How to account for your Indian investments while filing for US taxes?
The sole intent of investments is to increase your net capital over a period of time. With the advent of newer methods, individuals now have more avenues to invest their money and their money works harder. However, amidst all this one must not forget about the taxes. While there are various reasons for the same, coming under the radar of the IRS is something that you wouldn’t want to happen.
If you are an NRI and have investments in the home country India, some or all of it might be taxable. Thus, it is crucial to be cognizant of them and include them in your tax returns as and when it is required. Here are some of the leading investments that you can make and how they are impacted by taxes.
NRI’s can either have NRO or NRE accounts with leading Indian banks. For that matter, individuals can choose to invest their money with the help of Fixed Deposits. The basic structure of a Fixed Deposit is quite similar to other capital investments. There is an initial amount and that increases year on year due to interests. Thus, during its maturity, it is similar to other capital assets, where your investment grows over time.
The interest that you have earned on FD’s must be first converted into USD for the specific fiscal year and then reported in Form 1099-NT. You might still have to pay taxes to the IRS on your FD. This example would make things a bit clearer. Let us assume you have earned an interest of INR 15,000 on your FDs and the Indian Government levies a tax of 15%. Should your tax bracket in the USA be 30%, you will have to pay the additional 15% to the IRS under the DTAA or Direct Tax Avoidance Agreement between the USA and India.
Mutual Funds and Stocks
Mutual funds and stocks are quite popular among investor for their incredibly high returns. Thus, there would be no surprises if an NRI invests in these assets. However, just as a fixed deposit, you will have to pay taxes on the dividends earned on these mutual funds or stocks. Stocks and dividends come under the purview of the capital gain taxation system. For any gains in short term or less than a year, you will be charged 15% by the Indian Government. Similarly, for long term gains, if the amount exceeds INR 1,00,000 you will have to pay 10% taxes on the same. Should your investments exceed $10,000 you need to declare the same using Form 8938 and FBAR.
There is no denying the fact that Real Estate has always been one of the most lucrative investment opportunities. Whether you are looking for a place to settle down in the future or buying it for outright investments, real estate is a lucrative market. But should you pay taxes for any real estate that you hold in India? Well, yes and no. As long as you hold a property in India, you need not worry about any taxations. However, if you sell a property while staying in the USA, capital gains tax is applicable on the same. And you are liable to pay the appropriate taxes in the US.
Also, there aren’t any specific rules or regulations for rent. Thus, you can declare them under other income in your Tax Returns. Being aware of the different taxes on your financial assets is important to keep the IRS from digging deeper and finding any discrepancy with your tax filing.