Will India need cost basis for IRA and Roth at distribution

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Topic Author
usnaturally
Posts: 2
Joined: Tue Aug 28, 2018 2:18 pm

Will India need cost basis for IRA and Roth at distribution

Post by usnaturally »

I am a US citizen now a resident of India. I will likely need to pay taxes on IRA and Roth investments when I takes distribution at retirement age 16 years from now. Will I need to keep cost basis info for all those years (starting the year I became a resident of India) and then calculate the taxable Capital gains at the time of distribution?
Last edited by usnaturally on Mon Jul 29, 2019 6:37 pm, edited 1 time in total.
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ram
Posts: 1659
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: Will India need cost basis for IRA and Roth at distribution

Post by ram »

I do not know the answer but if I were in your shoes I would ask an accountant in India, preferably someone specializing in people with overseas accounts. One would be more likely to find such a person at a large accounting firm in a major city.
Ram
latak215
Posts: 56
Joined: Sat Nov 26, 2016 7:41 pm

Re: Will India need cost basis for IRA and Roth at distribution

Post by latak215 »

Yes I agree with above suggestion. My brother in law is in same position and an accountant in india was so helpful. pleased with their charges too.
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: Will India need cost basis for IRA and Roth at distribution

Post by codedude »

usnaturally,

When one moves to India, he is a Resident not ordinarily resident (RNOR). In this status, all assets outside India are not taxed in any way. Only income generated within India is taxed. After a couple of years 2-3 years typically based on number of days present in India), the person becomes a Resident ordinarily resident (ROR). The cost of the assets on this date becomes the basis. All assets and income worldwide is taxed. If he sells anything, there can be a capital gain or loss whether in an IRA or not. All dividends are taxed as in a regular account.

If I were in this position, I would sell all my tax advantaged account mutual funds and ETFs and buy them back right before becoming an ROR to reset the cost basis.

Note that above is independent of any distributions one may take from IRAs except that if any fund is sold, the capital gain or loss is taken into account. The withdrawal itself is like withdrawing from a checking account.
Topic Author
usnaturally
Posts: 2
Joined: Tue Aug 28, 2018 2:18 pm

Re: Will India need cost basis for IRA and Roth at distribution

Post by usnaturally »

Thanks folks. Will work with my tax accountant. I have found an excellent one suitable for India US expat tax topics, recommended on US embassy website.

I agree that India tax will be calculated based on sales and CG, and not just the withdrawal amount at the time of distribution (income taken.)

There is some confusion about payment now (at the time of becoming ROR) vs time of retirement. The basis of my original question was that this accountant is very clear that ROR has to pay tax only at time of taking distribution from US IRA/Roth and not at the time capital gains are accrued in the retirement accounts. Per him, this is because India government respects the US designation of it as tax-deferred account. His logic is that I will pay tax to US and at the time of distribution and India will give credit for tax paid to US, India can not give any credit at this time of sale and CG.

On the other hand, r2i website of one accountant geared to NRIs is very confusing and claiming otherwise. I do not agree with them. Of course, we all must check with an accountant as everyone's situation differs a bit and can't trust internet advise.
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: Will India need cost basis for IRA and Roth at distribution

Post by codedude »

usnaturally,

Getting accountant’s help is the right thing.

However, if only distributions are taxed and not cap gains/dividends, then it is easy for anyone to legally game the system by becoming a non resident for a year so that one has no Indian tax liability, take all distributions or convert to Roth IRA, then moving back into India. Also the Indian govt would not get any tax out of Roth IRAs because no distributions are required.

Most countries do not recognize IRAs except when specifically mentioned in a treaty. The only mention I see in the India-US double taxation avoidance treaty is of annuities and social security payments not being taxed in India.

Please let us know what you eventually find out.

Thanks.
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: Will India need cost basis for IRA and Roth at distribution

Post by codedude »

usnaturally,

Please review question 2 and response below.

https://www.incometaxindia.gov.in/commu ... 5_2015.pdf
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