These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
If an income is tax-exempt in India, is it also exempt in the US for an NRI? For instance, interest on NRE accounts, FCNR deposits, and PPF is tax-free in India—does it need to be reported in the US, and will it be taxed there, including PPF maturity proceeds?
Amit Maheshwari Managing Partner, AKM Global: The taxability depends entirely on the nature of the income and the applicable tax laws in the US. Accordingly, even though interest earned on Non-Resident External account (NRE), Foreign Currency Non-Resident account (FCNR) and Public Provident Fund (PPF) is exempt in India, it is still taxable annually in the hands of a US tax resident, by the Internal Revenue Service (IRS).
Therefore, it is advisable to report such interests while filing the US tax return (form 1040). Further, details of the NRE, FCNR and PPF accounts shall be reported under the Foreign Account Tax Compliance Act (FATCA), subject to the prescribed thresholds and conditions. Additionally, these accounts may also be reported under the Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of all foreign financial accounts ( i.e. Indian financial accounts) exceeds USD 10,000 at any time during the relevant calendar year. It is advisable to consult a US tax adviser to ensure complete and accurate compliance.
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I am 55, OCI card holder residing in the UK. I am likely to inherit a residential property in Mumbai from my father, along with listed shares and fixed deposits. Will the inheritance be taxable in India? If I sell the property after inheriting it, how will capital gains be calculated, based on my father’s original purchase cost and holding period?
Umesh Kumar Jethani, Founder, ApkiReturn: Receiving your father’s assets—the Mumbai property, shares, and fixed deposits—will not attract any tax in India at the time of inheritance. According to the Income Tax Act, India does not levy an inheritance tax, and assets passed down from parents are fully exempt from income tax in the hands of the recipient. However, if you decide to sell the inherited property at a later date, you will be liable for capital gains tax in India @ 20% or 12.5%, whichever is more beneficial for you under applicable provisions.
To calculate this tax, the property’s purchase cost will be taken as the original amount your father paid for it, along with indexation benefits where applicable. Additionally, your father’s holding period will be added to yours, meaning the sale will likely qualify for long-term capital gains tax rates.
Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away. Email ID: etwealth@timesgroup.com
