan then I am liable to pay the interest on the difference as my interest in the loan.
In this case will this current account be reported ? Even though is fully funded from the loan account. And if I ad loan account and this account my total funds will be ZERO or negative ?
Do I need to report this current account as it has large amount of funds but they are from the loan account ?
Thank you
Manish
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
I would think so. The loan is for buying property so it would reduce your net investment in property. You are owner of the bank account and you are free to make investments in any other property – bank FD, mutual fund or other. I would suggest when you report your assets, you may also indicate the loan. Thanks.
John
I have close to $ 30k in Indian rupees in a NRE savings account. Do I have to report to IRS about this money under the FATCA implementation. Or since its under 50 k in total I don’t have to report.
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
You don’t have to report under FATCA i.e. Form 8938 but you still need to report in FBAR to Dept of Treasury as you have more than $10k. Thanks.
Sri
Could you advise more on epf? if there is a PF withdrawal in India of all earnings from prior years while changing employer and if this happens during the year residing in US, what is taxable in US tax return?
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The income (interest) on EPF is fixed so I would think the interest income would be added to your income on an annual basis. However, I would suggest you to contact your CPA in USA for the same. Thanks.
Nachiket Khake
Hello Mr Jigar,
Can you help me I have tried to find and answer to this following question from many people but no one is sure about it.
I had opeaned a students account with BOFA in 2007 used it till 2012 when I was workign on H1B , I left for India and did not close my bank account as I needed to transfer all funds to India thru remittance services. I opeaned my own outsourcing company where in I provide Pre construction services to Civil Industry and all my clients are in US, Now I have been paying taxes here in India since 2012.
The account in US is still active and I have changed the address to India address, If I take payment from my clients into this account thur check will I be liable to pay tax or will I have to file for tax in US ? I just accept the payment in that account and wire transfer it to my India account in $ to save service tax. I am confused if I should file taxes in US too ? If you can help me answer this it would be very helpful.
Thank You
Nachiket
Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)
The structure of your US operation would be key. I would assume you would have an entity in USA. In that case, the receipt in USA may be considered as US income and you would have to pay the tax on it. There is no double taxation. You can always get credit for tax paid in other country. But you would have to file your tax return. I would suggest you to find an experienced CPA in USA. Thanks.