NRI Investment in India and R2I Financial Concerns

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Calvin
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NRI Investment in India and R2I Financial Concerns

Postby Calvin » 09 May 2005 06:41

If an NRI were to invest in India, in (a) Fixed Deposit Account, what are the tax implications in India and in the country of his residence; (b) a Mutual Fund, what are the tax implications for dividend and capital gains in India and in the country of his residence.

References are welcomed.

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Postby Singha » 09 May 2005 09:07

Try searching in finance.yahoo.co.in, moneycontrol.com and personalfn.com

right now the best bet for those with local contacts / relatives is to buy flats or plots of land in pre-launch phase and sell them a couple of yrs later at a handsome profit say 50% over the cost.

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Re: NRI Investment in India

Postby Alok_N » 09 May 2005 11:39

Calvin wrote:
References are welcomed.


Calvin,

If you are interested, send me an email. I will send you the email of a bank manager (IDBI bank) in India. She has been extremely helpful and responsive over email. She manages all my funds. After years of Citibank I made this switch one year ago and I am very happy.

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Postby Suraj » 09 May 2005 19:24

Alok_N wrote:there are two instruments of investment NRE and NRO ... the former can have rupee deposits and the latter is pure dollar terms ...

This last bit is in flux ... I've heard that rules are about to change, so take my info with a pinch of salt.


Alok: NRE is the repatriable rupee account, i.e. you can reconvert and take out capital in $ etc. NRO is non repatriable rupee a/c and also has tax deducted at source. I assume you mean FCNR when you say pure dollar terms.

What I did is open an NRE account and give my dad access so we could co-ordinate investment plans. Keep in mind though that your NRE income will have to be reported when you file US taxes. If any income is taxed in India you can use that as a foreign tax credit.

PS: do you mean IDBI or ICICI bank ?

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Postby AJay » 09 May 2005 20:17

Alok_N wrote:if you buy CDs with dollars in your NRO account and plan to repatriate your earnings, you can ... you will need to declare this on your tax statement in your home country ...

This last bit is in flux ... I've heard that rules are about to change, so take my info with a pinch of salt.


As of 2004 US tax year, the rule is as you state. I redeemed my RIBs a little late (the maturity date was 2003 but there was some problem with my address changes not reashing SBI) in 2004. I was not sure whether I have to pay taxes on the interest as there is a double-taxation avoidance tratey between US and India and the interest is tax free in India. My accountant checked the relavant tax rules and after review we came to a conclusion that I have to pay taxes at the same rate as other long term investments which are made for 5 years or more.

The rules re. CDs might change from the Indian side in that one has to pay Indian taxes. I am not sure what would happen to US taxes - my guess is that they would remain as they are. So, double whammy.

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Postby Bade » 09 May 2005 21:17

On NRE a/c all interest gained in taxable in the US. IN fact Ciitbank reports the amout in 1099 (?) form like all local US banks do. Any interest income from NRE is not taxable in india.

I do not hold an NRO a/c. Isnt it the same for NRO too for tax purposes ? No taxes to be paid in India but any interest acrrued should be reported in the US.

For buying plots in Indian (metros) it is better to have a bank involved. This ensures that titles are all checked for you and future trouble avoided even if you are ready to pay cash down.

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Postby AnantD » 16 May 2005 07:18

Posted by Alok_N
there are two instruments of investment NRE and NRO ... the former can have rupee deposits and the latter is pure dollar terms ...


Alok, NRE is for Non Resident External, NRO is for Non Resident Ordinary.

NRE accounts are money sent from abroad and stored as Rupees, fully repatriable in whatever currency you want. The interest is taxable, but I don't know by which Govt and the rules.

NRO accounts can be jointly held with Indian citizens (i.e. relatives etc.) and are also in Rupees and all interest is taxable, and there are limits to what you can repatriate. These are accounts that can hold your Indian Money and also money you put in directly from in Foreign currency.

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Postby Alok_N » 16 May 2005 07:46

AnantD,

I had made a TLA error with respect to NRE and NRO ... I had also posted a correction ... seeing that the confusion continues, I have deleted all the posts.

AnantD wrote:NRO accounts can be jointly held with Indian citizens (i.e. relatives etc.) and are also in Rupees and all interest is taxable, and there are limits to what you can repatriate.


I am not sure that I understand. My NRO account is individual without any relatives involved. And, there are definitely limits on what I can repatriate.
Last edited by Alok_N on 16 May 2005 08:14, edited 1 time in total.

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Postby Dileep » 16 May 2005 08:13

Mutual funds are subject to long term/short term capital gains. The MF company deducts it at source.

NRO A/c interest is taxed, and you will get TDS. RE A/Cs are not taxed. CITIBANK does not deduct tax, but will give you 1099. I don't think India based banks does that. Most people I know, just keeps mum, just like the use tax in CA for internet purchases.

I think the short term capital gains and interest tax withheld would be refunded if your total income is less than the limit. At least that is my impression. Long term capital gains are not.

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Re: NRI Investment in India

Postby Kedar » 16 May 2005 22:01

Calvin wrote:If an NRI were to invest in India, in (a) Fixed Deposit Account, what are the tax implications in India and in the country of his residence; (b) a Mutual Fund, what are the tax implications for dividend and capital gains in India and in the country of his residence.

References are welcomed.


As a US CPA, let me give you the US tax implications (assuming you are a US resident). US citizens and greencard holders are automatically deemed as US residents regardless of where you live. As a US resident you are taxed on your worldwide income but can also claim some equivalent US deductions.

Your Fixed Deposit income will be taxed by the IRS. In fact, Citibank NRI services even sends a Form 1099-INT for US residents for all accounts i.e. NRO, NRE. Any taxes paid to India will be eligible for a credit for US tax purposes which is generally the lower rate of the tax rate paid to India or the average US tax rate. Similarly, any dividends or capital gains distributions by Indian Mutual Funds are also taxable. Indian dividends generally do not qualify as Qualified Dividends and hence are not subject to the lower tax rates. For National Savings Certificates, zero coupon bonds or any other investment that does not give periodic interests, you are supposed to report imputed interest income each year. However, this is not so widely known and requires much more accounting that many people overlook it and just simply report the income as and when they receive it.

For those buying real property in India the rules are more or less similar including the definition of secondary home, vacation home, etc. You can deduct mortgage interest on two homes provided the total debt is under $1.1 million. Property taxes can also be deducted. The only differences are that if you rent the place you have to depreciate over 40 years rather than 27.5 years and as a foreign property it does not qualify for a tax-free exchange with a US property.

US state laws can vary significantly but most of them follow the Federal definition of income and deductions. Some states like where I live PRC (People's Republic of California) or New York the Vampire State do not give foreign tax credits and you do end up getting double-taxed on the same income. Some states do allow and some even let you double-dip.

For those investing significant amounts of money and anticipate sizeable income each year, it might be worthwhile to talk to an Indian Chartered Accountant and see if you can pay a lower Indian rate using the India-US income tax treaty.

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Re: NRI Investment in India

Postby Sam CS » 30 Jun 2005 04:13

Kedar wrote:As a US CPA, let me give you the US tax implications (assuming you are a US resident). US citizens and greencard holders are automatically deemed as US residents regardless of where you live. As a US resident you are taxed on your worldwide income but can also claim some equivalent US deductions.


Great info, Kedar.

Turbotax seems to ignore foreign investment income unless the total foreign investment exceeds $10000. Does this sound right to you?

Could you also elaborate on implications for those who reside in India but have a US income - say something like dividends, retirement savings withdrawals, etc.?

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Postby Atish » 30 Jun 2005 11:11

Kedar,

Can I talk to you sometime. Pls email me if convenient at atishbazi at gmail dot com.

Thx,

Atish.

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Postby Singha » 30 Jun 2005 12:02

gentlemen, what is the latest laws on people with green card who have to live for extended periods abroad ? in the past some kind of "parole" was given but did they squeeze that post 911 ? whats the max a GC holder is allowed to live abroad these days without falling afoul of the BCIS ?

any pointers or personal knowledge appreciated.

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Postby vishnua » 01 Jul 2005 01:34

Singha wrote:gentlemen, what is the latest laws on people with green card who have to live for extended periods abroad ? in the past some kind of "parole" was given but did they squeeze that post 911 ? whats the max a GC holder is allowed to live abroad these days without falling afoul of the BCIS ?

any pointers or personal knowledge appreciated.


If you don't travel to US in a year then you will lose the "card'. It was two years till few years ago. check immigration.com ( Rajiv khanna's website)
or http://www.murthy.com/ for more info.or this is the best

http://www.immihelp.com/gc/retain.html

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Postby AJay » 01 Jul 2005 02:19

Singha wrote:gentlemen, what is the latest laws on people with green card who have to live for extended periods abroad?


Another thing to remember is that if the GC holder wants to ever become an US citizen, every trip outside US for more than 180 days, adds 3 years to the legal waiting period of 5 years before one can apply for naturalization. This may be moot for Singha.

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Postby Nandu » 01 Jul 2005 10:49

AFAIK, NRO accounts do not exist any more. i.e. all non-resident accounts are repatriable.

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Postby Alok_N » 01 Jul 2005 11:34

Nandu wrote:AFAIK, NRO accounts do not exist any more. i.e. all non-resident accounts are repatriable.


I just made a rupee deposit into my NRO account a couple of days ago :)

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Postby svinayak » 31 Jul 2005 00:25

Virginia Millionaire Buys Himself a Ghost Town
Businessman Has Big Plans for Canadian Mine Site

By Doug Struck
Washington Post Foreign Service
Saturday, July 30, 2005; Page A01

KITSAULT, B.C. -- The Millionaire Who Bought a Town likes to save a buck. He breakfasts at McDonald's, flies economy class and asks for a doggie bag when he doesn't finish his meal at cheap motel restaurants.

But when, several months ago, the Virginia-based businessman saw a news story about a whole town being for sale in remote western Canada, he called the same day to offer a check for $5.7 million -- sight unseen.


Krishnan Suthanthiran jumped at the chance to buy Kitsault, an old mining town in western British Columbia because
Krishnan Suthanthiran jumped at the chance to buy Kitsault, an old mining town in western British Columbia because "it is beautiful up there." (By Doug Struck -- The Washington Post)

Today, Krishnan Suthanthiran owns Kitsault, a ghost town abandoned by miners' families more than 22 years ago and preserved like a museum display of suburbia -- though one through which bears occasionally wander.

Suthanthiran, who was born in India and made his fortune selling medical devices and real estate in the Washington area, said he jumped at the chance to buy Kitsault because, "one, it is beautiful up there, and two, I couldn't believe it wasn't being used. I said if nobody else could figure out what to do with a town, I can."

His ideas for transforming the empty community, located in a majestic natural setting, tumble forth:

Kitsault will become an eco-tourist destination or an artist's colony. He will hold conferences, gathering scientists for forums and evening salmon-roasts on the beach. Wedding receptions. A corporate retreat. A movie set. Skiing, hiking, a spa, bans on smoking and cars, maybe a high-speed hydrofoil to bring tourists 85 miles from Prince Rupert.

"I feel like a kid in a candy shop," he said.

Suthanthiran has avoided publicity in the past, content with his work and a growing list of philanthropy projects in India, Canada and the United States. Many involve small scholarships, the kind of boost that enabled him to leave home for college at 15 with only a collection of donations from neighbors in his pocket.

"I do believe in education," he said. "If you're going to eliminate poverty, you need to eliminate ignorance."

At 56, after quietly building his businesses for 28 years, Suthanthiran has plunged into a flurry of financial acquisitions. In the last year, he has moved to buy half a dozen companies. Most are medical concerns that complement his own, Best Medical International. But the purchases also include a Vancouver video production company and now -- the splashiest buy -- a ghost town.

"I guess Kitsault will bring me more into the open," Suthanthiran said with little enthusiasm during an interview on the long, bumpy gravel road stretching 140 miles from Terrace, a town in western British Columbia, to the old mining community.

Kitsault, 500 miles northwest of Vancouver, was to be a model mining town. Instead, it became a monument to corporate misjudgment. In the late 1970s, Amax of Canada Limited chose to reopen a local mine, dormant since 1972, that produced molybdenum, a metal used to harden steel.

There were occasional attempts to sell the property, but no takers until the price dropped and Suthanthiran noticed the ghost town for sale.

He had a history with Canada. He had come to Carleton University in Ottawa in 1969 at age 20 on a postgraduate scholarship after leaving India, where a friend's father had taken up a collection to rescue the smart young man from his family grocery store and send him to college.

Suthanthiran got a master's degree in engineering and then went to Washington to make medical devices with an oncologist. He started his own company in 1977, specializing in sophisticated radiation treatment catheters used to fight cancer, the disease that had claimed his father in India. The company now employs a staff of 130 in Virginia and 100 in Europe.

Its owner is not a flashy millionaire. No gold Rolex -- he wears a plastic sports watch and white socks. He says he hasn't been shopping in three years. He does not own a car. He spends more than half his time on the road, so when he flies back to Virginia, he rents a car to drive to the house he bought 22 years ago in quiet Mason Neck.

The only extravagance he admits to is a two-bedroom apartment in Las Vegas. He doesn't gamble, he says, but likes the shows and marvels at the operation of the giant hotels.

Suthanthiran has neither a wife nor children; the closest he came, he said, was when he was 28 and received a surprise call from a family who said they had arranged with his mother in India for him to marry their daughter. He balked, and since then, he said, "I've been busy." He works seven days a week, his ear joined to a telephone. He hasn't borrowed money in 20 years, he said.

But something about Kitsault has brought out the dreamer in him.

"Just look at this place," Suthanthiran gushed as he wandered around the empty buildings of his town. "Look at these paved roads. Look at the gym -- how many schools would love to have a gym like this? Look at this scenery. I've got a mailing list of thousands of doctors who would love to come up here to get away for a week."

The frozen-in-time look of the town is deceptive, though. Ants are chewing away at the wood foundations; mold has crept into the eaves. The electrical wiring is brittle, and the sewage system, which runs straight into the estuary, probably will not pass today's standards.

"I don't think he really knows what he's gotten into," mused Edmond Wright, secretary-treasurer of the Nisga'a Lisims native government, which represents the aboriginal villages that are Kitsault's closest neighbors. "We're really out in the boondocks here."

Besides, native officials told Suthanthiran at a recent meeting to discuss his plans, the 6,200 Nisga'a have treaty rights and a well-vetted development blueprint for the area. Over a hospitable lunch of wild salmon, the Nisga'a officials politely scolded Suthanthiran for rushing ahead without consulting them.

"You've got too much money," Wright chided him.

Suthanthiran is undeterred by skeptics.

"If I wasn't an optimist, I'd still be in my home town in India running a grocery, with 10 kids," he said. "Land development is not for the fainthearted."

His plans do not include capitalizing on Kitsault's ghost-town history, however.

"We're going to focus on the future," he said. "People are going to say, 'Wow.' And they will forget about the past. The ghosts will be exorcised."

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Re: NRI Investment in India

Postby Kati » 31 Jul 2005 01:11

Calvin wrote:If an NRI were to invest in India, in (a) Fixed Deposit Account, what are the tax implications in India and in the country of his residence; (b) a Mutual Fund, what are the tax implications for dividend and capital gains in India and in the country of his residence.

References are welcomed.


Till last year all interests earned on NRE (fully repatriable, and deposits are to be made in foreign currencies only) and/or NRO (non-repatriable and deposits can be either in INR, say incomes within India, or in foreign currencies) deposits were tax free. But things changed in the last budget. Chidambaram-ji slapped a new tax on 10% on the interest earned on deposits exceeding a certain limit. Immediately, the newspapers gave the possible loopholes. Instead of investing a lumpsum of 10 lakhs, if you break it in five parcels of 2 lakhs each in five different accounts, then you can avoid that tax.

I had lengthy discussions with two friendly (true!!) branch managers of two different nationalized banks. They both told me that GoI is discouraging this NR deposits since managing that bulging foreign currencies (FC) is becoming a headache. That's why they are discontinuing those high FCNR interest rate deposits. INR and FC deposits now earn same interest rates. Though the branch managers still appreciate NRE/NRO accounts to show them to their higher-ups as "good-work", they would appreciate it more if the NRIs take house/auto loans from them.

The best investment opportunities, IMO, are those in real-estate. It is mind boggling how much profit one can make in just holding small plots - not in big cities, but near suburbs and mid-size cities. Just hold the land for three years and then make a 100% killing. This is also true in the north-eastern regions - in cities like Guahati, Shilchar, Agartala and Udaipur.

The next best opportunity is in education. If you know the people who are willing to join in opening up schools (preferably eng. medium) or technical colleges, then you can be mini Tata-Birlas. But you need a hefty 25 lakhs to 1 crore to start with.

Next, I figured out, in the eastern region, is the food processing plants. But watch out those unions. If you can buy those union leaders then you will roll.

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Postby JTull » 31 Jul 2005 03:16

Calvin wrote:If an NRI were to invest in India, in (a) Fixed Deposit Account, what are the tax implications in India and in the country of his residence; (b) a Mutual Fund, what are the tax implications for dividend and capital gains in India and in the country of his residence.

References are welcomed.


Let me try to attempt a comprehensive answer.

Your question implies that you'll bring the funds into India from outside and I'll assume that you intend to hold investments under your name and not a family member.

1. Such funds may be kept in interest bearing accounts either in Rupee or in one of major foreign currencies. Rupee interest bearing investments can be in Non-Resident External (NRE) savings or fixed deposits. Such investments and returns are fully repatriable in one of the major foreign currencies. You can use the funds to pay off international credit cards from one of India issuers. The returns are not taxed in India, but from 2006-7 they'll become fully taxable and a TDS (tax deduction and source) will be incurred. If your total income in India is low, then I suggest you file tax returns in India (using 2d/SARAL form) and try to claim the tax back. For this you'll need form 16A issued by the party that makes the TDS. You'll also need to get a PAN (permanent account number) from income-tax department prior to that. This usually takes a month. As compared to investments in foreign currency deposits, quality of exchange rates used to convert to ruppee vary from bank to bank and from the instrument used to bring funds into India but this is topic for seperate discussion. So, is the issue of how quick/easy/convenient it is to take back the funds overseas. But the advantage these have is that you can break the deposits anytime (if held with banks).

2. Foreign currency non-resident (FCNR) deposits and their returns are also fully repatriable. Again the interest will be taxable from next year which you can claim back. The tax guidelines are not yet issued. For example, what will be the exchange rate used to determine the ruppee tax liability, will 16A issued by banks also include FCNR interest, etc. The procedure for filing the returns is expected to remain same. FCNR fixed-deposits are difficult to break if you need funds in an emergency in can be inconvenient. RBI requires a penalty for breaking the deposit which may be more than the interest that has accrued on it by then.

3. There are several other avenues available for investments including real estate, stocks, bonds and the mutual funds that invest in these. If you intend to invest in foreign currency, then many institutions (indian and foreign) offer investment vehicles that you can directly deal with in your country of residence. The investments are like any other investments you may make in that country and so the tax implications are also the same. Most of these have minimum investment size. If you like freedom to withdraw funds from such investments at any time then you must talk to the issuer about how often the secondary market will be provided and what is the minimum investment required to get decent secondary market liquidity. My impression is that it is often difficult to get out of closed-ended investments mid-way thru the term.

4. Rupee investments in stocks can be made by NRIs provided you’ve a non-resident depository account, a non-resident (NRE) bank account and that you can show the funds were brought from overseas (this bit is obviously fine if the account is NRE). In such a case all the capital and returns can be repatriated overseas. I think, if the funds are local you can repatriate the capital gains after all tax liabilities have been fulfilled but the dividends cannot be. In either case dividends are non-taxable if they are lower than a certain amount (which I can’t remember at the moment) and to facilitate this no TDS is deducted. From 1 October 2004, the long-term capital gains have been discontinued and a new securities transaction tax was introduced. Any capital gain “realised” in less than 1 calendar year is taxable at the prescribed short-term capital gains tax rate. These are determined on FIFO (first in first out) basis and you can adjust short-term capital losses against short-term capital gains. Income tax authorities require that you pay advance tax on these short-term capital gains four dates in an year, which are in Sep, Dec and twice in March. You must file a return if you’ve short-term capital gain liability. These short-term capital gain laws are same (more or less) for real-estate investments but are different for long-term investments. Most stocks have restrictions on how much percentage non-resident or overseas investors can own. Many top companies are already at that limit so you might want to do adequate research before jumping in.

5. Rupee investments in mutual funds are tricky as every fund does not offer this facility to NRIs because of the issue of monitoring the non-resident ownership limits in individual stocks. Most tax regulations are same as those of investment in individual stocks. If you really wish to do this, then I suggest you do adequate research. If your plan is to invest in large sums ($50K or Rs50lakh or more) then some attractive avenues are available which I can guide you offline. In some cases where much larger sums are involved, you may even be able to avoid short-term capital gain taxes to a very large extent.

Foreign tax issues depend on your residency. I’ve lived and paid taxes in many countries and my general impression is that you should not worry about taxes for your Indian investments so long as you are not a “permanent” resident in your country of residence. When you become permanent resident (or green-card, etc) then you become liable for your global income and (in most cases) you start filing returns as resident. Till the time you file returns as non-resident you need to declare overseas income as it is assumed you paid your taxes there (for memory, in US you stop filing 1040NR and start using 1040). If the sums are not large, then moving funds in/out is not an issue. I strongly advice that you use an accountant to help you file returns if your are “permanent” resident or if big sums are involved or if you intend to settle in the country of your current residence. If you’re a businessman with business (income) in many countries then you’ve some benefits but then you must (I hope) already be using a tax accountant by now.

I must put a disclaimer that above information may be wrong or outdated and so use it at your own risk. If you need more info then you can contact me thru the admins and I’ll be glad to help genuine guys.

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Postby bala » 27 Oct 2005 23:14

Tapasvi the NRI investment into India is huge $20-25B/yr which stems the $23B oil deficit. Also the return of NRIs after DOT-bust has caused a lot of reverse flow ($100,000 to Millions per family).

Some other factors that are inhibiting NRI funds:

1. Overseas Citizenship is pending because babus and bureacrats are lazy to create the necessary forms and start the process. This could unleash investments in the $100B range.

2. NRI funds are subject to taxation on deposits

3. No mechanism to create investment oriented funds with assured returns and/or stability. NRIs money is hard earned/merit and they need to be assured of non-evaporating money schemes. In the US we have FDIC insurance for upto $100,000 per account.

{ note: taxation is okay if done in terms of small percentage. e.g. if an investment returns 6-7% then 1-2% tax is okay so that the net is 5%. also minimum paperwork maybe TDS- tax deducted at source would work. }

Also, there are huge funds tied up in retirement accounts of NRIs. If India can target these accounts then we can see 10 X funds instantly. Most of these acccounts have tax deferred savings until age 59. I don't know all the legal govt-to-govt stuff. But if a country can be rich like Switzerland, Monaco by hosting banks then why not India?

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Re: NRI Investment in India

Postby Kedar » 28 Oct 2005 00:05

Sam CS wrote:
Kedar wrote:As a US CPA, let me give you the US tax implications (assuming you are a US resident). US citizens and greencard holders are automatically deemed as US residents regardless of where you live. As a US resident you are taxed on your worldwide income but can also claim some equivalent US deductions.


Great info, Kedar.

Turbotax seems to ignore foreign investment income unless the total foreign investment exceeds $10000. Does this sound right to you?

Could you also elaborate on implications for those who reside in India but have a US income - say something like dividends, retirement savings withdrawals, etc.?


Sorry folks did not read this thread for a while. Investment income and investment assets are two different things. By law you have to report every dollar of the investment income that you received (interest, dividends, etc.) irrespective of the invested amount.

Now if your foreign bank account total (all banks combined) exceeds $10K anytime during the year then you have to report it on Form TDF 90-22.1. It has to be filed separate from your tax return with the Department of Treasury in Detroit. No tax implications but a reporting requirement to detect potential money laundering. Especially after the passage of Patriot Act they will imposing a steep fine for not reporting even though there is no tax due.

I wouldn't trust TurboTax. It is good for easy returns but can falter easily when the returns get a little complicated.

On the second question, residing in India depends on whether you are a US citizen/greencard holder or have given these up. By you I also mean your spouse. If you are not considered a US resident, then you might be able to benefit from the India-US tax treaty and claim a much lower rate. For residencies and treaty exemptions it is hard to give a boiler plate answer because it depends on many factors. The good thing about the treaty is that you are not mandated to use it and can use it only when it benefits you. If a lot of money is involved then it might be worthwhile to get professional help. If it is just a small amount of money then treat it like regular US income.

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Postby Suraj » 02 Nov 2005 03:05

Positive expectations for the coming year as well. Expectation of the Sensex peaking in the 8500-9000 range and 7-8% GDP growth.

Outlook for Samvat 2062

Rajeev
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Postby Rajeev » 25 Nov 2005 05:04


SaiK
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Postby SaiK » 26 Jan 2006 05:18

Umbilical connectivity and societal change

A.P.J. Abdul Kalam

What the more fortunate among us have to do is to provide the leadership to bring about a transformation in India's 600,000 villages.

JANUARY 9 marked the return of Gandhiji from South Africa to India 91 years ago. His work in South Africa and the reasons for his return are well known. The point I would like to make is that when Gandhiji returned, he travelled from one colony to another of an Empire on which the Sun never set. It would not be an exaggeration if I say that today the sun truly cannot set on the Empire of the Indian Mind. Some children of Mother India are always working wherever the Sun is shining, be it in Asia, Africa, Australia, Europe, the Americas, or indeed the icy reaches of Antarctica. Twenty million children of India live in various parts of the planet and every year their number is increasing, because they are needed.

M.R. Raju, a nuclear scientist who during a 33-year sojourn held important positions in American laboratories including Los Alamos National Laboratory, decided on October 2, 1992, the birth anniversary of Mahatma Gandhi, to move permanently with his family to his village and serve society with his knowledge and wealth. His contribution during the last one decade has made a difference to his village. A lawyer, a maxillofacial surgeon, and an ophthalmologist working in the United States were drawn to Professor Raju's mission.

The Byrraju Foundation's work in the rural communities in 150 villages across five districts of Andhra Pradesh has an impact on nearly one million rural lives. Their programmes include healthcare, education and adult literacy, water, environment and sanitation, and livelihood skills. The Foundation is entirely funded by Satyam Computer Services Limited. Its work has had an impact on the Human Development Index in the Bhimavaram region.

What do all these people symbolise? What attracts people spread across the planet to the land of their origin? I asked this question to a Minneapolis-based engineer. He said while it makes perfect business sense to manufacture electronic products in India and export them, he also wants to repay the debt he owes to this land and society where his forefathers lived. It is not only important for Non-Resident Indians to re-pay the debt to their motherland; all of us living here also have to pay back our debt to our motherland, which has nurtured us.

People of Indian Origin worldwide represent four waves of migration in the past. The first, and probably the longest wave, was of Indians going forth in search of knowledge and opportunity as travellers, as teachers, and as traders. Indians went to China and to Indo-China. The second wave was one of enforced migration of indentured labour, a legacy of colonialism. Indians were taken to Africa, the West Indies, and England. The third wave was a product of Partition. The fourth and the most recent wave has been that of Indians empowered with skill and knowledge seeking various opportunities and challenges. The destinations are the United States, Canada, English-speaking European countries, and West Asia. Will there be a fifth wave? In the fifth wave, towards the end of the 21st century, Indians may participate in planetary civilisation that may result in many of them inhabiting Mars and entering the space industrial establishment on the Moon.

The four migratory waves took place in different historical settings for different reasons, but the central theme remained the quest for better living conditions and opportunities to excel. The hope of transforming our present to a productive future is what makes humans unique. This is indeed true of migrants the world over. The important point is that Indians always migrated as individuals and never as communities. In fact even during the Partition, brothers chose to separate rather than migrate as families. The attraction of the homeland has historically proved to be more powerful than compulsions of migration, definitely in the long run and over a period of a lifetime.

Overseas Indians have been successful thanks to the education and the heritage their homeland gave them, as well as the opportunities the countries to which they migrated gave them. I receive Non-Resident Indian visitors from all walks of life. Many of them bring their children for the first time to their motherland. They look for the warmth of human relations in India. Our society remains a loving mother to grown-up sons and daughters who always return. I call this umbilical connectivity between the mother and her children. India, where 70 per cent of the people live in rural areas, has a vision to transform itself into an economically developed country before 2020.

Technology for transformation

The transformation of India will need the transformation of 600,000 villages. This will need the creation of Programmes for Urban facilities in Rural Areas (PURAs) spread over different parts of the country— with physical connectivity, electronic connectivity, knowledge connectivity leading to economic connectivity. I suggest the decision could be taken to allot Rs.500 crore to develop 100 PURA clusters. Each cluster, comprising 20 to 30 villages, will have an educational institution as a nucleus. The development will comprise the setting up of village knowledge centres, agro-clinics, tele-education and tele-medicine centres. Besides, there could be other employment-oriented schemes such as bio-gas plants, water treatment plants (brackish to potable water), bio-fuel esterification plants, cold storages, consumer product development, vocational training centres. And, business centres could be set up by entrepreneurs for national and international marketing of products from these rural enterprises. In all these cases, educational institutions should plan activities in consultation with local people who are the beneficiaries of this programme.

These 100 PURAs originating from educational institutions with a public-private partnership will provide the experience for taking up bigger programmes in the future on an industrial scale. This undertaking will build capacities of villagers and encourage Indian entrepreneurs to become active partners in this development process. These activities should not be treated as mere experiments and scientific knowledge; it is the application of science and technology for societal transformation. Academic institutions and the rural people belonging to PURA clusters will be the winners. Finally, there should be a clear assessment whether villagers have been benefited. A joint team of village members and scientists-technologists can do this. This will lead to the birth of civic scientists. This is the performance challenge I would like to pose to the experienced scientific community and to Government officials.

India has embarked on a mission to provide connectivity for its billion people in the form of grids. This gives national connectivity consisting of the knowledge grid, health grid, e-governance grid, and PURA grid. That means connectivity citizen-to-citizen, citizen to state, Government to Government, and citizen to institutions and organisations. This grid system will certainly maximise synergy between organisations and people leading to faster economic growth and productivity. I find that a revolution is taking place in the rural environment, due to the sustained effort of committed leadership to remove human pain. We are all part of the nation. What the more fortunate among us have to do is to provide the leadership that can help bring about a transformation in the other India. India has got 600,000 villages. I am sure each one of you assembled here will have a connectivity with one of these villages. You can definitely provide the leadership for transformation of the cluster of villages around your village with your experience and knowledge connectivity. You can definitely become partners in this noble mission. I am sure that after having lived in foreign countries you will have realised that each one of us is a member of the extended human family. We have the same hopes and aspirations, fears and longings, desires and dreams. Our station in life is dictated by a random draw that was made by forces beyond our imagination leave alone our control.

Working in rural areas is not easy. It is like Kurukshetra. To come here and participate in societal transformation is indeed a spiritual challenge. Each of us, wherever we are, can make a commitment in our lifetime to bring about positive changes in the land of our birth and enhance its glory. India seeks your knowledge, experience and the art of success you have learnt through your struggle abroad. She beckons in your success!

(Adapted from the valedictory address of President A.P.J. Abdul Kalam at the Pravasi Bharatiya Divas-2006 in Hyderabad on January 9, 2006.)
http://www.hindu.com/2006/01/26/stories ... 991000.htm

Ravi S
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Postby Ravi S » 27 Jan 2006 23:57

So, which type of account is better for people like me who wants the ability to give access to money to parents and may be for small investments?

Should I open an NRE account or NRO account? Please advise.

BY-the-by, I live in New Jersey.

Thanks.

Jai Hind

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Postby Katare » 28 Jan 2006 00:39

I have NRE account, they are good but your folks can't deposit any money back into the account.

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Postby Dileep » 28 Jan 2006 01:02

RaviS,

Here it is in a nutshell:

NRE: Your folk in India can withdraw from it, but not deposit into it. You can take the money back to the USA without too much trouble. No tax is deducted on interest.

NRO: Opposite of the above. Gets a little bit more interest.

Both accounts can be used for other purposes, like draw cheques on, do ATM withdrawal, Pay online etc.

I have BOTH, and that is what I would advice.

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Postby bala » 28 Jan 2006 01:15

Here is my take on accounts:

NRE: put $x in it can take out $x out whenever. two ways to invest: a) convert $ to Rs and get interest (which BTW is more than NRO or other India accounts) b) keep $ in fixed FCNR accounts. NRE is non-taxable in India.
One little known fact: can use this account to invest in real estate in India using (a) and when the real estate is sold can repatriate $x equivalent of sale in Rs. ICICI allows features like cheques, ATM, online etc. No Rs. from external sources into the account however.

NRO: put Rs. y and get interest which is taxable by GOI. Also only account that can be used to put Rs from real estate sale, other inheritence in india.

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Postby Suraj » 28 Jan 2006 01:20

Ok, I have an NRE but not NRO account. Does one need a PAN # for the latter considering the TDS system used ? How about investment in Indian mutual funds (as opposed to US mutual funds targetting India) via NR{E|O} accounts, particularly in terms of Indian and foreign tax implications ?

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Postby bala » 28 Jan 2006 01:29

Indian Mutual Funds like Reliance, Tata, Franklin etc are all investable using either NRE or NRO Rs. No tax implications with GOI on NRE. Also Indian annuities are another big time investment option that yields very good return rates.

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Postby Suraj » 28 Jan 2006 01:37

bala wrote:Indian Mutual Funds like Reliance, Tata, Franklin etc are all investable using either NRE or NRO Rs. No tax implications with GOI on NRE. Also Indian annuities are another big time investment option that yields very good return rates.


Yes, but they do have US tax implications, and quite likely in other nations too. I'm not comfortable with the "don't mention their existence to IRS" school of thought :) Capital gains and dividends (even if reinvested) would trigger a taxable situation.

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Postby Bade » 28 Jan 2006 01:57

Interest gained on NRE a/c are taxable in the US from what I understand. Just like the local banks $ a/c give u a 1099 form(?) NRE a/c also has an equivalent reported to IRS.

NRE a/c is the only legally allowed conduit for real estate investments in India for NRI/PIO etc. Good builders/developers insist on all monies being transferred this way onlee.

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Postby Dileep » 28 Jan 2006 02:07

OK, my bad. NRO interest rate is slightly lower than NRE right now.

Mutual funds allow NRE holding. It must be funded through NRE account. Dividends are tax free. As of current financial year, there is no long term capital gains tax, but there is a transaction tax. There is short term gains tax which is the same as regular income tax. If you don't have other income in India, this gain may fall within the no tax bracket, and the TDS would be (hopefully) refunded.

Yes, there is tax liability in USA for the income. Need to consider the double taxation treaties etc for that, and that needs CPA. Hey, you live here and enjoy all the things that your tax dollars are supposed to provide. Better pay up!!

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Postby Katare » 28 Jan 2006 02:23

I didn't know about NRE-> real estate investment link! interesting!!

Also year and half back I found out that NRI from US are not allowed to open an equity broking account in India. I wanted to open an account with one of the online brokers to be able to trade in equities. ICICI bank said this facility is not available to NRIs from USA (the ones from middle east, UK etc can open it), they said I'll have to approch RBI directly for permission :roll:

Well I instead invested in Indian ADRs, since than my money has more thn doubled but had they allowed me to open the account in India I would have saved a lot on capital gain tax while GoI would have made some money via STT etc

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Postby Dileep » 28 Jan 2006 03:05

Read up the tax treaty. There is no protection on double taxation, so you pay both unkil and mom. Still, since mom doesn't tax dividends and tax little on gains, it might still be a good option.

Franklin Templeton does not sell MFs to US residents now. That is because they are a US company I think. Rest of the crowd does.

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Postby Suraj » 28 Jan 2006 03:24

Thanks Dileep. I'm all for paying the taxes I owe. I'm just as interested in due diligence so I know what the liabilities will be. I believe it is possible to eliminate or minimize tax liability on Indian MFs by picking the growth option,so you only pay upon sale, not on accrued earnings in the income option. It's the intricacies of US tax liability on various MF categories & other investment options (including annuities, real estate) I was most interested in, because the option that lowers/eliminates taxes in India may not apply to US, or v.v. So whatever choice that minimizes total liabilities is obviously the best. Any input on the subject is welcome :)

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Postby VikramS » 28 Jan 2006 04:41

Bade wrote:Interest gained on NRE a/c are taxable in the US from what I understand. Just like the local banks $ a/c give u a 1099 form(?) NRE a/c also has an equivalent reported to IRS.

NRE a/c is the only legally allowed conduit for real estate investments in India for NRI/PIO etc. Good builders/developers insist on all monies being transferred this way onlee.


I think if your holdings outside the US are less than $10K you do not need to report anything on your US tax returns.

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That is the prudent course of action

Postby AJay » 28 Jan 2006 06:37

Suraj wrote:I'm not comfortable with the "don't mention their existence to IRS" school of thought :) Capital gains and dividends (even if reinvested) would trigger a taxable situation.


This is a very sane advise.

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Postby Dileep » 28 Jan 2006 23:39

Suraj,

If you use growth option and do long term, you will pay 0.2% transaction tax on the gains to mom. Then you pay capital gains tax to unkil. The IRS docs says it is between 5-15% avg, which is very good.

Past one year, equity funds gave 50-100% growth, and I think the future looks good.


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