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Tax Implications of Becoming A California Resident

In this short video, Sanjiv Gupta CPA covers the tax implications of becoming a  California Resident.  You are subject to various tax rules based on this one important event.  Watch this video if you are new to California or Starting a Business in California.



How To Bring Money from India to the US ?

Many American Indians, non-resident Indians (NRIs) and persons of Indian origin (PIOs) have immovable assets like a house that they have left behind in their country. They may also have inherited assets like house or money from their dearly departed.  Most of the time, these people plan to liquidate these assets and bring them to the US. This is particularly true if they don’t have plans of going back to India, or they rarely visit their motherland.

American Indians, non-resident Indians (NRIs) and persons of Indian origin (PIOs) who want to bring money from India to the United States will have different processes to go through.

The processes may depend on the method by which the money was acquired, like selling a property in India, getting an inheritance, or investing in financial instruments. This article will look at the different ways of bringing money from India to the United States.

Selling of property

Any NRI can sell a commercial or residential property in India to another NRI, PIO, or a person who resides in the said country. But NRIs cannot sell agricultural land or farmhouse to another NRI, as they are only allowed to do so to an Indian citizen who also resides in the Asian country.

NRIs are also allowed to repatriate or bring money from India from the sale of a maximum of two residential properties.

Sale proceeds should be credited to a non-resident ordinary (NRO) account. This is a savings account where the NRI or PIO can maintain and manage their income earned in India like dividends, pension, and rent, among others.

If the property was sold at least three years after the date of purchase, the individual will be levied a long-term capital gains tax of 20 percent. This is calculated by subtracting the sale value from the indexed cost of purchase, or the cost of purchase as adjusted for inflation.

NRIs are allowed to repatriate or bring their sale proceeds of property sold in India to the US. However, the limit to the amount brought from India is $1 million per calendar year, including all other capital account transactions. NRIs, though, can petition to the RBI for an increase in the repatriation limit as long as they can prove that there is a genuine need for it.

However, NRIs who were able to purchase a property in India while they were still a non-resident can still repatriate the proceeds from the sale. But they should have bought the property in accordance with foreign exchange laws during the time of the purchase.

The amount to be transferred must also not be more than the amount remitted through a foreign exchange to India through banking channels. If the NRI purchased the property using funds in a Foreign Currency NonResident account, then the repatriated amount or proceed from the sale must not be more than the amount paid through the said account.  Also, if the NRI purchased the property via a home loan, then the amount to be brought from India should not be more than the amount of loan repayment.

To bring the proceeds of the sale of property from India to another country, NRIs or POIs should course it through legal banking channels. This would give them the peace of mind knowing that their money will be safe.  NRIs are cautioned against relying on private money transfer or “Hawala” as this is considered illegal. There’s a risk that they may not get their money out of India if they opt for the said process.

To begin the transfer of money from India to the US, the NRI should get a certificate from a chartered accountant (CA) in India.  The CA will issue a certificate information or “Form 15CB” which is also downloadable from the Indian government tax website. This is the link to the download page.

The form is basically a certificate that the money to be sent abroad has been acquired from legal means like the sale of a property. It also vouches that all taxes due have been paid. The CA must fill in the form and sign it.

Once the Form 15CB has been completed, the NRI must fill another form called Form 15CA.  This is a form that is to be filed online with the Indian tax department. It can be downloaded from this link. Some of the information needed in Form 15CA can be found on Form 15CB.

The form is to be submitted online, with the NRI receiving a system-generated acknowledgement receipt or number. The filled form 15CA along with the acknowledgement number must be printed out and signed.

Then the NRI will have to bring the signed undertaking along with the CA certificate on Form 15CB to the bank where he/she has an NRO account.

Aside from Forms 15CA and 15CB (in duplicate copy signed by the CA), the bank will also request the NRI to fill up Form A2 as well as an application for foreign exchange form. The latter is used to vouch that the person who will be sending the money to another country did acquire the money through legal means; in this case through the selling of a property.

Some banks may also require the NRI to provide documents like a copy of the sale document of the property. If the NRI inherited the property, then he will have to present a copy of the will, death certificate of the original owner of the property, and legal heir certificate.

The bank will then process the transfer of the money abroad.

Getting an Inheritance or Gift

In India, the property inherited is fully exempted from gift tax. However, the amount on the sale of the asset is taxable under capital gains. Calculation of capital gains from an inherited property is the sales proceed less the original cost of purchase of the bequeathor.

It may be short term or long term, depending much on the period for which the property or asset was held.

In the US, there is an inheritance or estate tax levied at the time of inheritance. But this is only levied if the bequeathor or the deceased individual was a US citizen, resident, or Green Card holder.

NRIs, PIOs, or American Indians will have to  report the money that they are bringing in to the US from India. They are to do this by filing Form 3520, an information return and not a tax return. There are significant penalties awaiting those who cannot file the said information return.

Form 3520 is an annual return to report transactions with foreign trusts and receipt of certain foreign gifts. It can be downloaded from here.It must be filed along with the tax return of the NRI, PIO, or American Indians who inherit a property in India. This not only applies to property but also other financial assets such as cash and investments.

There are two reasons why Form 3520 has to be filed by those who want to bring money from India to the US. One is that it proves a trail of the individual’s receipts. For example, an American India who inherited $100,000 or more and wishes to repatriate that amount to his US bank account will be able to establish the source of that money by filing Form 3520. The same goes for an NRI who sold a property in New Delhi and wants to transfer the proceeds to his US bank account.

It also establishes the basis of the inheritance of the individual. The basis here pertains to the fair market value of the inheritance during the death of the person who bequeathed the property to the individual filing the Form.

The IRS requires filing of Form 3520 during cases wherein the individual receives an inheritance of $100,000 or more. But tax experts suggest report inheritance even if the value is lower than $100,000 because it can establish a trail of receipts.

If the individual received separate gifts from related parties, the amount should be aggregated. For instance, the individual received $70,000 from an uncle in India and another $50,000 from another aunt. Because the aggregate amount of the cash gifts is $120,000, then he or should file the Form. This must be particularly reported in Part IV of the said form.

The due date for filing the Form 3520 is the same as the due date for annual income tax return filling.

There is another form that American Indians have to file if they inherited financial assets in India and wish to bring those assets to the US.

Form 8938 is a requirement for all US residents, citizens, and Green Card holders to report foreign financial assets like bank balances, mutual funds, shares of stocks, government securities, and others if the aggregate of these assets is more than $50,000 for single taxpayers, and $100,000 for couples.

Investments in Financial Instruments

 Another way for NRIs or PIOs to bring money from India to the US is to invest in financial instruments like debt investment and equity investment.

For debt instrument investment, NRIs and PIOs can invest in a non-resident ordinary (NRO) fixed deposit or a non-resident external (NRE) fixed deposit. Many NRIs and PIOs are attracted to these financial instruments, what with the relatively high rates of 8-9 percent.

American Indians can remit proceeds from their NRE accounts freely or without the cap. But for NRO accounts, they are limited to a ceiling of $1 million in a year.

Also, the interest earned in NRE accounts is not to be levied with tax. On the other hand, interest earned in NRO accounts is subject to tax.

Other financial instruments that NRIs can invest in are foreign currency non-resident or FCNR deposits where the investment is in dollar, yen, and the euro. These are term deposit with the interest dependent on the LIBOR rate for the particular currency. Interest income from FNCR deposits is not levied with tax.

However, NRIs are not allowed to invest in the Public Provident Fund and National Savings Certificates debt instruments issued by post offices.

For equity investment, NRIS can invest in direct equities or equity mutual funds.

Whenever interest or proceeds of financial instrument investments is remitted or repatriated by an NRI, he or she has to submit Form 15CA at the Indian income tax department’s website.

Most of the time, a certificate coming from a chartered accountant as provided in Form 15CB is also needed before the NRI can upload Form 15CA online. In Form 15CB the CA vouches for the details of the payment, Tax Deduction at Source (TDS) rate and TDS deduction, as well as other details of the remittance.

This certificate is very important because banks won’t remit the money until this certificate has been provided.

But Form15CB won’t need to be filed when a single remittance is less than 50,000 rupees, and the total remittance in the year is not more than 250,000 rupees. In this case, the individual only has to file Form 15CA.  Exemptions to Form 15CB filing also include deduction of lower TDS, as well as the receipt of a certificate from the assessing officer under section 197.

Also, any remittance of funds to an NRI will require the remitter to present a certificate from a chartered accountant that Form 15CB ad Form 15CA have been filed at the Indian tax department’s website.

Finance Bill 2015 imposed this requirement starting June 1, 2015, stating that all forms have to be filed for all remittances whether it is taxable or non-taxable. Central Board of Direct Taxes had earlier required the said forms to be filed for taxable transfers, while most banks asked for said forms even for non-taxable transfers.

While repatriation of funds from India to the US is not as complicated as it appears to be, it would still be recommended that NRIs, PIOs, or American Indians work with a chartered accountant in India and a professional CPA familiar with Indian laws in the United States. The professional can counsel them in the intricacies of the Indian tax code, particularly those that affect their assets that they would want to be repatriated to another country.  The CA can also help in the filing of appropriate forms as required by the IRS for people who will be bringing their assets from India to the United States.   Our office specialize in these kinds of cases, so feel free to contact us with any questions.

Upcoming Webinar Video | May 16th 2015

Have you registered for our upcoming webinar on foreign asset disclosures.  This event usually gets completely sold out very quickly.  Please make sure to register today in case you have not already done so.  Check out this small video to see if this webinar is for you.



Evaluate the repercussions of non disclosure and make a speedy effort and comply with the tax through SFOP

Every individual or a small concern or a big company has to comply with the financial obligation of filing the tax due to the government. Any institution can hope to flourish only if they act in consonance with their duty as a responsible citizen of a country/state, which has allowed them to function on their soil, to do business with their people and earn well. Tax procedures have been updated as per the requirements of the times and now the new IRA has come into force there is more trouble for people who willfully default on tax payments.

The government has introduced the streamlined domestic offshore procedure (SDOP) and the streamlined foreign offshore procedures (SFOP) to bring into the net of tax all those people who has not fulfilled the responsibility of tax payment for a period of time. The term ‘willfulness’ has assumed importance in that there is a chance of opting for SDOP or SFOP if the error in not filing is not due to willfulness in not reporting the asset or earnings through foreign assets. With the dictum ‘better late than never’ all citizens who have a stake in the country as citizens either with assets or earnings held within the country or outside, are duty bound to pay all the taxes due for all the missed years even if it involves penalties of 5% as given. In fact SDOP and SFOP have the procedures to soften the impact of the repercussions of negligence.

FBAR is the reporting of the Foreign Bank Account Reporting. Many Americans are earning in different areas both within the country and outside, the result is they have accounts in banks wherever they run their business outside the country. The government has brought in the provision of FBAR to show that all citizens who have been earning through these in the form of bonds and assets and business earnings should report the same and comply with the tax as per value. In fact just by compliance with tax regulation whether with stakes within the country or outside it is possible to use our time for genuine business instead of watering down the progress through non disclosures of earnings. The following are considered as foreign assets:

  1. Financial accounts in foreign institutions
  2. Financial accounts of a US institution in a foreign country
  3. Foreign stocks and securities
  4. Foreign mutual funds
  5. Private equity funds or hedge funds of foreign countries

Depending on which of these categories a person falls in he has to take the time to evaluate the repercussions of non disclosure and make a speedy effort and comply with the tax through SFOP and for this make it a point to meet the tax consultant.

401K and IRA Plans Explained By Sanjiv | Video

In this video Sanjiv answered few important questions related to 401k and IRA Plan. If you are planning to move to India and wondering what should you do with your 401K plan or retirement than you should watch this small video


Moving Back to India -What Should You do with 401K Plan?

Are you a W2 or 1099 Contractor and have a 401K Plan in United States ? Are you planning on moving back to India?  Are you wondering what can you do with your 401K plan in case you move back to India.  In this short video segment Sanjiv Gupta CPA will explain how can you manage your 401K plan if you move back home.


Avoiding Tax On Foreclousers and Short Sale | Video

In this video segment Sanjiv Gupta CPA discusses how to office taxes on foreclousers and short Sales.  In the recent economy many people may find getting 1099 for Cancellation of Debt from their bank.  It is important to know how to take advantage of current tax laws and avoid paying tax on such income.

Setting Up Business Structure Animated Video

Animations is an interesting way to communicate your message.  I am hoping our readers would like this small and simple animation clip.   I am thinking about making an animated video of Sanjiv’s “Joke of the Day”. Please do share your thoughts and leave your feedback about the video.

Single Member LLC’s gets Charitable Contribution Deduction

Before getting into the details of Single and dual member LLC, one must be sure about the facts that constitute LLC. The Limited Liability companies or enterprise has the unique capability of blending corporate elements and partnership structures whereby one can reap rich profits. In this form, the company is legal where both the partners enjoy limited liability. The prior motive of LLC’s may not be entirely profit oriented, it may be a partnership for other social causes as well.

Based on this there was a recent announcement from the IRS that any contribution to a national LLC which is totally owned and managed by an IRC organization shall be treated like any other that has been mad in the name of charity. There is condition though, that the LLC is not liable for taxation as any other corporation.

The IRS although had been earlier provided with guidance to conduct both public charities and private foundations in case of tax treatment for operating through single member LLC. The release of a Notice 2012 – 52 which came to the fore only after 31st July, 2012 acted as the initial guide for both the corporate and individual contributors which stood tantamount to the deductibility of various contributions. If left unaddressed or not the treatment of tax to an individual member , or “disregarded entity” these limited liability companies are organized in a place of foreign jurisdiction.


Limited Liability Company Advantages

The advantages of a limited liability company are  as follows

  • They have the flexibility to choose and get elected to be taxed as a single owner, partnership firm, hence a great deal of flexibility is enjoyed by an LLC
  •  Member of an LLC are liable to enjoy distributive share of profit and loss, income or expenditure and so there is a sense of moderation in the practices of an LLC.
  • Members are greatly protected in compared to other firms as per the state corporate laws.
  • There is hardly much paper work or record keeping one has to get involved in LLC.
  • Only one person can also set up a LLC.

The advantages are aplenty and one only need to arm oneself with full knowledge to deal with such matters intelligently and successfully.