Understanding and Avoiding California State Taxes

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Understanding and Avoiding California State Taxes

Oct 12, 2016 Posted by Sanjiv 1 Comment

There was a time when everybody seemed to dream of moving to California. It was, after all, the “Golden State.”  It had endless sunshine and an incredible weather – which proved to be enough motivation for Americans who have had enough of the cold.  It also had a booming economy, pristine beaches, and yes, Hollywood.

But now, many people in California would gladly trade places with Americans living in other states. There are lots of reasons behind this, from the horrible traffic in major cities, to rising criminality, and the fact that Californians are being taxed to death.

According to non-partisan, non-profit research group Tax Foundation, California has one of the highest state taxes in the country. The Washington, D.C.-based group says that California has the highest state-level sales tax rate at 7.5 percent, albeit this would drop to 7.3 by the end of the year. The rate can hit as high as 10 percent in some California cities, though, when combined with local sales taxes.

Here’s a breakdown of how California taxes will affect you should you work, buy a home, or just shop in the Golden State.

Property Tax

Property in the state is assessed at 100 percent of its fair market value.

However, Californians could qualify for a property tax break under certain conditions. For instance, homeowners are qualified for a reduction of $7,000 in the taxable value of their properties if they live in their homes as their principal residences. Senior citizens and the disabled (including the blind) are also eligible for deferring their property taxes for their principal places of residence under a new tax postponement program that started last September 1, 2016.

State Income Tax

The personal income tax rates in California range from 1 to a high of 12.3 percent. These are levied not only in the income of residents, but also in the income earned by non-residents who are working in the state.

The highest rate is levied at income levels of at least $526,444. An extra 1-percent surcharge is also levied onto incomes of more than $1 million. Those earning $7,850 or less in taxable income are charged the lowest rate of 1 percent.

It’s not surprising that a lot of Californians are moving elsewhere because of the high taxes that they have to deal with in their home state.  According to the IRS, more than 250,000 Californians have moved out from the state in 2013-2014.  This is the highest level in more than a decade.

Basic Rules

If you are one of the many Californians wishing to avoid California income tax, there are two basic rules that you have to keep in mind. The first is that a resident pays California tax on their worldwide income.

For instance, you are a resident of California and you own part of a LLC outside of the state. You will have to pay California tax on your distributive share of the company’s LLC income, despite the LLC having earned all of its income outside of California (say another state like Nevada).

The second rule is that California will tax income generated in the state, regardless of where you live. So if you own California real estate but live in New York, you still have to pay California tax on the real estate income of your property.

Defining California Residents

The state has an expansive definition of California residency. A person is considered a resident if he or she is in California other than temporary or transitory purpose.  An individual is also considered a California resident if he or she maintains a domicile in the state despite being outside of the Golden State for a temporary or transitory purpose.

What is temporary or transitory? Generally speaking, this purpose applies to a person who visits the state for an extended vacation of 3 months and doesn’t engage in any type of commercial activity in the state.

Of course, there are several exceptions to this rule. Let’s say that a millionaire couple, Mr. & Mrs. Smith, rents an apartment in California for 3 months. They travel around the world for the rest of the year, and spend parts of it living in Las Vegas where they have a mansion. It may seem like the couple are ‘safe’ from California tax laws because they only spend three months in California.

But tax authorities may be able to find proof that Mr. & Mrs. Smith are residents of California. For example, they may have a closer connection to California than in Nevada, where they have a home. One factor may be their historical ties— Mr. & Mrs. Smith had long lived in California. They may also have children and grandchildren in California, which represent the closest connection to the taxpayers. The tax authorities can argue that even though the Smiths owned a hoe in Nevada, California is still their home because this is where their family and social contacts are.

An individual who has been in the state for more than 9 months is presumed to be a resident.

Corbett Factors

There are 29 residency factors that the state looks in determining that a person is  a resident of California. These include birth, marriage, and raising family; preparation of tax returns; ownership and occupancy of custom built home; ownership of family corporation; ownership of cemetery lots; service as an officer and employee of a business corporation; and church attendance and donations, among others. These are the so-called Corbett factors, coming from the California Supreme Court case Corbett vs. Franchise Tax board which listed the 29 residency factors.

These 29 residency factors are most of the time used by California residents who want to escape tax from their home state. For example, a taxpayer wanting to escape California tax would argue that he has his tax returns prepared in Nevada and has a driver’s license there. He would also show that he has a condo in Las Vegas, and is a member of a country club in Nevada.

Those arguments may be true, but the California Franchise Tax Board could counter the taxpayer’s arguments by showing that the individual spends more time in California than in Nevada. This can be done by showing the person’s Internet searches and reviewing charge card receipts, for example. The person’s Internet searches could reveal that the taxpayer buys things in LA malls and shops at the Spectrum. His charge card receipts, meanwhile, could show that he frequently dines in at posh restaurants near his Laguna Beach property.

Sale of a Major Business

It is also common for California residents to change residency to avoid being tax for the sale of a substantial business. For instance, a company based in Arizona but with assets and operations in California is to be sold for $10-million. The owner tries to escape California tax by changing his residency.

The business owner may be able to avoid California taxes if the sale of the company is consummated after he/she changes personal residency.

However, in most circumstances, there will still be taxes levied on the sale of the company since its assets are in California. So even if the taxpayer has changed his residency, he will have to pay for the taxes on the California source income from the sale of the business.

The key here is to planning the business sale correctly from the beginning. The business owner/tax payer should leave and stay out of California for the sale year and several years after because the state can still argue that the individual only did so to avoid tax from the major sale.

In fact, many taxation experts suggest that business owners who sold their companies with assets and business operations in California should out of the state for at least four years. The reason for this is that the return may be selected for an audit 2-3 years after the tax return is filed for the year of the sale. Franchise tax board audits in California take longer than IRS audits. These audits are also more thoroughly documented particularly in cases of residency determinations.

Four years may not even be safe for taxpayers wanting to avoid taxes in California. In some cases (especially if the stakes are high enough, meaning there’s a substantial money involved in the sale), then it is advisable for taxpayers to stay out of California in 5-6 years.

And staying out of California not only means physically returning to the Golden State and re-establishing a home there years after the sale of a major business. It also means that the taxpayer should not give the tax authorities in California any hint of going back there years after completing a major business sale.

For example, the FTB can access social media accounts of taxpayers in California. If a taxpayer who sold his company in California for $20 million dollars in 2014 posted on Facebook about how he can’t wait to go back to LA as  a resident, then he just gave the tax authorities some great evidence to pursue a case against him.

The same goes for Twitter activity. If the taxpayer makes any tweets indicating that he has plans of going back to California and re-establishing domicile there, then the tax authorities could build a case against him.

In some cases, even the state where the taxpayer established residency in can be a factor in the tax authorities pursuing a case against him. Obviously, the FTB is very wary of Californians who have moved to nearby states like Nevada. Because of the close proximity of Nevada to California, the FTB is very skeptical of claims of Nevada residency than residency in Florida or Massachusetts.

It even becomes ‘safer’ for Californians if they move elsewhere shortly before a substantial sale of their business. This can shield the entire gain from the business sale against California taxes. The state may be skeptical of the timing of the change of residence;  but if a taxpayer can prove that the sale occurred months after he had completely moved out of the state then he has a good chance of being exempted against California tax on the business sale.

Retaining a Home in California

One common question is—can a taxpayer who had left California keep a family home in the state without being considered by the state as a California domiciliary?

While it may appear that California tax authorities will consider a taxpayer to be a California domiciliary because of  his home in California, there are other factors that can come in to play. For instance, the taxpayer may argue that the home wasn’t really used by the family during the past year.  Tax authorities may also look into the size and value of the home in California as compared to out of state home.

But retaining a family home in California can be considered by tax authorities as one good indication that the taxpayer how had left California still has plans of going back to the state.

This can be compounded by the FTB conducting interviews with neighbors who would tell them that the taxpayer had told them that he intends to be back in a few years. In such case, then the tax board will have a strong case against the taxpayer who had left California after a major business sale.

Still, people who are planning to leave California for good and terminate their residency can control the facts. They can leave the state several months before completing a major business sale. They can also sell the family home to show tax authorities that their domicile has shifted. Granted that these aren’t easy decisions to make (selling the family home is certainly difficult by any standards), but the taxpayer still has the advantage of knowing what needs to be done before selling a property or a business. With that advantage, he will know what to do even before the tax authorities in California smell something fishy with the transaction he is involved in.

How To Bring Money from India to the US ?

Sep 23, 2016 Posted by Sanjiv 26 Comments

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.

Estimated Taxes

Estimated Tax Deadline Is September 15th for the 3rd Quarter

Aug 17, 2015 Posted by Sanjiv No Comments

Uber driver or involved in some kind of consulting work?  Whether you’re working as a 1099 contractor or enjoying making money from renting your spare room, don’t forget you may need to pay estimated taxes. Tthe upcoming 3nd quarter estimated tax deadline is Tuesday, September 15th.

Are ready to make the estimated tax payment? If not, let me give you few suggestions.

Do I Need To Pay Estimated Taxes?

We are required to pay our taxes as we earn our income.  Our federal and state government expects tax payments throughout the year.  This is primary reason why taxes are regularly withheld from the employees pay checks.

If you are Uber Driver, Renting Your Home on AirBnB, Self-Employed as a freelancer, contractor or home based entrepreneur you mostly likely don’t have your taxes withheld from your pay (we strongly recommend that you check with your tax professional and file timely payroll) throughout the year.  That is why you are subject to estimated tax payments.  If you think you will owe more than $1000 in taxes this year or 10% more than your last year taxes than you should pay the estimated tax.

Due Dates for the Estimated Tax Payments

Here’s the schedule:

  • 1st Quarter (January 1 – March 31): April 15
  • 2nd Quarter (April 1 – May 31): June 15
  • 3rd Quarter (June 1- August 31): September 15
  • 4th Quarter (September 1 – December 31): January 15

As always, If the 15th falls on a weekend or a holiday, then the due date is the next weekday.

How Can I Pay Estimated Tax Payments?

Here are couple ways to make the tax payments.

  • Our post offices are still operating (who knows till in current financial condition) so you can still mail in your payment. The IRS has specific mailing addresses based on the state where you live. Make sure that your payments are postmarked by the due date to avoid penalties.

Important Note about estimated taxes: Keep a record of all your estimated tax payments.  Your CPA will ask for this at the end of the year to enter the estimated taxes paid when you filing your taxes.

Have a question Estimated Taxes

Please feel free to ask your estimated tax question on facebook page.

Deducting Building Repairs and Maintenance Expenses Deductions

Apr 4, 2015 Posted by Sanjiv No Comments

Deducting Building Repairs and Maintenance Expenses Made Easy

Everything gets old with time and buildings are no exception. The inner structure, material and also the color starts to wear off with time. A person may think that his building is just perfect because it looks good from the outside or just because it is clean, but the internal structure of the building gets weak due to climate change and corrosion. Regular maintenance and repair work is essential in order to keep your home, office, studio, workplace or apartment strong. Unscheduled and sudden major repair needs in your building may disrupt your normal lifestyle and may also distract you from your preplanned activities. You can give your building repairs and maintenance work to a contractor who will setup a proper work schedule that does not disturb your work-flow.

While assigning your maintenance job to a contractor, always ensure that he is professional with proper work ethics and see to it that he maintains a work schedule. You cannot let your building maintenance work go on for several days. Look for a tender that includes cost of materials, labor charges and date of completion. Once you are sure that the repair work is in safe and trustworthy hands, go ahead and make the deal.

When you need to repair your building, you can also deduct this repair and maintenance cost from taxable income. But the expenses must relate to the wear and tear or any other damage that is caused due to renting out your property. It could be repairing or replacement of a broken or discolored part or plumbing solutions or it could also be complete maintenance work like repairing the whole building and making it stronger in nature. Maintenance is fixing or preventing deterioration and this also includes painting the house, oiling the jammed doors or fixing water leakages. But not all expenses are claimable. The initial expenses in repairs and maintenance cannot be claimed at once. In order to make a property suitable for renting one cannot claim the tax cutter at once. These may include fixing any broken parts, putting up the walls, changing floors and also other fixing things. But when the property is up for sale, these costs can work out and help in deducing the tax paid. Repair work keeps the property in good condition and so the cost can be included in the deductible expense of the year.

Some of the exceptions where you cannot claim deduction are when you refurnish your kitchen or remodel your bathroom or renovate your property. Tax deduction can only be done if the expenses are absolutely important. As your property gets older, the value of your property depreciates. However, you can also claim a deduction in that. Documenting the actual cost of the building repair and maintenance is very important. Using the same material as original should be maintained because higher quality material may be accounted as improvement and IRS may not allow deduction in that case.

Tax Amortization Deduction Benefits

Mar 23, 2015 Posted by Sanjiv No Comments

What is Amortization and how it works ?

Amortization is a system of deducting certain capital expenses over certain duration. In other words is a way of recovering the cost of intangible assets. It is like the straight line system of devaluation.

How to reduce amortization from taxes?

To reduce the amortization amount incurred during the current tax year, fill out Part VI of Form 4562 and submit it along with your income tax return.

For reporting amortization from previous years, apart from amortization that begins in the current year, make an entry on Form 4562 and record each item separately. For example, in 2013, you began amortizing a lease. In 2014, you began to amortize a second lease. The new lease being amortized will be reported on line 42 of your 2014 Form 4562 while the previous lease being amortized from 2013 will be reported on line 43 of your 2014 Form 4562.

If there are no current expenses of amortization in the year for which you are going to file tax return, there is no need to fill Form 4562 (unless you are asserting devaluation). Report the current year’s written off expenses for amortization that started in the earlier year directly under the “Other deduction” or “Other expense line” of your return.

How amortization deductions can help?

Sole Proprietorships

Guaranteeing government tax as a sole proprietor implies that your organization works under your heading without the profit of joining or aid from a board or standard staff. Sole proprietors make use of Schedule C with Form 1040 or C-EZ in order to record the federal income taxes. This expense assertion permits amortized derivations as a component of your regular tax recording. Schedule C allows a deduction for devalued supplies with a valuable operational life of more than one year. The favorable circumstances of utilizing amortization reductions under a sole proprietorship incorporate the capacity to recoup the expense of your “standard and vital” devices through a progression of yearly assessment derivations.

Business Expansion

The Internal Revenue Service permits amortizing property rents, the expenses of beginning an organization and any unmistakable resources that are bought to direct business. Actually when amortized over various expense years, these conclusions offer the organization the chance to grow operations by buying top quality devices and modernizing the hardware expected to work. For example the Laundry or the dry cleaners can buy pressing apparatus to supplant hand irons and recuperate the cost over the helpful life of the mechanical presser.

Manufacturing Expansion

Producing operations can utilize the amortization deductions for general equipment utilized as a part of operations and also to buy supplies to grow assembling techniques. Entrepreneurs ought to counsel an assessment expert in order to understand the perceived legitimate lifetime of equipment since the administration terms sporadically change under the government law. Bookkeepers with assembling knowledge have the learning of late rules characterizing the life of equipment and capital ventures. Producers utilize the amortized gimmick, in order to grow a solitary mechanical production system to different lines to build generation. Amortization deductions permit organizations with the opportunity to completely waive off amounts over the life of supplies.

Monetary Expansion

The capacity to deduct capital expenses as amortized expense derivations helps fuel the monetary extension for organizations and makers supplying products to organizations. The government amortization tax deductions procurements help to grow the organization deals for items utilized as a part of assembling and products utilized by both little and vast organizations. Business commercials reiterating it for clients to remember the accessibility of expense derivations for qualified things help offer items, since the utilization of the yearly amortization in the end brings reimbursement of the expense of item. The constrained lifetime of a few items debilitates the buy without added focal point to amortize the thing as an amortized business charge deduction.

 How is amortization deduction different from depreciation deduction?

A lot of people consider amortization and depreciation to be the same thing. However, there is a thin line of difference between the two. The explanations given below give clarity regarding this.

The idea of depreciation/amortization is an assessment system that is intended to spread out the expense of a business resource, what the IRS calls “cost recuperation.” In the event that you purchase copy paper for your business, you expect the valuable life to be months and not years. So copy paper can be included as a cost for the year it is bought in.

However, on the off chance that you purchase office furniture or some supplies, you hope to utilize it for quite a while, so the IRS says you must “recuperate” the expense by taking it as a cost for a while, considered as the “functional life” of that asset. Along these lines, in the event that you purchase a work space for your office, the IRS has set a particular time for which you can spread out that cost, not including any rescue (remaining) quality.

What is Depreciation?

In terms of accounting, depreciation point towards the value of an asset that has been utilized. Regarding tax needs, one can deduct the expenditure incurred in purchasing tangible assets by labeling them as business expenses. Nevertheless, businesses are required to depreciate these assets as per the IRS norms as to how and when the deduction must be made in accordance with the type of asset and its life. For instance the work area as mentioned above depreciates, as is an organization vehicle, a bit of assembling gear, racking, and so on. Anything that you can see and touch and that endures longer than a year is viewed as a depreciable resource (except a few special cases).

What is Amortization?

Amortization is the same process as depreciation but applies to intangible resources i.e. those things that have value and you can’t touch. For instance, a patent or trademark has value, so does goodwill. To add to this, the amortization additionally has an importance in paying off an obligation, in the same way as a home loan.

The IRS has assigned certain intangible resources as qualified for amortization in excess of 15 years, as indicated by Section 197 of the Internal Revenue Code.

Thus, the fundamental general guideline is that you devalue assets that are tangible and amortize assets that are intangible. For both categories, there are possible deductions in tax payable, and so you need to clearly understand this topic in order to use it to the best.

car deduction

How to Make Tax Deductions for Cars and Trucks ?

Mar 5, 2015 Posted by Sanjiv No Comments

Cost of operating a truck, car or other kind of automobile is tax-deductible when moving and relocating or driving for medical, business or charity purposes. The deduction made corresponds to the mileage driven for such tax credits. You may opt for standard rate of mileage in place of calculating actual car expenditure for these individual tax credits.

Medical Purpose

Driving in order to obtain medical care for either yourself or your dependents is what Medical Purpose covers. This kind of drive must primarily cater for medical care, as indicated by IRS (Publication 502) and the deduction is reflected on Schedule A and comprises part of medical expenses for an individual.

Business Purpose

Business purpose pertains to driving away from your regular employment location to a different work site in order to meet with client or travelling for a business engagement. Commuting from home to office does not qualify for this category of individual tax credits. This kind of incentive is captured by Schedule C for self-employed individuals, Schedule F for farmers or as itemized deduction that forms part of unreimbursed business expenses provided in Form 2106 for an employee.

Moving and Relocating

You can deduct the driving cost for relocating to a new place of residence as part of moving expense deduction. To qualify for this incentive, it will be necessary to cover a distance of at least 50 miles away from the old home more than what you earlier covered in-between the old home and old job. The deduction is present on Form 3903.

Charitable Purpose

Individual tax credits are available for any vehicle used for providing services to charitable organization. The corresponding deduction is covered by Schedule A as part of charitable donations. It may involve driving for volunteer causes for a charity, church or hospital.

Actual Expenses

Various elements count as truck or car expense including:

  • parking fees and tolls
  • vehicle registration fees
  • interest on loan
  • rental and lease expense
  • vehicle registration fees
  • personal property tax
  • fuel and gasoline
  • insurance
  • depreciation
  • repairs including tires, oil changes and such routine maintenance

However, fines and tickets such as for parking may not be deducted. In addition, expenditure relating to commuting or personal use is not deductible. Various car expenses may also be deducted depending upon why you are driving. One cannot claim interest, insurance and depreciation as well as auto repairs for medical expense and charity deductions.

Standard Mileage Rates

Rather than tally up all actual car expenditures, you may utilize a standard mileage rate to aid in calculating deductions. There are standard mileage rates to achieve this goal. It is multiplied by the mileage drive to establish the dollar amount deductible for car expenses as obtained from Notice 2014-79 of IRS.

Standard Mileage Rates
Type of use Year 2015
Business 57.5 cents per mile
Medical or moving 23 cents per mile
Charitable service 14 cents per mile

 

In addition to standard mileage rate, taxpayers may also deduct tolls and parking fees as stipulated by the IRS in chapter 4 of Publication 463.

Comparing between Actual Expenses and Standard Mileage Rate

You may use any method that will lead to a larger amount of your tax deduction. This varies with individuals depending upon the number of miles driven, amount of depreciation claimed and other expense variables. Claiming standard mileage rate provides results with less paperwork. It is suited best for situations where the car is driven at times for charity, work or medical appointments and the owner is avoiding lengthy scrutiny of all car-related expenditure.

 

You will require selecting the standard mileage rate option within the first year of using your automobile for business purposes in order to claim the corresponding deduction. If you start by claiming actual expenses, it will be necessary to retain the actual expense option for the entire time duration of using your vehicle for business. IRS Publication 463 offers further clarity on this situation.

Where to Make Claims for Car and Truck Expenses

Expenses for vehicles get reported on Schedule C for self-employed individuals and Form 2106 for the Employee Business Expenses. In particular, this deduction is miscellaneous itemized deduction that is subject to 2 percent of the adjusted gross income limit. It implies that unreimbursed employee expenses may be deducted, although the tax payer does not benefit from the full deduction dollar-to-dollar on tax returns.

Vehicle expenses get reported on Schedule A for medical vehicle uses, together with other medical expenses.

For charitable car use, the expense gets reported on Schedule A, together with related charitable donations.

Practicing Good Record-Keeping

Ensure keeping a mileage log as it will demonstrate your eligibility for car and truck individual tax credits. This document should show date of each trip made that is tax-deductible. It will be necessary as well to record the total mileage covered for the entire year, which makes it pivotal indicating the odometer reading as each year begins at the first.

RBI Guidelines | Acquisition and Transfer of Immovable Property in India

Dec 21, 2013 Posted by Sanjiv 2 Comments

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.

 

2013 Year End Tax Planning Ideas

Sep 16, 2013 Posted by Sanjiv No Comments

We are now accepting appointments for the year end tax planning.  October and November are great months to get your financial books in order and plan for the year end tax.  We would like to see you in our office to discuss your unique needs.  While you set up that appointment consider some of these ideas:

Charitable gifts of appreciated property

The tax advisers suggest the tax payers that they can donate to charitable organizations through stocks, bonds, exchange traded funds and mutual funds instead of donating through cash. Donating through these appreciating financial instruments can attract tax deductions.

Tax deferred vs. Taxable investments

It requires some prudence to classify the investments intelligently so as to save tax. High income producing assets like stocks and other high dividend paying financial instruments should be classified in the deferred tax accounts, so that tax can be paid only when income arises from it. If these are classified in the taxable accounts category, then taxes paid on these would have to be frequent. Intelligent classification of products can help to save reasonable amounts of taxes. It is the duty of the tax adviser to suggest these classifications to his client.

Fund Roth IRAs for working teens and twenty-somethings

Fund Roth IRAs are an excellent option for the younger generation and the working teenagers. Usually the young are very interested to put in their hard earned money in tax savings schemes so that they can save for college education, buying property or even to maximize retirement benefits. Roth IRAs are an option where the working younger generation invests after tax funds.

The young generation is eligible for a lower tax bracket and hence pays limited tax and invests in these accounts. When the fund reaches its maturity or when the individual attains full retirement age, the benefits of the Roth IRA can be withdrawn free of any income taxes.

Loan money to kids for college or home purposes

The usual practice of the kids is to get a student loan for higher education if their parents’ income level is too high to qualify for a financial aid. However, these do not qualify for any tax deductions. Instead the other way to get tax deduction is for the parent to give a family loan to the kid for higher education. To claim tax deductions on these family loans, the paper work is very important. It should be in writing and the interest rates should be similar to what the bank rates are and upon good performance through grades, the parents can write off a part of the loan in future.

Converting IRA into a Roth IRA

Some of the employers give their employees option to convert their Individual Retirement accounts into Roth Accounts as the latter helps to withdraw the retirement benefits at a future date without any tax charges. The Roth IRA is very helpful for the younger generation as they need to pay only a minimal amount of tax while investing in these accounts.

Tax deductible gifts – Your 2013 Holiday Gift Guide

Sep 16, 2013 Posted by Sanjiv No Comments

Tax deductible gifts are the order of the day, to save taxes while holidaying. People who find tax deductible gifts as a mundane option, need to think again as the US government has introduced lots of attractive gifts in the tax deductible category as long as they are used for the right purposes.

Some of the technological gadgets that are classified as tax deductible are computers, tablets, smart phones, kindles, cameras, video cameras and modern GPS’s. The pre-requisite for making these gadgets tax deductible is that these have to be used for official purposes only. Self educational gifts are also tax deductible as this is pursued to develop one’s current skill sets. Some of the educational gifts that can be claimed for deductions are books, subscription paid for educational magazines, tuition fees paid for a course etc.

People who work from home are not left behind. There is something in this scheme for these people also. A person can gift himself a new office or some furniture and claim the same for tax deductions as these are used for official purposes; only in this case, the office is at one’s home itself. Furniture especially is a very good example of a tax deductible gift and the tax payer has the added advantage of using this for domestic purposes also.

A tax payer can gift himself a brand new car and claim tax deductions for the same as long as it is used for official purposes. There is no other pleasure than splurging in a new car and getting a tax benefit for the same. A full time employee can also claim for these deductions as long as the employer does not already reimburse this. Cars are used as tax deductible gifts mostly by contract employees, freelancers and entrepreneurs who do not have direct employers to reimburse these.

The tax payer should always note that the gifts can be tax deductible only if it is used for purely official purposes and if the IRS recognizes these gifts only if it is absolutely necessary for the business needs. Care should be taken that a gift used for personal reasons should never be claimed for tax deductions. This is a serious offence and there are high chances that the tax payer might get enquiries for audit by the IRS and this causes loss of reputation for the individual.

However the tax payer can prudently use some of the gifts for personal as well as official purposes and still claim tax deductions. Computers, for example, can be used for personal purposes as well but the individual should exercise control to claim deductions only for the official expenses part. The tax payer should keep a clean record of all receipts in order to claim tax deductions.

With these effective tax savings gifts, one can not only enjoy holidays but also have enough money to save for a rainy day. One must smartly use the tax laws to save money, the ethical way.

Dublin/San Ramon/Pleasanton

Feb 17, 2013 Posted by Sanjiv No Comments

Certified Public Accountant Dublin San Ramon CA

We are a public accounting firm of Pleasanton / Dublin / San Ramon market. Pleasanton Office of Sanjiv Gupta CPA provides accounting, tax preparation and consulting services for entire Contra Costa county residents. You can find the latest tax law updates and useful tax saving tips on our website.  You can also post your tax questions on our blog or send us a message from home page.