India FBAR & IRS
India & the FBAR: The FBAR India reporting requirements to the IRS are comprehensive. There are many different potential India offshore reporting requirements, such as the Fixed Deposits (FD), Mutual Funds, Life Insurance Policies, Public Provident Funds and more.
In recent years, the Internal Revenue Service has taken an aggressive approach to foreign accounts compliance and unreported foreign income. India is one of the countries that has not only signed an IGA (Intergovernmental Agreement) with the United States for FATCA Compliance (Foreign Account Tax Compliance Act), as well as serves as a cooperating country of the OECD (Organisation for Economic Co-operation and Development), but India has also represented that it will comply with CRS (Common Reporting Standard).
What do I Report to the IRS and FinCEN?
There FBAR India reporting requirements are several. Here is a list of common reporting requirements for the FBAR and other related international information returns.
1. Fixed Deposits
Even though the FD does not distribute income during the growth period, it is earning income. While you may not touch or access the money during the growth phase (or be penalized), it is still taxable and reportable in the U.S as it accrues and not just the payment at end.
2. PPF Accruals
Just as with the FDs, if your PPF is accruing income, which is not being distributed, it is still “earning income” and is still taxable and reportable in the U.S.
3. Stock Certificates/Demat
Whether or not you have actual stock certificates, or Demat, the values of the accounts have to be reported. Since Demat is an “Account” and the actual stock certificates are not in an account, the reporting requirements are different.
Generally, the account is reported on the FBAR, and usually the Form 8938 “FATCA.” The certificates are reported on the 8938 but not the FBAR (since it is not in an “account.”) The thresholds for the 8938 vary extensively based on your U.S. Residence and marital status. You may have to file one form and not another form — it all depends.
* The stock earnings such as dividends and capital gains are also taxed and reported in the U.S. but Foreign Tax Credits may apply.
4. Mutual Funds
Mutual Funds are reported on the FBAR. The Mutual Fund is considered a PFIC which you may need to file on Form 8621.
The rules for PFIC are very, very complex. You may have additional reporting (unless you qualify for an exclusion/exception) and you may have additional tax (unless you made an election).
5. Bank Interest
Even if your bank interest is not in an FD, the interest is still taxable and reportable, since income is being earned on the money. This is true of your NRE account growing tax-free in India.
Dividends are taxable in the U.S., even if they qualify for tax exempt treatment in India. Whether or not they are taxed now, or in the future will depend on whether the income is also PFIC income or not, and if so – if any elections have been made.
7. Capital Gains
Capital Gains are taxable in the U.S. for U.S. residents and citizens.
Certain exclusions for primary residence and other exceptions may apply to limit, reduce or avoid tax.
The Long-Term Capital Gain (LTCG) rules in the U.S. are different than India, so even though a sale may not qualify for LTCG in India, it may qualify for LTCG under U.S. investment tax rules.
8. Rental Income in India
This is a common misconception:
Let’s say you earned $10,000 in rental income, but had $11,000 in expenses and taxes – no income to report, right?
Yes and No. Yes, you earned gross rent income, but no, you will have no net income. Nevertheless, the income and expenses have to be parsed out, and reported annually on a 1040 Schedule E.
9. Interest Earned on Future Property Development
This is very common in India. A client will have paid an up-front fee to a developer for a property(s) in India. During the time the property is being constructed, the investor (you) receive interest on the money you invested.
This ROI interest income must be included with your taxes.
10. Retirement Contributions
There is a Tax Treaty between the U.S. and India. Therefore, while the growth within a retirement fund may escape U.S. Tax (until distributed, unless exceptions apply), income contributions being diverted to the retirement does not usually escape U.S. tax.
10 Tax Tips (and Misconceptions) to be aware of:
1. Foreign Tax Credit
If you already paid tax on the income in India, you may be able to receive a Foreign Tax Credit in the U.S.
2. Foreign Tax Credit Refund
If the tax money you paid in India was refunded to you, it may not be worth the headache to claim the credit, since you will have to adjust your tax returns in the future.
If your parents are managing your accounts, and you let them keep the income (what a nice son/daughter you are), that does not default to income assignment. Rather, it generally means you report the income and you gave them a gift.
EPFs are through employment, and you may be able to defer tax on the growth, per the India-U.S. Tax Treaty
Just because the FATCA Agreement may exempt certain foreign institutions from having to report accounts, does not mean you (as the individual investor) are exempt.
If you have to file an FBAR you may also have to file a Form 8938 (or vice versa) – in other words, just because you file, does not mean you can avoid filing the other, if you meet the requirements for having to file both.
7. Foreign Earned Income Exclusion
You may be able to exclude certain earned (not investment) income if you meet either the Physical Presence Test or Bona-Fide Residence Test.
8. Transferring Account Ownership
Once you learn about reporting, the knee-jerk reaction is to consider transferring the accounts to another person. This only makes matters worse, because not only will you be out-of-compliance – but it will look bad to the IRS.
9. Calling the IRS Before Getting Into Compliance (Place Holder)
If you are considering getting into compliance, another knee-jerk reaction is to call the IRS to let them know you plan on getting into compliance. The problem is you may not even be on their radar. By calling them, you have now put yourself on their radar.
10. Be Cautions of Inexperienced Counsel
The most important requirements for successful representation is experience, credentials, dual-licensing and a Board-Certified Specialization in tax law.
Out of Compliance?
If you are out of compliance and seeking to get back into compliance-or in the compliance for the first time – one of the best and safest methods is through IRS offshore voluntary disclosure.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced IRS 3520 Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.