Must US NRIs Report Indian Property under FATCA

Effect on US NRIs Property in India - Selling Property in India due to FATCA Reporting Worries!

The United States Foreign Accounts Tax Compliance Act (FATCA) perhaps is causing many US based Indian Origin NRIs to dispose of their properties in India as they fear disclosing such assets to the IRS. The fear that such purchases would be questioned, tax and penalties levied is a matter of concern for some, and disposal of their Indian asset appears to be a quick solution. However, FATCA does not have the effect on the properties held in India by US NRIs. The objective of FATCA is to enable the US Tax authorities to crack down on tax avoidance or evasion by US tax payers by not declaring worldwide income.

FATCA Reporting Requirement

Under FATCA specified foreign financial assets need to be reported on Form 8938 (Statement of Specified Foreign Financial Assets)

Types of assets subject to FATCA reporting on Form 8938

Financial accounts with Foreign Financial Institutions (FFIs), including both custodial and deposit accounts Any securities or stocks you hold separately from a bank account or other financial account Foreign mutual funds, hedge funds, and partnership interests Any life insurance issued overseas, including annuity contracts

Must Foreign Real Estate be reported?

Does foreign real estate need to be reported on Form 8938? The answer is No! Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. Therefor a personal residence or a rental property does not have to be reported. There is an exception here that needs to be pointed out.

Assets Not Required to be reported on Form 8938

If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938 if: Total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you. IF you own your foreign real estate directly as an individual then you do not have to report that property on Form 8938 or other FATCA forms. This applies even if it is a rental property. Foreign currency is not a specified foreign financial asset and is not reportable on Form 8938 provided this foreign currency is not held in a financial institution. Remember, you must report your financial accounts maintained by a foreign financial institution. Assets such as art, antiques, jewelry, cars and other collectibles held in a foreign country are not considered to be specified foreign financial assets and do not have to be reported on Form 8938. The IRS does not consider a safety deposit box held in a foreign financial institution to be a financial account. Hence not required to be reported.

Effect of FATCA on Property Held in India by US NRIs

NRIs should be aware that FATCA does not supersede the Double Tax Avoidance Agreement (DTAA) that the United States has signed with various countries. Under 'Article 6' of the DTAA agreement: US nationals (& green card holders) who hold immovable property in India will be taxed by the Indian government on any income arising from their Indian immovable property investments. Likewise, Indian nationals who hold immovable property in USA would be taxed by the US government on any income arising from their US immovable property investments. Since FATCA is to track tax evasion and as income from foreign immovable property is not subject to US tax, NRI property owner need not worry.

Income from property in India must be reported

Even though as per DTAA income from property held in India such as rent etc. is taxable in India, the DTAA spells out that: ‘Income derived by a resident of a Contracting State from immovable property (real property), including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State.’ The term may be [not only] means that such income would be taxed in India at the applicable Indian tax rate. This income even though taxed in India would be part of the taxpayers US worldwide income and must be also declared when filing US taxes and become taxable at the US tax rate. However, due to the DTAA, credit for any Indian tax paid would be available when filing US tax. This credit would ensure that the same income is not taxed twice.
Disclaimer: Information provided is for general knowledge only and should not be deemed to be professional advice. For professional advice kindly consult a professional accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has been stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail. © Copyright 2006 Nriinformation.com
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Information by Virendar Chand
NRI Information for OCIs - PIOs on PAN Cards, OCI, Visas, Property, Immigration, Customs Duties & more

ARTICLE 6:

Income from Immovable

Property (Real Property)

1. Income derived by a resident of a Contracting State from immovable property (real property), including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State. 2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. 3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting, or use in any other form of immovable property. 4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.
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Must US NRIs Report Indian

Property under FATCA

Effect on US NRIs Property in India

- Selling Property in India due to

FATCA Reporting Worries!

The United States Foreign Accounts Tax Compliance Act (FATCA) perhaps is causing many US based Indian Origin NRIs to dispose of their properties in India as they fear disclosing such assets to the IRS. The fear that such purchases would be questioned, tax and penalties levied is a matter of concern for some, and disposal of their Indian asset appears to be a quick solution. However, FATCA does not have the effect on the properties held in India by US NRIs. The objective of FATCA is to enable the US Tax authorities to crack down on tax avoidance or evasion by US tax payers by not declaring worldwide income.

FATCA Reporting Requirement

Under FATCA specified foreign financial assets need to be reported on Form 8938 (Statement of Specified Foreign Financial Assets)

Types of assets subject to FATCA

reporting on Form 8938

Financial accounts with Foreign Financial Institutions (FFIs), including both custodial and deposit accounts Any securities or stocks you hold separately from a bank account or other financial account Foreign mutual funds, hedge funds, and partnership interests Any life insurance issued overseas, including annuity contracts

Must Foreign Real Estate be

reported?

Does foreign real estate need to be reported on Form 8938? The answer is No! Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. Therefor a personal residence or a rental property does not have to be reported. There is an exception here that needs to be pointed out.

Assets Not Required to be reported

on Form 8938

If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938 if: Total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you. IF you own your foreign real estate directly as an individual then you do not have to report that property on Form 8938 or other FATCA forms. This applies even if it is a rental property. Foreign currency is not a specified foreign financial asset and is not reportable on Form 8938 provided this foreign currency is not held in a financial institution. Remember, you must report your financial accounts maintained by a foreign financial institution. Assets such as art, antiques, jewelry, cars and other collectibles held in a foreign country are not considered to be specified foreign financial assets and do not have to be reported on Form 8938. The IRS does not consider a safety deposit box held in a foreign financial institution to be a financial account. Hence not required to be reported.

Effect of FATCA on Property Held in

India by US NRIs

NRIs should be aware that FATCA does not supersede the Double Tax Avoidance Agreement (DTAA) that the United States has signed with various countries. Under 'Article 6' of the DTAA agreement: US nationals (& green card holders) who hold immovable property in India will be taxed by the Indian government on any income arising from their Indian immovable property investments. Likewise, Indian nationals who hold immovable property in USA would be taxed by the US government on any income arising from their US immovable property investments. Since FATCA is to track tax evasion and as income from foreign immovable property is not subject to US tax, NRI property owner need not worry.

Income from property in India must

be reported

Even though as per DTAA income from property held in India such as rent etc. is taxable in India, the DTAA spells out that: ‘Income derived by a resident of a Contracting State from immovable property (real property), including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State.’ The term may be [not only] means that such income would be taxed in India at the applicable Indian tax rate. This income even though taxed in India would be part of the taxpayers US worldwide income and must be also declared when filing US taxes and become taxable at the US tax rate. However, due to the DTAA, credit for any Indian tax paid would be available when filing US tax. This credit would ensure that the same income is not taxed twice.
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