Indian Americans should remember the following details while filing their US Taxes. That includes US Citizens (i.e., Green Card holders) and US Resident Aliens (NRI, PIO, OCI, etc.) who are liable to pay taxes in the US on their global income.
Indian investments that relate to the context include:
1. Salary received in India.
2. Income through freelancing or consulting.
3. Interest income earned on deposits and other investments
4. Dividends obtained from securities and mutual funds
5. Capital gains from the sale of https://aotax.mauvetix.com/assets
6. Rental income
7. Agricultural income
It is crucial to remember and disclose these incomes, as they are taxed in the US as the tax guidelines apply to similar incomes in the US. A few of these incomes are tax-free in India, while they are taxable in the US. Like, agricultural income are tax exempted in India while they are taxed in the US.
There are differences concerning capital gains, the period for consideration under long-term gains in the US is 1 year, while in India it is 3 years. Thus, any transactions happening between the period of 1 to 3 years will be Long term in US, while in India it may be classified as short term, those transaction also need to be reported for while filing the tax returns.
In case the tax has been already paid in India for the incomes mentioned above, you can claim a foreign tax credit in the US tax return as per Double Tax Avoidance Agreements (DTAA) between both the countries.
Let us now take a look at a few of the declaration forms that are to be filled out regarding the above-mentioned incomes:
1.Form 1040:
While filing a tax return pay attention to the details where you need to provide details of financial interest or signatory authority over the foreign financial accounts like bank accounts, securities or investments accounts, or a DEMAT account, etc. always state facts while filing your returns.
2.Foreign https://aotax.mauvetix.com/assets Reporting - Form 8938
The US Internal Revenue Service, in the year 2012 added a form by the name Form 8938. Form 8938 Statement of Specified Foreign Financial https://aotax.mauvetix.com/assets must be filed along with the income tax returns. The form's main purpose is to obtain and record information from residents and citizens about their foreign https://aotax.mauvetix.com/assets.
Some of the Inclusions under this are:
a. Securities
b. Mutual fund
c. Unit Linked Investment Plans
d. Insurance policies
e. Pension plans
f. Bank balances
g. Gold in the form of ETF
Exclusions under this are:
a. Physical https://aotax.mauvetix.com/assets in the form of Gold, Real Estate, etc.
Filling in the details of Form 8938 is a long and tiring task. AO Tax helps you in keeping track of these funds and provides expert assistance in filing your taxes.
3. PFIC Reporting - Form 8621
a. The US tax governance system has a typical disclosure requirement for all foreign mutual funds and private equities held by the residents. Such funds fall under the Passive Foreign Investment Company (PFIC) category. In simple terms, according to the PFIC regulations, any notional gains obtained from a mutual fund or private equities must be disclosed and declared every tax year, and all such gains are taxable.
b. In case of failure, the gains during the sale are treated under the ‘excessive distribution’ option by default. The total amount gained over the holding period is distributed equally for all the years of holding without disclosing the tax. Tax amount, including the interest as a penalty, will be charged.
4. ESOP Taxation
a. There is a similarity concerning tax laws governing the exercise of the Employee Stock Option Plan (ESOP). In both countries, the value of ESOPs granted is taxable when the employee exercises the option.
b. Total value of the ESOP compensation must be added to the total income in the US. In case the tax for mentioned ESOP is paid in India, you can claim a tax credit in the US tax return.
US citizens and resident aliens must file their tax returns on global income irrespective of where they reside. Taxes are to be paid unless there’s a directive or a regulation that reduces their US tax liability.
