Individual Tax

5 Important Tips For 2014 Tax Planning

Your new goal for 2014 should be to gain a higher level of understanding about your income taxes, plan for your tax liability and get organized. This will make tax season much easier and could save you some of your hard earned money.

Below are some simple tips to help you achieve your new goal.

Create a 2014 tax file. You can use a folder, bin or electronic file on your computer.  Include all transactions and documents that might affect your 2014 tax return.

If you use the electronic file, all you have to do is scan all your tax documents and move them into the folder on your computer.  The great thing about using an electronic file is you can easily e-mail the folder to your tax preparer when it is time to file. An electronic file also takes up much less room and will not clutter your desk. It is important that you back up your electronic file so you will not lose your tax file if anything happens to your computer.

Add important notes on your documents to help your tax preparer understand each transaction. You should include documents such as W2’s, K-1s, 1099s, property sale documents, escrow papers, property tax receipts, vehicle registration receipts, receipts for any tax deductible purchases, and donation receipts.

If your financial position will change this year, schedule a tax planning appointment halfway through the year. Financially altering events that occur in 2014 include marriage, divorce, having a baby, buying a home, selling a home or any other event that will affect your taxes. Do not try to set up an appointment in the middle of tax season. Waiting until the middle of the 2014 will assure your tax professional will have enough time to spend with you help you adequately plan for your taxes.

Fund your retirement plan. Check with your employer to see if you can contribute more to your retirement plan and confirm you are fully taking advantage of the employer match, if you have a retirement plan with your employer.

If you do not have a retirement plan, you need to open a ROTH IRA , IRA or other type of retirement plan. An investment house or bank can help you decide the best plan for your specific financial situation. This will help you plan for your future and will reduce your tax liability this year.

Prepay your income tax liabilities. If you do not prepay your income tax liabilities timely, the IRS will penalize you. You should write down your estimated tax payments and the due dates on your calendar. For 2014, the installment due dates for individuals are April 15th, June 16th, September 15th and January 15th, 2015.

Keep up with current news relating to tax legislation. The tax laws are constantly changing. You might think you know the valuable credits and deductions but Congress might have obliterated them.  Keeping up with the new tax law changes will help you take advantage of all the tax credits and deductions that are available to you.

Self Employment Income Needs To Be Turned Into Pension Plan

For people who are self employed, had a great year and want to save for retirement, it is advised that they start a defined benefit plan by the end of the year. You are funding the pension plan: you can deduct and contributed the most and build up your benefits significantly in a relatively short time (often only 5-10 years). If you combine your defined benefit plan with a 401(k) plan, you will be able to shelter your income from taxes with a tax deduction that could reach a couple hundred thousand dollars each year.

 How Do I Get The Tax Deduction For This Year?

To get this year’s deduction, you will have to start the plan before the 31st of December but the good news is you do not have to fund it fully until the following year before your tax filing deadline. The exact amount that you will be able to contribute is based on actuarial calculations that consider your income, years until you retire and age. Generally speaking, the older a person is, the more they can contribute. These defined benefit plans are perfect for those individuals who would like to contribute more money than they are allowed under many retirement plans including 401(k)s or SEP-IRAs.

Defined benefit plans are best for small practices and owner-only businesses. Think architects, doctors, software developers or sales reps. If you are married to your business partner, you could put away large amounts of money for your retirement. These plans are also perfect for employees that have a side business for extra income and spouses that are self employed but they are not the partner that has to contribute to the living expenses of the family.

 Do I Have To Make Contributions To The Defined Benefit Plan Every Year?

Once your defined benefit plan is set up, you will be required to add the minimum contribution that has been recalculated for the year. It is important that you only sign up for a defined benefit plan if you are expecting 3-5 steady years with good income. Only put in the amount you feel comfortable with. Do not let any advisors push you over that amount. Many people want to put the maximum amount in because they want to get the most take benefits; however, they need think about the future. If your business goes out of business, you are able to close the plan.

If you are not sure if you will have steady income over the next few years, you should consider contributing a smaller about to the plan and open a 401(k). This way, in good years you can contribute to the 401(k) plan after you have made the defined benefit plan’s minimum contribution.

Now is the time to start your defined benefit plan. Remember, if you want to take advantage of the tax advantages for this year’s taxes, you need to open your plan by December 31st. You have until the filing deadline to fully fund your plan and it will still count for this year’s tax return.

Strategies To Reduce The Net Investment Income Tax

The goal of planning  net investment income tax (NIIT) is to manage the adjusted gross income and net investment in order to reduce the total amount subject to federal tax. The net investment income tax is calculated using the lesser of the net investment income or the adjusted gross income over the tax threshold amount for the year.

How Is The Net Investment Income Tax Calculated?

The net investment income tax is a surtax at a 3.8% tax rate of a base income. The base income is the lesser of:

  • Net investment income
  • Modified AGI above the threshold

NIIT Thresholds

Filing Status of Taxpayer                                                        Modified AGI

Single and Head of Household                                              $200,000

Married Filing Jointly, Qualified Widower or Widow           $250,000

Married Filing Separately                                                       $125,000

If you are trying to reduce your net investment income tax, you could reduce the net investment income, AGI or both. If your adjusted gross income is lowered below the threshold, the net investment income wouldn’t apply to you because it created a negative amount that becomes zero. Also, if the adjusted gross income is above the threshold, reducing the net investment income and/or AGI lowers the amount of your income that is subject to net investment income tax.

If you reduce your capital gains amount earned during the year, your income will be reduced and your AGI will be reduced. It is important to remember that the adjusted gross income is your total income less all the first page deductions on the first page of the IRS form 1040. All itemized deductions don’t reduce your adjusted gross income.

Two Basic Net Investment Income Tax Planning Strategies

  • Reduce AGI below the threshold
  • Reduce your net investment income

Tax-Sheltered Investments

  •  Life Insurance. Growth in a life insurance policy is sheltered from current income taxes. Additionally, the death benefit is also tax free. Placing assets directly into life insurance removes that investment income from net investment income and AGI. 
  • Roth 401(k) or Roth IRA plans.  Qualified distributions from a Roth retirement plan are not included as income.
  •  Deferred Annuities. Consider using deferred annuities after all 401(k) and contributions to retirement plans have been maxed out. Annuities will shelter your earnings from immediately being taxed. They will help you smooth out your income and help keep your AGI under the NIIT threshold.
  • Possibly convert Pretax Retirement Plans into a Roth plan.  Taxpayers need to determine if this will make sense for them. The amount that is converted into a Roth plan increases adjusted gross income and income which could potentially cause income tax liability and net investment income tax liability. However, future income distributions from the Roth IRA will be exempt from tax.

 Passive Income Strategies

Consider investments where your investment can be depreciated. For example, rental real estate can be depreciated. Depreciation reduces the total rental income that is taxable. Another option is gas and oil investments. These offer a large deduction for depletion that can be taken upfront and a deduction for most of the intangible drilling costs. These deductions give gas and oil investments more tax advantages than many other investments. Both of these strategies help reduce the total investment income that is taxable.

Many taxpayers own real estate and rent their building to directly to their own business (self rentals). These may be subject to a 3.8% net investment income tax.

When taxpayers own multiple passive businesses or rental properties, they should consider how these activities are grouped to calculate passive activity loss limitations. The IRS provides taxpayers an opportunity to regroup these activities which can be a better way to handle passive losses. It can reduce the amount of income that is subject to federal tax.

Strategies for Capital Gains

Installment Sales. Taxpayers that are selling major capital assets or real estate should think about using installment sales. The seller directly finances the purchase using a loan. Taxpayers will then have the choice of whether they want to spread the capital gains over loan’s life or not. This will help smooth income for the amount of years of the loan.

Charitable Remainder Trusts. Property can be placed in a charitable remainder trust and the taxpayer can draw distributions over the rest of the taxpayer’s life. The remainder will go to charity.  The distributions are subject to the net investment income tax but it can be done over many years. Taxpayers, for example, can sell appreciated assets from inside of the charitable remainder trust and income can be distributed over many years.

Charitable Lead Trusts. Taxpayers get an upfront charitable deduction and they are able to keep the gains off of their tax returns. This is a good option for extremely generous taxpayers.

Tax Provisions That Expire In 2013

There are many tax provisions that are scheduled to expire at the end of 2013. You should consider taking advantage of these provisions while they exist.

Tax Breaks For Individuals

Exclusion for Mortgage Debt Cancellation on Primary Residences

In general, debts that have been cancelled or forgiven are considered to be taxable income. There has been an exception for mortgage debt cancelled between 2007 and 2013 if the debt was canceled because of a short sale, mortgage restructuring or foreclosure.

Distributions From Retirement Plans Are Tax Free If It Is For Charitable Purposes

Individuals that are at least 70.5 years old can distribute funds from a retirement account directly to the charity of their choosing up to $100,000 per year as a qualified charitable distribution. These qualified charitable distributions are tax free and may satisfy the minimum plan distribution rules.

Qualified Small Business Stock Exclusion

Investors are able to sell qualified small business stock. 100% of the gains from the sale of the stock will be excluded from income. After 2013, only 50% of the small business stock gains will be able to be excluded.

 Tax Breaks For Employee Benefits

 Mass Transit Benefit

 During 2013, the tax free exclusion for the mass transit fringe benefits was $245 each month. The amount is reduced to $130 per month beginning in 2014.

 Above The Line Deductions

Deduction For Classroom Expenses

K through 12 educators, principals and teachers are able to deduct job related expenses up to $250 as an above the line deduction. In 2014, they will only be able to deduct these expenses as part of the itemized deduction for employee business expense.

Deduction for Tuition and Fees

This above the line deduction expires in 2013. In 2014, the American Opportunity Credit and Lifetime Learning Credit will be available.

Itemized Deductions

Mortgage Insurance Premium Deduction

Homeowners are able to deduct mortgage insurance premiums, only through 2013, as part of the mortgage interest deduction.

Local and State Sales Tax Deduction

State sales tax can be deducted in place of state income taxes. This is very valuable for taxpayers that live in any state that does not have state income tax.

 Real Property Charitable Contributions Made For The Purpose of Conservation

Taxpayers that donate conversation easements to a charity can deduct the value of the easement limited to 50% of AGI minus deductions for all additional charitable contributions. The 50% special limitation expires in 2013.

 Tax Credits

Non Business Energy Property Credit

The tax credit is for 10% of the cost of the qualified energy efficient products that are installed at the main residence of the taxpayer.

2 Or 3 Wheeled Plug In Electric Vehicles

This tax credit is for $2,500 for a vehicle that draws energy from a battery that has a minimum of five kilowatt capacity hours. There is an additional $417 credit for each additional kilowatt capacity hours in excess of the minimum five. The total of this credit has a limit of $7,500.

 Credit For Health Coverage

 The health coverage credit is equal to 72.5% qualified health insurance premiums and the taxpayer’s family.

Credit For Work Opportunity Tax Credit

This tax credit is an incentive for businesses to hire specific employees including public assistance recipients or veterans. For example, employers can receive a tax credit of $4,800 for each disabled veteran that is hired.

 Depreciation

Bonus

 Businesses are able to deduct up to 50% of new equipment costs through a bonus depreciation deduction in 2013. All of the rest of the cost of the equipment will be depreciated over the equipment’s useful life. This bonus will not be available in 2014. The only exception in 2014 will be in the case of noncommercial aircrafts and long production period property.

Section 179

Under section 179, businesses are able to expense the total cost of equipment in the year it is purchased instead of using depreciation and spreading the cost over many years. In 2013, businesses are able to expense up to $500,000. In 2014, they will only be able to expense up to $25,000.

 

 

 

Education Tax Deductions and Credits Can Help Save You Money

The cost of college is always increasing; however, there is some relief with education tax deductions and credits. Qualified education expenses may be deducted for your dependents, yourself or your spouse. These tax deductions and credits help more parents and students pay for college expenses.

 American Opportunity Tax Credit

 The American Opportunity Tax Credit helps taxpayers save money on the cost of post-secondary education. It is a tax credit for undergraduate college qualified expenses. This credit was extended until Dec. 31, 2017 when the 2012 American Taxpayer Relief Act was passed.

Tax credits are better than tax deductions because credits reduce the total amount of tax owed or it increases the total amount of your refund in the credit amount. This means that your tax liability will be reduced one dollar for each eligible credit. There is a $2,500 maximum per student for the American Opportunity Tax Credit. In order to qualify, you need to have paid a minimum of $4,000 during the year in qualified education expenses. If you do not incur a tax liability during the year, this credit is still partially refundable up to 40%.

What Expenses Qualify For The Education Tax Credits?

The American Opportunity Tax Credit is unlike other education related tax credits because in addition to tuition, it also includes expenses for supplies, equipment and course related books that are not always paid directly to the educational intuition. Computers qualify for the tax credit if the computer is needed as a condition of attendance or enrollment at the educational institution. These expenses for course materials must be needed for the course of study.

This credit is allowed to be claimed for expenses that are incurred for during the first 4 years of the post-secondary education. The expenses must be paid during the taxable year and relate to the academic period that begins during the same year or the academic period that begins during the first 3 months or the following taxable year.

There are several expenses that do not qualify for the education tax credits. These expenses include:

  • Transportation
  • Room and board
  • Medical expenses
  • Insurance
  • Student fees that are not required as a condition of attendance or enrollment
  • Expenses that are paid with tax-free assistance
  • Expenses that are used for another educational benefit, tax credit or tax deduction

Do I Qualify For The American Opportunity Tax Credit?

The education expenses must relate to the first 4 years of college after high school to qualify for this tax credit. Although graduate students do not qualify for the American Opportunity Tax Credit, there may be other tax deductions and credits that may be eligible for including the Tuition and Fees Deduction and the Lifetime Learning Credit. The American Opportunity Tax Credit is not available for single filers with a modified AGI (adjusted gross income) higher than $90,000 or people filing jointly with income higher than $180,000.

What is the Tuition and Fees Deduction?

 If you have paid a minimum of $4,000 in education tuition and fees, the tuition and fees deduction maximizes out at $4,000. This is a tax deduction and is not the same as a tax credit. Additionally, it is different than the American Opportunity Tax Credit because the deduction for upper income is phased out at a slightly lower income range. This deduction is not available for single filers with a modified AGI (adjusted gross income) higher than $80,000 or people filing jointly with income higher than $160,000.

It is important to understand that you cannot use the American Opportunity Tax Credit and the Tuition and Fees Deduction in the same year. You need to choose between taking the Tuition and Fees Deduction or claiming the American Opportunity Tax Credit.

Alternative Minimum Tax | Tax Planning

The purpose of the alternative minimum tax (AMT) is to help keep the wealthy from using tax loopholes in order to avoid having to pay taxes. It was designed to make the tax system fairer. Before the AMT was instituted, some high earners found a way to legally use tax deductions and other tax credits to pay no federal income taxes. Unfortunately, the tax did not adjust automatically for inflation causing more middle class taxpayers to have to pay the AMT every year in addition to tax payers with high incomes. In 2013, Congress passed a permanent patch to address this issue with the AMT.

 What Is The Alternative Minimum Tax?

 The alternative minimum tax is a tax system that operates parallel to the regular tax. It essentially expands the income amount that is taxed. It does not allow many of the deductions that are allowed in the regular tax system and it adds in many tax-free items.

 Alternative Minimum Tax Adjustments

 There are numerous adjustments made when calculating the AMT. There is some income added that is not subject to regular income tax. There are some deductions that are eliminated or adjusted down.

Items that may cause an alternative minimum tax liability include:

  •  Itemized deductions for medical expenses, miscellaneous expenses or for local and state taxes
  • Mortgage interest
  • Property tax
  • Exercising incentive stock options (not selling)
  • Accelerated depreciation
  • Losses or passive income
  • Deduction for net operating loss
  • Investment expenses
  • Foreign tax credits
  • Tax exempt interest from private activity bonds

 2014 AMT Exemption Amounts

$52,800 – Single or Head of Household

$82,100 – Married Filing Jointly, Qualifying Widower or Widow

$41,050 – Married Filing Separately

 2013 AMT Exemption Amounts

 $51,900 – Single or Head of Household

$78,750 – Married Filing Jointly, Qualifying Widower or Widow

$39,375 – Married Filing Separately

These exemption rates mean that this amount of income recalculated under AMT rules is not subject to the alternative minimum tax. Any income that is over the exemption amounts may be subject to the alternative minimum tax.

 Alternative Minimum Tax Rates

There are only two tax brackets for the AMT – 26% and 28%. The alternative minimum tax rate is only on the AMT income over the exempted amount.

2014

The 26% alternative minimum tax bracket ends, starting the 28% alternative minimum tax bracket at:

  • Married Filing Separately:      $91,250
  • All other filing statuses:          $182,500

2013

The 26% alternative minimum tax bracket ends, starting the 28% alternative minimum tax bracket at:

  • Married Filing Separately:      $89,750
  • All other filing statuses:          $179,500

Do I Have To Pay The AMT?

You can easily figure out if you have to pay the additional alternative minimum tax by filling out Form 6251. You will be required to pay the AMT if the calculated tax on Form 6251 is higher than the tax on your regular tax return. You will have to pay the difference as alternative minimum tax. You will also have to pay the amount calculated on your regular tax return.

If you have to pay the AMT, you can determine why you have to pay the additional tax by looking closely at your Form 6251. Look at your entries on lines 1 through 27. These entries adjust your taxable income for alternative minimum tax purposes.

You can also use the AMT Assistant for Individuals calculator available at www.irs.gov. Additionally, most tax software will automatically calculate the alternative minimum tax.

Alternative Minimum Tax Planning

 It can be difficult to devise a tax strategy for the AMT because it is often adjusted for many credits and deductions. Tax professionals generally recommend the following AMT planning tips.

 Get reimbursed from your employer for all business expenses. These business expenses are included in the miscellaneous itemized deductions that are added to your AMT income. When your employer pays you back for your business expenses, it is a tax free event and it prevents an increased AMT adjustment.

Make sure your state tax withholding is just enough so that you do not owe additional taxes at the end of the year but not too much causing you to overpay substantially. This will help you keep your state tax deduction low and keep your alternative minimum tax as low as possible.

Pay property taxes on the due date. Do not prepay your next installment before the end of the tax year. This will help keep your deductions low.

You should sell any exercised incentive stock options during the calendar year that you exercised them. Selling them the same year will make you subject to the regular tax but not the alternative minimum tax. If you exercise the options during the year but do not sell them, the value of the option will become income for the alternative minimum tax income.

 

Where did your tax dollars go ? Calculate Now

Where did my tax dollars go ? During the tax time of the year, this thought might cross your mind.  Use this graphic (published by wheredidmytaxdollarsgo.com) to see how your tax dollars get divided and used.

how-much-did you-spent

RBI Guidelines | Acquisition and Transfer of Immovable Property in India

You may have heard Sanjiv talk about RBI Guidelines on Radio or at the Live Events. What are those RBI Guidelines ? Who is impacted by those guidelines  ?

Acquisition and Transfer of Immovable Property in India By Reserve Bank of India – You can get the complete RBI Guideline here.

(updated as on July 2, 2012)

Introduction

Acquisition of immovable property in India by persons resident outside India (foreign national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act (FEMA), 1999 as well as by the regulations contained in the Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time. Section 2 (v) and Section 2 (w) of FEMA, 1999 defines `person resident in India’ and a `person resident outside India’, respectively. Person resident outside India is categorized as Non- Resident Indian (NRI) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. The Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority.

A person resident in India who is not a citizen of India is also covered by the relevant Notifications.

2. In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India.

3. The regulations under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time, permit a NRI or a PIO to acquire immovable property in India, other than agricultural land or, plantation property or farm house. Further, foreign companies who have been permitted to open a Branch or Project Office in India are also allowed to acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. Such dispensation is however not available to entities which are permitted to open liaison offices in India.

4. The restrictions on acquiring immovable property in India by a person resident outside India would not apply where the immovable property is proposed to be acquired by way of a lease for a period not exceeding 5 years or where a person is deemed to be resident in India.

In order to be deemed to be a person resident in India, from FEMA angle, the person would need to comply with the provisions of Section 2(v) of FEMA 1999. The Press Release dated February 1, 2009 issued by Government of India in this regard is enclosed as Annex.

Note: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire or transfer immovable property in India, (other than on lease not exceeding five years) without the prior permission of the Reserve Bank.

5. NRIs/ PIOs are allowed to repatriate an amount up to USD one million, per financial year (April-March), out of the balances held in the Non-Resident (Ordinary) Rupee (NRO) account, subject to compliance with applicable tax requirements. This amount includes sale proceeds of assets acquired by way of inheritance or settlement.

6. The FAQs cover the following topics :

A. Acquisition of Immovable Property in India by a person resident outside India, i.e., by a NRI / PIO / foreign national of non-Indian origin by way of purchase / gift / inheritance.

B. Transfer of immovable property in India by a person resident outside India by way of

i) sale
ii) gift
iii) mortgage

C. Mode of payment for purchase of immovable property in India.

D. Repatriation of sale proceeds of residential / commercial property, in India, outside India acquired by NRI / PIO by way of

i) purchased
ii) gift
iii) inheritance

E. Provisions for Foreign Embassies / Diplomats / Consulates General

F. Other Aspects.


A. Acquisition of Immovable Property in India through
purchase / gift/ inheritance

Q.1. Who can purchase immovable property in India ?

Ans. Under the general permission available, the following categories can purchase immovable property in India:

i) Non-Resident Indian (NRI)1[1][1][1]

ii) Person of Indian Origin (PIO)2[2][2]

The general permission, however, covers only purchase of residential and commercial property and is not available for purchase of agricultural land / plantation property / farm house in India.

Q.2. Can NRI/PIO acquire agricultural land/ plantation property / farm house in India?

Ans. No.

Q.3. Are any documents required to be filed with the Reserve Bank after the purchase?

Ans. No. An NRI / PIO who has purchased residential / commercial property under general permission, is not required to file any documents/reports with the Reserve Bank.

Q.4. How many residential / commercial properties can NRI / PIO purchase under the general permission?

Ans. There are no restrictions on the number of residential / commercial properties that can be purchased.

Q.5. Can a foreign national of non-Indian origin be a second holder to immovable property purchased by NRI / PIO?

Ans. No.

Q.6. Can a foreign national of non-Indian origin resident outside India purchase immovable property in India?

Ans. No. A foreign national of non-Indian origin, resident outside India cannot purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. However, he / she can acquire or transfer immovable property in India, on lease, not exceeding five years. In such cases, there is no requirement of taking any permission of /or reporting to the Reserve Bank.Q.7. Can a foreign national who is a person resident in India purchase immovable property in India?

Ans. Yes, a foreign national who is a ‘person resident in India’ within the meaning of Section 2(v) of FEMA, 1999 can purchaseimmovable property in India, but the person concerned would have to obtain the approvals and fulfil the requirements, if any, prescribed by other authorities, such as, the State Government concerned, etc. The onus to prove his/her residential status is on the individual as per the extant FEMA provisions, if required by any authority. However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank.

Q.8. Can the branch / liaison office of a foreign company purchase immovable property in India?

Ans. A foreign company which has established a Branch Office or other place of business in India, in accordance with the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, can acquire any immovable property in India, which is necessary for or incidental to carrying on such activity. The payment for acquiring such a property should be made by way of foreign inward remittance through the proper banking channels. A declaration in form IPI should be filed with the Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorised Dealer as a security for the purpose of borrowings. On winding up of the business, the sale proceeds of such property can be repatriated only with the prior approval of the Reserve Bank. Further, acquisition of immovable property by entities incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan and who have set up Branch Offices in India and would require prior approval of the Reserve Bank.

However, if the foreign company has established a Liaison Office in India, it cannot acquire immovable property. In such cases, Liaison Offices can acquire property by way of lease not exceeding 5 years.

Q.9. Can a NRI/PIO acquire immovable property in India by way of gift? Cana foreign national acquire immovable property in India by way of gift?

Ans. (a) Yes, NRIs and PIOs can freely acquire immovable property by way of gift either from

i) a person resident in India; or
ii) an NRI; or
iii) a PIO.

However, the property can only be commercial or residential in nature. Agricultural land / plantation property / farm house in India cannot be acquired by way of gift.

(b) A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of gift.

Q.10. Can a non-resident inherit immovable property in India?

Ans. Yes, a person resident outside India i.e. i) an NRI; ii) a PIO; and iii) a foreign national of non-Indian origin can inherit and hold immovable property in India from a person who was resident in India.

Q.11. From whom can a non-resident person inherit immovable property?

Ans. A person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) can inherit immovable property from

(a) a person resident in India
(b) a person resident outside India

However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange law in force or FEMA regulations, applicable at the time of acquisition of the property.

B. Transfer of immovable property in India

(i) Transfer by way of sale

Q.12. Can an NRI/ PIO/foreign national sell his residential / commercial property?

Ans. (a) NRI can sell property in India to

i) a person resident in India; or
ii) an NRI; or
iii) a PIO.

(b) PIO can sell property in India to

i) a person resident in India; or
ii) an NRI; or
iii) a PIO – with the prior approval of the Reserve Bank

(c) Foreign national of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan can sell property in India with prior approval of the Reserve Bank to

i) a person resident in India
ii) an NRI
iii) a PIO

Q.13. Can a non-resident owning / holding an agricultural land / a plantation property / a farm house in India sell the said property?

Ans. (a) NRI / PIO may sell agricultural land /plantation property/farm house to a person resident in India who is a citizen of India.

(b) Foreign national of non-Indian origin resident outside India would need prior approval of the Reserve Bank to sell agricultural land/plantation property/ farm house in India.

(ii) Transfer by way of gift

Q.14. Can a non-resident gift his residential / commercial property?

Ans. Yes.

(a) NRI / PIO may gift residential / commercial property to –

(i) person resident in India or
(ii) an NRI or
(iii) PIO.

(b) A foreign national of non-Indian origin requires the prior approval of the Reserve Bank for gifting the residential / commercial property.

Q.15. Can an NRI / PIO / foreign national holding an agricultural land / a plantation property / a farm house in India, gift the same?

Ans. (a) NRI / PIO can gift an agricultural land / a plantation property / a farm house in India only to a person resident in India who is a citizen of India.

(b) A foreign national of non-Indian origin would require the prior approval of the Reserve Bank to gift an agricultural land / a plantation property / a farm house in India.

(iii) Transfer through mortgage

Q.16. Can residential / commercial property be mortgaged by NRI/ PIO?

Ans. i) NRI / PIO can mortgage a residential / commercial property to:

(a) an Authorised Dealer / the housing finance institution in India without the approval of Reserve Bank

(b) a bank abroad, with the prior approval of the Reserve Bank.

ii) A foreign national of non-Indian origin can mortgage a residential / commercial property only with prior approval of the Reserve Bank.

iii) A foreign company which has established a Branch Office or other place of business in accordance with FERA/FEMA regulations has general permission to mortgage the property with an Authorised Dealer in India.

C. Mode of payment for purchase of immovable property in India.

Q.17. How can an NRI / PIO make payment for purchase of residential / commercial property in India?

Ans. Payment can be made by NRI / PIO out of:

(a) funds remitted to India through normal banking channels or

(b) funds held in NRE / FCNR (B) / NRO account maintained in India

No payment can be made either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned above.

Q.18 Is repatriation of application money for booking of flat / payment made to the builder by NRI/ PIO allowed when the flat or plot is not allotted or the booking / contract is cancelled?

Ans. The Authorised Dealers can allow NRIs / PIOs to credit refund of application/ earnest money/ purchase consideration made by the house building agencies/ seller on account of non-allotment of flat/ plot/ cancellation of bookings/ deals for purchase of residential, commercial property, together with interest, if any, net of income tax payable thereon, to NRE/FCNR account, provided, the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the Authorised Dealer is satisfied about the genuineness of the transaction.

Q.19. Can NRI / PIO avail of loan from an authorised dealer for acquiring flat / house in India for his own residential use against the security of funds held in his NRE Fixed Deposit account / FCNR (B) account? How the loan can be repaid?

Ans. Yes, such loans are permitted subject to the terms and conditions laid down in Schedules 1 and 2 to the Notification No. FEMA 5/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time. Banks cannot grant fresh loans or renew existing loans in excess of Rs. 100 lakhs against NRE and FCNR (B) deposits, either to the depositors or to third parties. The banks should also not undertake artificial slicing of the loan amount to circumvent the ceiling of Rs. 100 lakh.

Such loans can be repaid in the following manner:

(a) by way of inward remittance through normal banking channel or

(b) by debit to the NRE / FCNR (B) / NRO account of the NRI/ PIO or

(c) out of rental income from such property

(d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.

Q.20. Can NRI / PIO, avail of housing loan in Rupees from an Authorised Dealer or a Housing Finance Institution in India approved by the National Housing Bank for purchase of residential accommodation or for the purpose of repairs / renovation / improvement of residential accommodation ? How can such loan be repaid?

Ans. Yes, NRI/PIO can avail of housing loan in Rupees from an Authorised Dealer or a Housing Finance Institution subject to certain terms and conditions laid down in Regulation 8 of Notification No. FEMA 4/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time. Authorised Dealers/ Housing Finance Institutions can also lend to the NRIs/ PIOs for the purpose of repairs/renovation/ improvement of residential accommodation owned by them in India. Such a loan can be repaid (a) by way of inward remittance through normal banking channel or (b) by debit to the NRE / FCNR (B) / NRO account of the NRI / PIO or (c) out of rental income from such property; or (d) by the borrower’s close relatives, as defined in section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.

Q.21. Can NRI/PIO avail of housing loan in Rupees from his employer in India?

Ans. Yes, subject to certain terms and conditions given in Regulation 8A of Notification No. FEMA 4/2000-RB dated May 3, 2000 and A.P. (DIR Series) Circular No.27 dated October 10, 2003, i.e.,

(i) The loan shall be granted only for personal purposes including purchase of housing property in India;

(ii) The loan shall be granted in accordance with the lender’s Staff Welfare Scheme/Staff Housing Loan Scheme and subject to other terms and conditions applicable to its staff resident in India;

(iii) The lender shall ensure that the loan amount is not used for the purposes specified in sub-clauses (i) to (iv) of clause (1) and in clause (2) of Regulation 6 of Notification No.FEMA.4/2000-RB dated May 3, 2000.

(iv) The lender shall credit the loan amount to the borrower’s NRO account in India or shall ensure credit to such account by specific indication on the payment instrument;

(v) The loan agreement shall specify that the repayment of loan shall be by way of remittance from outside India or by debit to NRE/NRO/FCNR Account of the borrower and the lender shall not accept repayment by any other means.

D. Repatriation of sale proceeds of residential / commercial property
purchased by NRI / PIO

Q.22. Can NRI / PIO repatriate outside India the sale proceeds of immovable property held in India?

Ans.

(a) In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by a NRI / PIO, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:

(i) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;

(ii) the amount to be repatriated does not exceed:

· the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or

· the amount paid out of funds held in Foreign Currency Non-Resident Account, or

· the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property; and

(iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

For this purpose, repatriation outside India means the buying or drawing of foreign exchange from an authorised dealer in India and remitting it outside India through normal banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency.

(b) in case the property is acquired out of Rupee resources and/or the loan is repaid by close relatives in India (as defined in Section 6 of the Companies Act, 1956), the amount can be credited to the NRO account of the NRI/PIO. The amount of capital gains, if any, arising out of sale of the property can also be credited to the NRO account.

NRI/PIO are also allowed by the Authorised Dealers to repatriate an amount up to USD 1 million per financial year out of the balance in the NRO account / sale proceeds of assets by way of purchase / the assets in India acquired by him by way of inheritance / legacy. This is subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter, and a tax clearance / no objection certificate from the Income Tax Authority for the remittance. Remittances exceeding US $ 1,000,000 (US Dollar One million only) in any financial year requires prior permission of the Reserve Bank.

(c) A person referred to in sub-section (5) of Section 6 of the Foreign Exchange Management Act 3[3][3], or his successor shall not, except with the prior permission of the Reserve Bank, repatriate outside India the sale proceeds of any immovable property referred to in that sub-section.

Q.23. Can an NRI/PIO repatriate the proceeds in case the sale proceeds were deposited in the NRO account?

Ans. Please refer to the answer at Q.22 above. NRI/PIO may repatriate up to USD one million per financial year (April-March) from their NRO account which would also include the sale proceeds of immovable property. There is no lock in period for sale of immovable property and repatriation of sale proceeds outside India.

Q.24. If a Rupee loan was taken by the NRI/ PIO from an Authorised Dealer or a Housing Finance Institution for purchase of residential property can the NRI / PIO repatriate the sale proceeds of such property?

Ans. Yes, Authorised Dealers have been authorised to allow repatriation of sale proceeds of residential accommodation purchased by NRIs/ PIOs out of funds raised by them by way of loans from the authorised dealers/ housing finance institutions to the extent such loan/s repaid by them are out of the foreign inward remittances received through normal banking channel or by debit to their NRE/FCNR accounts. The balance amount, if any, can be credited to their NRO account and the NRI/PIO may repatriate up to USD one million per financial year (April-March) subject to payment of applicable taxes from their NRO account balances which would also include the sale proceeds of the immovable property.

Q.25. If the immovable property was acquired by way of gift by the NRI/PIO, can he repatriate abroad the funds from sale of such property?

Ans. The sale proceeds of immovable property acquired by way of gift should be credited to NRO account only. From the balance in the NRO account, NRI/PIO may remit up to USD one million, per financial year, subject to the satisfaction of Authorised Dealer and payment of applicable taxes.

Q.26. If the immovable property was received as inheritance by the NRI/PIO can he repatriate the sale proceeds?

Ans. Yes, general permission is available to the NRIs/PIO to repatriate the sale proceeds of the immovable property inherited from a person resident in India subject to the following conditions:

(i) The amount should not exceed USD one million, per financial year (ii) This is subject to production of documentary evidence in support of acquisition / inheritance of assets and an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes vide their Circular No.4/2009 dated June 29, 2009 (iii) In cases of deed of settlement made by either of his parents or a close relative (as defined in section 6 of the Companies Act, 1956) and the settlement taking effect on the death of the settler (iv) the original deed of settlement and a tax clearance / No Objection Certificate from the Income-Tax Authority should be produced for the remittance (v) Where the remittance as above is made in more than one installment, the remittance of all such installments shall be made through the same Authorised Dealer (vi) In case of a foreign national, sale proceeds can be repatriated if the property is inherited from a person resident outside India with the prior approval of the Reserve Bank. The foreign national has to approach the Reserve Bank with documentary evidence in support of inheritance of the immovable property and the undertaking and the C.A. Certificate mentioned above.

The general permission for repatriation of sale proceeds of immovable property is not available to a citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran and he has to seek specific approval of the Reserve Bank.

As FEMA, 1999 specifically permits transactions only in Indian Rupees with citizens of Nepal and Bhutan. Therefore, the question of repatriation of the sale proceeds in foreign exchange to Nepal and Bhutan would not arise.

E. Provisions for Foreign Embassies / Diplomats / Consulates General

Q.27. Can Foreign Embassies / Diplomats / Consulates General purchase / sell immovable property in India?

Ans. In terms of Regulation 5A of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000, Foreign Embassies/ Diplomats/ Consulates General, may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided –

(i) Clearance from the Government of India, Ministry of External Affairs has been obtained for such purchase/sale; and

(ii) The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.

F. Other Aspects

Q.28. Can NRI / PIO rent out the residential / commercial property purchased out of foreign exchange / rupee funds?

Ans. Yes, NRI/PIO can rent out the property without the approval of the Reserve Bank. The rent received can be credited to NRO / NRE account or remitted abroad. Powers have been delegated to the Authorised Dealers to allow repatriation of current income like rent, dividend, pension, interest, etc. of NRIs/PIO who do not maintain an NRO account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for.

Q.29. Can a person who had bought immovable property, when he was a resident, continue to hold such property even after becoming an NRI/PIO? In which account can the sale proceeds of such immovable property be credited?

Ans. Yes, a person who had bought the residential / commercial property / agricultural land/ plantation property / farm house in India when he was a resident, continue to hold the immovable property without the approval of the Reserve Bank even after becoming an NRI/PIO. The sale proceeds may be credited to NRO account of the NRI /PIO.

Q.30. Can the sale proceeds of the immovable property referred to in Q.No. 29 be remitted abroad ?

Ans. Yes, From the balance in the NRO account, NRI/PIO may remit up to USD one million, per financial year, subject to the satisfaction of Authorised Dealer and payment of applicable taxes.

Q.31. Can foreign nationals of non-Indian origin resident in India or outside India who had earlier acquired immovable property under FERA with specific approval of the Reserve Bank continue to hold the same? Can they transfer such property?

Ans. Yes, they may continue to hold the immovable property under holding license obtained from the Reserve Bank. However, they can transfer the property only with the prior approval of the Reserve Bank.

Q.32. Is a resident in India governed by the provisions of the Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000?

Ans. A person resident in India who is a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan is governed by the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, as amended from time to time, i.e. she/he would require prior approval of the Reserve Bank for acquisition and transfer of immovable property in India even though she/he is resident in India. Such requests are considered by the Reserve Bank in consultation with the Government in India.

The citizens of countries other than those listed above can be PIOs who are covered under the general permission (please refer to Q.No.1). The provisions relating to foreign national of non-Indian origin are covered in detail in Q Nos. 6 and 7.

Note:

The relevant regulations covering the transactions in immovable property have been notified vide RBI Notification No. FEMA 21/2000-RB dated May 3, 2000 and this basic notification has been subsequently amended by the notifications detailed below:

i) Notification No.FEMA 64/2002-RB dated June 29, 2002;
ii) Notification No.FEMA 65/2002-RB dated June 29, 2002;
iii) Notification No.FEMA 93/2003-RB dated June 9, 2003;
iv) Notification No. FEMA 146/2006-RB dated February 10, 2006 read with A.P.(DIR Series) Circular No. 5 dated 16.8.2006; and
v) Notification No. FEMA 200/2009-RB dated October 5, 2009

All the above notifications and A.P. (DIR Series) Circulars are available on the RBI website: www.fema.rbi.org.in. The Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin is also available on the website under the link “www.rbi.org.in ® Sitemap ® Master Circulars”.


1 [1][1] Non-Resident Indian (NRI) is a citizen of India resident outside India.

2 [2][2] A ‘Person of Indian Origin’ means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who

  1. at any time, held an Indian Passport or
  2. who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

3 [3][3] A person resident outside India may hold, own, transfer or invest in Indian currency, security or immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

 

2014 Tax Brackets

Are you ready to plan your 2014 Tax ? In that case, you might want to start with the 2014 tax brackets.

 

2014 Tax Brackets

(for taxes due April 15, 2015)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950
15% $9,076 to $36,900 $18,151 to $73,800 $9,076 to $36,900 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200
39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more

You may also like to compare these numbers with 2013 tax brackets:

2013 Tax Brackets (For taxes due April 15, 2014)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,925 Up to $17,850 Up to $8,925 Up to $12,750
15% $8,926 – $36,250 $17,851 – $72,500 $8,926- $36,250 $12,751 – $48,600
25% $36,251 – $87,850 $72,501 – $146,400 $36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250 $146,401 – $223,050 $73,201 – $111,525 $125,451 – $203,150
33% $183,251 – $398,350 $223,051 – $398,350 $111,526 – $199,175 $203,151 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000 $199,176 – $225,000 $398,351 – $425,000
39.6% $400,001 or more $450,001 or more $225,001 or more $425,001 or more

 

And lastly – you may also like to compare these numbers with 2012 tax brackets.

2012 Tax Brackets (For taxes due this year)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,700 Up to $17,400 Up to $8,700 Up to $12,400
15% $8,701 – $35,350 $17,401 – $70,700 $8,701- $35,350 $12,401 – $47,350
25% $35,351 – $85,650 $70,701 – $142,700 $35,351 – $71,350 $47,351 – $122,300
28% $85,651 – $178,650 $142,701 – $217,450 $71,351 – $108,725 $122,301 – $198,050
33% $178,651 – $388,350 $217,451 – $388,350 $108,726 – $194,175 $198,051 – $388,350
35% $388,351 or more $388,351 or more $194,176 or more $388,351 or more