r2i forum

I'm not sure if the question I'm posting qualifies as a silly/simple. I will create a new thread or move it if necessary.

Just calculated my RNOR status based on my upcoming R2I date, and realized that my RNOR period is nada :(

I'm now concerned about its implications w.r.t LTCG from the sale of our residence... (we are eligible for LTCG tax in the US)

How would India treat my LTCG since it occured in the US?

1) Can I avail LTCG exemption in India as per sec 54 (by buying or building a house or buying bonds)

2) If we relocate as planned, could I show my wife as the sole beneficiary of the US cap gain (we are both on the title)? And avail the benefits of RNOR status that she would be eligible for?

3) As Option 3, could be I sell the property now and relocate to India next summer and avoid LTCG taxes in India. (This would work as long as I don't spend 180 days in India this FY?) :confused:

Any tips/pointers would be much appreciated.

Thanks -- DL

Hi Everyone,

I have a two basic questions...

1> I open an NRE account in some Indian Bank. These accounts are fully repatriable. I transfer $25,000 into that account. As soon as I transfer, they get converted into INR based on the exchange rate today. Then, I use that money in INR to invest into Mutual funds in India. I keep the money invested in Mutual funds for three years. It grows 30% in three years. Now I want to bring that money (principal + profit/dividends/long term gain) back to the US. I know that in some cases I am not taxed in India at all. So my gain, when repatriated (assuming same exchange rate) would be $7500 plus the principal which makes the total to $32,500.

Now the question is, assuming I don't have to pay taxes in India, what are the tax implications in the U.S.? How do I go about it?

2> From the same NRE account, I pay for a 'flat'(apartment) in India a sum of INR 3,000,000. Then after three years the flat can be sold at INR 4,000,000. Can I sell it and convert that money into USD and bring it back to US? If yes, what are the tax implications in India and in the US?

thanks
- Shailesh

Now the question is, assuming I don't have to pay taxes in India, what are the tax implications in the U.S.?

Pretty horrendous.

How do I go about it?

Avoid investing in Indian mutual funds if you anticipate getting dividends or selling the investment when still a US resident for tax purposes. Search the forum for "PFIC" to know why.

From the same NRE account, I pay for a 'flat'(apartment) in India a sum of INR 3,000,000. Then after three years the flat can be sold at INR 4,000,000. Can I sell it and convert that money into USD and bring it back to US? If yes, what are the tax implications in India and in the US?

Yes, RBI allows repatriation in such cases. You will be liable to tax by GOI as well as Uncle Sam on the long term cap gain of 1 million rupees. You can claim double taxation relief (foreign tax credit) from Uncle Sam for taxes paid on the long term cap gain to GOI.

Dear Bobus,
I sent you two mails to your account and awaiting your reply.

best,
Krishna407

Krishna:

I do not offer consultation via private email. I would rather that members post in the forum and get my input in the public domain. Doing so has at least a couple of advantages:

(a) Others in similar situations are also helped.
(b) Other members can respond to what I say and improve the quality of input.

After reading through the posts I found the following,
If you R2I the returns on your foreign investments (like in US) are taxed at least at 20% by GOI. I took a lot of time to plan investments in US to avoid US tax. So I am not worried that much about taxes by US gov.

But I wonder there is no concept of tax deffered or tax exempt investment in India (except PPF). (I am talking about taxes on capital gains/dividends)

Now being an NRI, I cannot invest in Indian equities ,MF or PPF.

Hence I choose investments like ROTH IRA. However I cannot avoid taxes on ROTH when I R2I.
Is there any place an NRI could invest that would not be taxed by GOI ?

In otherwords after reading R2I is not that attractive from a tax perspective.

Yes, you got that right. real estate - primary home in India is one option. benami holdings is another (gifting - not illegal if you dont attach any strings to it). Otherwise, yes, you have to pay the price for being USC R2I. Refer other threads here.

I am USC and I was working till Dec 31 in US. After that I came resign and came back to India for good. I am working since 15th Jan in India.

Now I am using Turbo tax to complete my US tax. Here are my questions,

1. Which address should I put on 1040? US address or India address?

2. Can I file electronically both State and Federal?

3. Do I need to add this income when I file Indian tax return after march 31st? But if I convert this amout to rupee then I will be in 35% tax bracket for Indian tax purpose where as effective tax bracket for me in US is 20%. Does this mean I need to pay tax of remaining 15% to India govt?

Its very confusing. I am sure some people are facing this problem right now.

Any help would greatly be appreciated.

I am USC and I was working till Dec 31 in US.

Did you mean until Dec 31, 2006?

Which address should I put on 1040? US address or India address?

Current address which is India address.

2. Can I file electronically both State and Federal?

Shd be feasible.

Do I need to add this income when I file Indian tax return after march 31st?

What is "this income"? Do you mean income of 2006 that is reported on US return for 2006? If so, what is your India residential status for the fiscal year April 1 2006 to March 31, 2007, and what are the sources of the income?

But if I convert this amout to rupee then I will be in 35% tax bracket for Indian tax purpose ..

There is no 35% individual tax bracket under Indian tax law. Perhaps you mean you will be in the 30% tax bracket and that with surcharge of 10% and education cess of 2%, your marginal tax rate will be 33.66%.

Please write clearly as if you are communicating to an idiot so that readers are not forced to make guesses. Also read Pub 54 below:

http://www.irs.gov/publications/p54/index.html

Bobus;11843I am USC and I was working till Dec 31 in US.

2. Can I file electronically both State and Federal?

Shd be feasible.

Please check http://www.irs.gov/publications/p54/ch01.html#d0e1060

; you can;t e-file with a foreign address
--
Where To File
If any of the following situations apply to you, file your return with the:

Internal Revenue Service Center
Austin, TX 73301-0215


You claim the foreign earned income exclusion.

You claim the foreign housing exclusion or deduction.

You use an APO or FPO address.

You live in a foreign country.