U.S. Tax Treatment of Indian Public Provident Fund (PPF)
U.S Taxation of Indian Public Provident Fund (PPF): A Public Provident Fund in India is a common investment vehicle. It grows tax free for 15-years, and then the investment pays out. For example, if your money is invested in an Indian PPF with a 15 year term, then the money cannot be touched by the investor during that time-period.
The investment grows tax free in India, until it is withdrawn, but the U.S. tax rules and IRS tax treatment is different.
If a U.S. person owns a PPF, they will have a U.S. tax and reporting requirement.
What is an India Public Provident Fund
Technically, the India Public Provident Fund or PPF is not a pension plan — even if it oftentimes used for retirement purposes.
As provided by ICICI:
“Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate and returns that are fully exempted from Tax. Investors can get the facilities such as loan, withdrawal and extension of account.”
Thus, the United States does not (usually) recognize a foreign country, tax-free investment tool as tax-free.
Some foreign investments such as Canadian registered retirement accounts (RRSP) may receive tax-deferred growth treatment, but overall it is rare.
FBAR PPF Reporting
The Public Provident Fund (PPF) is reportable on the FBAR. That is because the FBAR is used to report Foreign Bank and Financial Accounts. The PPF is a foreign account that is housed at a foreign institution, and therefore it is reportable on the FBAR.
The FBAR is filed separately from the tax return. It is reported electronically and directly to FinCEN (Financial Crimes Enforcement Network).
The failure to file may result in FBAR Penalties.
FATCA Form 8938 PPF Reporting
A PPF is also reportable on Form 8938. FATCA is the Foreign Account Tax Compliance Act. It requires the reporting of certain foreign accounts and assets directly to the IRS on Form 8938.
If the form is not filed, it may result in Form 8938 Penalties.
What Can You Do If You are Out of Compliance?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
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