US citizen investing in India

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gautamsa
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US citizen investing in India

Post by gautamsa »

Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
ConfusedbutEducated
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Re: US citizen investing in India

Post by ConfusedbutEducated »

Yes you can

UTI Mutual Fund and ICICI Mutual Fund offer Nifty 50 and Neft Next 50 Index Funds- both at super low TER (10-30 bps ) and togetrher cover 75% + 12% of the market in India. Good luck
assyadh
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Re: US citizen investing in India

Post by assyadh »

gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
Good lord you should not hold this. Google what a PFIC is. Sorry for being the bringer of bad news
k b
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Re: US citizen investing in India

Post by k b »

assyadh wrote: Sat Aug 29, 2020 9:29 pm
gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
Good lord you should not hold this. Google what a PFIC is. Sorry for being the bringer of bad news
What does an insurance policy have to do with PFIC?
AlohaJoe
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Re: US citizen investing in India

Post by AlohaJoe »

k b wrote: Sat Aug 29, 2020 10:20 pm
assyadh wrote: Sat Aug 29, 2020 9:29 pm
gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
Good lord you should not hold this. Google what a PFIC is. Sorry for being the bringer of bad news
What does an insurance policy have to do with PFIC?
Insurance companies invest money. All of the earnings from that are passive by the legal definition of foreign personal holding company income (FPHCI) as defined in Sec. 954(c).

That means all foreign insurance companies are PFIC by definition.

However, before 2017 there was an "insurance exception" provided the insurance company passed a 4-part test.

In 2017 the Tax Cuts and Jobs Act (TCJA) narrowed and redefined the insurance exception only include "Qualifying Insurance Companies". To know if a foreign insurance company is a Qualifying Insurance Company you need an "applicable financial statement" (preferably GAAP or IFRS) and then calculate the ratio of liabilities to assets, where liabilities exclude deficiency, contingency, and unearned premium reserves.

Only if the insurance company passes that test can you ignore PFIC. If you haven't done that you are at risk of PFIC penalty of $10,000 a year for not filing Form 8939.

Have you done that for your Indian insurance company?
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Re: US citizen investing in India

Post by grabiner »

AlohaJoe wrote: Sat Aug 29, 2020 11:10 pm However, before 2017 there was an "insurance exception" provided the insurance company passed a 4-part test.

In 2017 the Tax Cuts and Jobs Act (TCJA) narrowed and redefined the insurance exception only include "Qualifying Insurance Companies". To know if a foreign insurance company is a Qualifying Insurance Company you need an "applicable financial statement" (preferably GAAP or IFRS) and then calculate the ratio of liabilities to assets, where liabilities exclude deficiency, contingency, and unearned premium reserves.

Only if the insurance company passes that test can you ignore PFIC. If you haven't done that you are at risk of PFIC penalty of $10,000 a year for not filing Form 8939.

Have you done that for your Indian insurance company?
You are confusing two issues here.

Form 8938 (corrected number) is the form you are required to file to report foreign financial assets which exceed a certain threshold. The penalty for failing to file the form is a potential penalty of $10,000, and the statute of limitations for failure to pay tax on those assets does not begin until you file the form. You need to file Form 8938 whether the foreign asset is a PFIC or not.

Form 8621 is the form you file to pay taxes on PFICs. Gains from PFICs have a particularly unfavorable tax treatment.
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Re: US citizen investing in India

Post by TedSwippet »

gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? ...
To amplify responses above ... the wiki offers more detail on the US's horrible PFIC tax rules. Note that PFICs have to be reported annually on your US tax return. If what you hold is a PFIC, you might already be delinquent there. If you were to switch to Indian index funds -- as in, funds domiciled in India -- these would almost certainly (also?) be PFICs.

Non-US investor's guide to navigating US tax traps - Bogleheads
Passive foreign investment company - Bogleheads

Your likely best bet is to cash this in and move the proceeds to US domiciled funds such as VT, VTI, VXUS and so on. For you, non-US based investments are a potential tax death-sentence.
typical.investor
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Re: US citizen investing in India

Post by typical.investor »

Not sure if it’s up-to-date with all recent changes, but here is an idea of what you are looking at: https://m.economictimes.com/nri/nri-inv ... urpg-2.cms

If you want to use US domiciled funds, Schwab will accept you! I am happily using them.

https://international.schwab.com/

Anyway, here’s the performance of a couple India focused funds compared to total international. Returns are in USD. https://www.portfoliovisualizer.com/bac ... ion3_3=100
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gautamsa
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Re: US citizen investing in India

Post by gautamsa »

AlohaJoe wrote: Sat Aug 29, 2020 11:10 pm
k b wrote: Sat Aug 29, 2020 10:20 pm
assyadh wrote: Sat Aug 29, 2020 9:29 pm
gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
Good lord you should not hold this. Google what a PFIC is. Sorry for being the bringer of bad news
What does an insurance policy have to do with PFIC?
Insurance companies invest money. All of the earnings from that are passive by the legal definition of foreign personal holding company income (FPHCI) as defined in Sec. 954(c).

That means all foreign insurance companies are PFIC by definition.

However, before 2017 there was an "insurance exception" provided the insurance company passed a 4-part test.

In 2017 the Tax Cuts and Jobs Act (TCJA) narrowed and redefined the insurance exception only include "Qualifying Insurance Companies". To know if a foreign insurance company is a Qualifying Insurance Company you need an "applicable financial statement" (preferably GAAP or IFRS) and then calculate the ratio of liabilities to assets, where liabilities exclude deficiency, contingency, and unearned premium reserves.

Only if the insurance company passes that test can you ignore PFIC. If you haven't done that you are at risk of PFIC penalty of $10,000 a year for not filing Form 8939.

Have you done that for your Indian insurance company?
My Indian insurance is via HSBC India with which I have an NRE account. So i assume HSBC which is a global bank has done its due diligence.
In the NRE account the gains are not taxed in India but should be taxed only when I get them back to the US which I dont plan to for atleast the next 10 yrs. A lot of US citizens invest in India.
HSBC India had filed the FATCA form back in 2015 for me. Isnt this used to report PFIC to the US govt ?
Also any tax which I need to pay, isnt that to be paid when I take my money back ? Or should I be paying it every yr ?
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Re: US citizen investing in India

Post by TedSwippet »

gautamsa wrote: Sun Aug 30, 2020 7:18 amMy Indian insurance is via HSBC India with which I have an NRE account. So i assume HSBC which is a global bank has done its due diligence.
In the NRE account the gains are not taxed in India but should be taxed only when I get them back to the US which I dont plan to for atleast the next 10 yrs. A lot of US citizens invest in India.
HSBC India had filed the FATCA form back in 2015 for me. Isnt this used to report PFIC to the US govt ?
Also any tax which I need to pay, isnt that to be paid when I take my money back ? Or should I be paying it every yr ?
This page outlines some of the US tax trap nastiness for Indian NRE and NRO accounts. HSBC is unfortunately a particular red flag. Please don't shoot the messenger.

Help with common US tax issues for US-Indian persons
The NRE/NRO trap
Indians not living in India can only have NRE/NRO accounts. The benefit is that these accounts are tax-free in India. If an Indian is also a US person, a NRE/NRO is taxable. This trap has caused many Indians to fail to disclose their worldwide income and many have had to enter into some sort of offshore disclosure program.

Many items need technical computations
Based on our experience, we find that there are many complicated aspects of treatment of different types of accounts in India. For instance:
- Fixed deposits with a term over one year must be given OID treatment; interest is taxes when accrued, not earned.
- Indian life insurance is typically non-qualified and must receive 7702G computations.
- HSBC India is on the foreign facilitators list.
- Indian Mutual Funds require PFIC computations/Form 8621.
- We treat EPFs as employee trusts. This means they need special treatment under IRC 402(b) and distributions are effectively taxed under code section 72.
- PPFs are taxed yearly on the interest amounts.
- Knowing the difference between NRE and NRO accounts is of the utmost importance.
- If you have a pension fund from a former employer, this needs special treatment.
- Indian DEMAT Accounts involved complicated accounting, along with FBAR reporting.
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gautamsa
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Re: US citizen investing in India

Post by gautamsa »

TedSwippet wrote: Sun Aug 30, 2020 7:52 am
gautamsa wrote: Sun Aug 30, 2020 7:18 amMy Indian insurance is via HSBC India with which I have an NRE account. So i assume HSBC which is a global bank has done its due diligence.
In the NRE account the gains are not taxed in India but should be taxed only when I get them back to the US which I dont plan to for atleast the next 10 yrs. A lot of US citizens invest in India.
HSBC India had filed the FATCA form back in 2015 for me. Isnt this used to report PFIC to the US govt ?
Also any tax which I need to pay, isnt that to be paid when I take my money back ? Or should I be paying it every yr ?
This page outlines some of the US tax trap nastiness for Indian NRE and NRO accounts. HSBC is unfortunately a particular red flag. Please don't shoot the messenger.

Help with common US tax issues for US-Indian persons
The NRE/NRO trap
Indians not living in India can only have NRE/NRO accounts. The benefit is that these accounts are tax-free in India. If an Indian is also a US person, a NRE/NRO is taxable. This trap has caused many Indians to fail to disclose their worldwide income and many have had to enter into some sort of offshore disclosure program.

Many items need technical computations
Based on our experience, we find that there are many complicated aspects of treatment of different types of accounts in India. For instance:
- Fixed deposits with a term over one year must be given OID treatment; interest is taxes when accrued, not earned.
- Indian life insurance is typically non-qualified and must receive 7702G computations.
- HSBC India is on the foreign facilitators list.
- Indian Mutual Funds require PFIC computations/Form 8621.
- We treat EPFs as employee trusts. This means they need special treatment under IRC 402(b) and distributions are effectively taxed under code section 72.
- PPFs are taxed yearly on the interest amounts.
- Knowing the difference between NRE and NRO accounts is of the utmost importance.
- If you have a pension fund from a former employer, this needs special treatment.
- Indian DEMAT Accounts involved complicated accounting, along with FBAR reporting.
thanks...but I am still confused. I have 3 questions
Do I need to fill the form 8621 every year with my US tax returns ?
Is form 8621 the same as FBAR form ?
Do I need to pay capital gain taxes only when I get my money back ?
AlohaJoe
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Re: US citizen investing in India

Post by AlohaJoe »

gautamsa wrote: Sun Aug 30, 2020 7:18 am
HSBC India had filed the FATCA form back in 2015 for me. Isnt this used to report PFIC to the US govt ?
No, FATCA and PFIC are completely unrelated.

I can't answer the details since I don't know anything about the Indian specifics, unfortunately.
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Re: US citizen investing in India

Post by grabiner »

gautamsa wrote: Sun Aug 30, 2020 8:04 am thanks...but I am still confused. I have 3 questions
Do I need to fill the form 8621 every year with my US tax returns ?
Is form 8621 the same as FBAR form ?
Do I need to pay capital gain taxes only when I get my money back ?
Form 8621 is filed every year with your US taxes if you invest in a PFIC; you can find the form and instructions on the IRS web site. The purpose of this form is to compute tax under the PFIC rules.

The FBAR form is different; you are required to report all your foreign accounts to the US Treasury if they are worth over $10,000, whether or not they produce taxable income; for example, you report a non-interest-bearing checking account on this form. This is not a tax form, and is not filed with the IRS.

What type of tax you pay on a PFIC each year, and upon sale, depends on which of the three tax treatment rules it qualifies for. Passive foreign investment company on the wiki outlines the three rules; you can also see how all three are potentially worse than the equivalent US tax rules, with the default (section 1291) the worst of all.
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gautamsa
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Re: US citizen investing in India

Post by gautamsa »

grabiner wrote: Sun Aug 30, 2020 9:14 am
gautamsa wrote: Sun Aug 30, 2020 8:04 am thanks...but I am still confused. I have 3 questions
Do I need to fill the form 8621 every year with my US tax returns ?
Is form 8621 the same as FBAR form ?
Do I need to pay capital gain taxes only when I get my money back ?
Form 8621 is filed every year with your US taxes if you invest in a PFIC; you can find the form and instructions on the IRS web site. The purpose of this form is to compute tax under the PFIC rules.

The FBAR form is different; you are required to report all your foreign accounts to the US Treasury if they are worth over $10,000, whether or not they produce taxable income; for example, you report a non-interest-bearing checking account on this form. This is not a tax form, and is not filed with the IRS.

What type of tax you pay on a PFIC each year, and upon sale, depends on which of the three tax treatment rules it qualifies for. Passive foreign investment company on the wiki outlines the three rules; you can also see how all three are potentially worse than the equivalent US tax rules, with the default (section 1291) the worst of all.
ok but I am a US citizen living in US and have paid all my taxes for my US income every year. The link you gave me speaks of "For US citizens living abroad" AND "For non-US citizens living in the US". I am neither. I a US citizen living and working and paying taxes in US. Just need to know what I have to do of my 50 lacs sitting in India in an NRE account ? Do i pay taxes every year or only when I get the money back. Also I sent money to India 10 yrs ago when 1dollar was 50 Rs. Now 1 dollar is 75 rs and all my gains have been wiped out due to the depreciation. or are very little.
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Re: US citizen investing in India

Post by TedSwippet »

gautamsa wrote: Sun Aug 30, 2020 10:27 am ok but I am a US citizen living in US and have paid all my taxes for my US income every year. The link you gave me speaks of "For US citizens living abroad" AND "For non-US citizens living in the US". I am neither. I a US citizen living and working and paying taxes in US. ...
Good catch, thanks. I have updated the page to cover your case. I'm afraid you won't like the result.
gautamsa wrote: Sun Aug 30, 2020 10:27 am Just need to know what I have to do of my 50 lacs sitting in India in an NRE account ? Do i pay taxes every year or only when I get the money back. Also I sent money to India 10 yrs ago when 1dollar was 50 Rs. Now 1 dollar is 75 rs and all my gains have been wiped out due to the depreciation. or are very little.
I don't think any of us here is expert enough to unpick your situation fully, and you really need proper advice. My guess though, is that you should have been paying US tax annually on the gains in this account, and that you may now have to consider going back through several years of past returns and fix this. Plus state tax issues, if any, on top. You may be able to treat this NRE account as a simple unwrapped trading account for US tax, but if what you own turns out to be a PFIC -- say this policy is unit-linked -- then this page also suggests that currency losses may be disallowed for PFIC filings.

The bottom line is that you seem in well over your head (and over everybody's here, too) on this. Sorry. Unfortunately, this is just one of many US tax traps for people subject to US tax and who have somehow acquired international finances.
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Re: US citizen investing in India

Post by gautamsa »

TedSwippet wrote: Sun Aug 30, 2020 11:00 am
gautamsa wrote: Sun Aug 30, 2020 10:27 am ok but I am a US citizen living in US and have paid all my taxes for my US income every year. The link you gave me speaks of "For US citizens living abroad" AND "For non-US citizens living in the US". I am neither. I a US citizen living and working and paying taxes in US. ...
Good catch, thanks. I have updated the page to cover your case. I'm afraid you won't like the result.
gautamsa wrote: Sun Aug 30, 2020 10:27 am Just need to know what I have to do of my 50 lacs sitting in India in an NRE account ? Do i pay taxes every year or only when I get the money back. Also I sent money to India 10 yrs ago when 1dollar was 50 Rs. Now 1 dollar is 75 rs and all my gains have been wiped out due to the depreciation. or are very little.
I don't think any of us here is expert enough to unpick your situation fully, and you really need proper advice. My guess though, is that you should have been paying US tax annually on the gains in this account, and that you may now have to consider going back through several years of past returns and fix this. Plus state tax issues, if any, on top. You may be able to treat this NRE account as a simple unwrapped trading account for US tax, but if what you own turns out to be a PFIC -- say this policy is unit-linked -- then this page also suggests that currency losses may be disallowed for PFIC filings.

The bottom line is that you seem in well over your head (and over everybody's here, too) on this. Sorry. Unfortunately, this is just one of many US tax traps for people subject to US tax and who have somehow acquired international finances.
Thanks for the update. i looked at the 8938 form instructions and this is what I see. I do not satisfy the 3rd condition. I file joint returns and by assets in India are under $100,000 for the given calendar year and has been that way since the last 10 yrs. I guess once they begin to go over that threshold if it remains the same, I will have to begin filing this form.
https://www.irs.gov/businesses/corporat ... ial-assets
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Re: US citizen investing in India

Post by TedSwippet »

gautamsa wrote: Sun Aug 30, 2020 11:57 amThanks for the update. i looked at the 8938 form instructions and this is what I see. I do not satisfy the 3rd condition. I file joint returns and by assets in India are under $100,000 for the given calendar year and has been that way since the last 10 yrs. I guess once they begin to go over that threshold if it remains the same, I will have to begin filing this form.
https://www.irs.gov/businesses/corporat ... ial-assets
Okay. However, Form 8938 is just information reporting for FATCA. It is not an annual report of PFIC income. That is entirely separate.

For PFIC, you need Form 8621, and this form has no asset or income limit below which you do not need to file. INR 50 lakh is well above $10k, so you also need to report your NRE account's highest balance for the year annually on FinCEN 114 (FBAR), if not already doing so.

(ETA: Strike through; form 8621 has de minimis amounts.)
Last edited by TedSwippet on Mon Aug 31, 2020 2:31 am, edited 1 time in total.
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Re: US citizen investing in India

Post by ram »

How about owning individual stocks in India. (not mutual funds)
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Re: US citizen investing in India

Post by grabiner »

ram wrote: Sun Aug 30, 2020 3:29 pm How about owning individual stocks in India. (not mutual funds)
That would usually avoid the PFIC rule (unless any of the corporations themselves qualify as PFICs). You would owe US tax on any dividends the stocks paid, and could take a credit if India also taxed the dividends.

You might still need to report the brokerage account holding those stocks on the FBAR form, but that would not affect your taxes.
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Re: US citizen investing in India

Post by abuss368 »

gautamsa wrote: Sat Aug 29, 2020 8:14 pm Hi, I am a US citizen of Indian origin. I have some money parked in India in an MNC bank in an NRE account locked in insurance policies (75 %equity and 25% bonds). Can I invest in any Indian index funds ? Also is there a way for me to find what indexes are in India and what have been their rate of returns historically ?
Have you considered keeping it simple and selecting Vanguard Total International Stock Index?
John C. Bogle: “Simplicity is the master key to financial success."
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Re: US citizen investing in India

Post by typical.investor »

TedSwippet wrote: Sun Aug 30, 2020 12:21 pm
gautamsa wrote: Sun Aug 30, 2020 11:57 amThanks for the update. i looked at the 8938 form instructions and this is what I see. I do not satisfy the 3rd condition. I file joint returns and by assets in India are under $100,000 for the given calendar year and has been that way since the last 10 yrs. I guess once they begin to go over that threshold if it remains the same, I will have to begin filing this form.
https://www.irs.gov/businesses/corporat ... ial-assets
Okay. However, Form 8938 is just information reporting for FATCA. It is not an annual report of PFIC income. That is entirely separate.

For PFIC, you need Form 8621, and this form has no asset or income limit below which you do not need to file. INR 50 lakh is well above $10k, so you also need to report your NRE account's highest balance for the year annually on FinCEN 114 (FBAR), if not already doing so.
Actually, there are minimums which you can be below and have no need to file.
Exception if aggregate value of shareholder’s PFIC stock is $25,000 or less. A shareholder is not required to complete Part I with respect to a specific section 1291 fund if the shareholder meets the $25,000 exception on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $25,000 threshold, the shareholder takes into account all PFIC stock (QEFs, section 1291 funds, and PFIC stock subject to a section 1296 mark-to-market election) owned directly or indirectly other than PFIC stock owned through another U.S. person or PFIC stock owned through another PFIC. Shareholders filing a joint return have a combined threshold of $50,000 instead of $25,000 for purposes of this exception.
For more information, see Regulations section 1.1298-1(c)(2).

Exception if the value of shareholder’s indirect PFIC stock is $5,000 or less. A shareholder is not required to complete Part I with respect to indirect ownership of a specific section 1291 fund if the shareholder meets the $5,000 exception with respect to the section 1291 fund on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $5,000 threshold, the shareholder takes into account only the value of the shareholder’s proportionate share of the section 1291 fund.
For more information, see Regulations section 1.1298-1(c)(2).
That's per Instructions for Form 8621 (12/2019)
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Re: US citizen investing in India

Post by gautamsa »

typical.investor wrote: Sun Aug 30, 2020 8:09 pm
TedSwippet wrote: Sun Aug 30, 2020 12:21 pm
gautamsa wrote: Sun Aug 30, 2020 11:57 amThanks for the update. i looked at the 8938 form instructions and this is what I see. I do not satisfy the 3rd condition. I file joint returns and by assets in India are under $100,000 for the given calendar year and has been that way since the last 10 yrs. I guess once they begin to go over that threshold if it remains the same, I will have to begin filing this form.
https://www.irs.gov/businesses/corporat ... ial-assets
Okay. However, Form 8938 is just information reporting for FATCA. It is not an annual report of PFIC income. That is entirely separate.

For PFIC, you need Form 8621, and this form has no asset or income limit below which you do not need to file. INR 50 lakh is well above $10k, so you also need to report your NRE account's highest balance for the year annually on FinCEN 114 (FBAR), if not already doing so.
Actually, there are minimums which you can be below and have no need to file.
Exception if aggregate value of shareholder’s PFIC stock is $25,000 or less. A shareholder is not required to complete Part I with respect to a specific section 1291 fund if the shareholder meets the $25,000 exception on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $25,000 threshold, the shareholder takes into account all PFIC stock (QEFs, section 1291 funds, and PFIC stock subject to a section 1296 mark-to-market election) owned directly or indirectly other than PFIC stock owned through another U.S. person or PFIC stock owned through another PFIC. Shareholders filing a joint return have a combined threshold of $50,000 instead of $25,000 for purposes of this exception.
For more information, see Regulations section 1.1298-1(c)(2).

Exception if the value of shareholder’s indirect PFIC stock is $5,000 or less. A shareholder is not required to complete Part I with respect to indirect ownership of a specific section 1291 fund if the shareholder meets the $5,000 exception with respect to the section 1291 fund on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $5,000 threshold, the shareholder takes into account only the value of the shareholder’s proportionate share of the section 1291 fund.
For more information, see Regulations section 1.1298-1(c)(2).
That's per Instructions for Form 8621 (12/2019)
ok so should I ask my Indian bank if they are PFIC ?
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Re: US citizen investing in India

Post by ram »

grabiner wrote: Sun Aug 30, 2020 7:39 pm
ram wrote: Sun Aug 30, 2020 3:29 pm How about owning individual stocks in India. (not mutual funds)
That would usually avoid the PFIC rule (unless any of the corporations themselves qualify as PFICs). You would owe US tax on any dividends the stocks paid, and could take a credit if India also taxed the dividends.

You might still need to report the brokerage account holding those stocks on the FBAR form, but that would not affect your taxes.
Thanks Grabiner
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Re: US citizen investing in India

Post by typical.investor »

gautamsa wrote: Sun Aug 30, 2020 8:22 pm
typical.investor wrote: Sun Aug 30, 2020 8:09 pm
TedSwippet wrote: Sun Aug 30, 2020 12:21 pm
gautamsa wrote: Sun Aug 30, 2020 11:57 amThanks for the update. i looked at the 8938 form instructions and this is what I see. I do not satisfy the 3rd condition. I file joint returns and by assets in India are under $100,000 for the given calendar year and has been that way since the last 10 yrs. I guess once they begin to go over that threshold if it remains the same, I will have to begin filing this form.
https://www.irs.gov/businesses/corporat ... ial-assets
Okay. However, Form 8938 is just information reporting for FATCA. It is not an annual report of PFIC income. That is entirely separate.

For PFIC, you need Form 8621, and this form has no asset or income limit below which you do not need to file. INR 50 lakh is well above $10k, so you also need to report your NRE account's highest balance for the year annually on FinCEN 114 (FBAR), if not already doing so.
Actually, there are minimums which you can be below and have no need to file.
Exception if aggregate value of shareholder’s PFIC stock is $25,000 or less. A shareholder is not required to complete Part I with respect to a specific section 1291 fund if the shareholder meets the $25,000 exception on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $25,000 threshold, the shareholder takes into account all PFIC stock (QEFs, section 1291 funds, and PFIC stock subject to a section 1296 mark-to-market election) owned directly or indirectly other than PFIC stock owned through another U.S. person or PFIC stock owned through another PFIC. Shareholders filing a joint return have a combined threshold of $50,000 instead of $25,000 for purposes of this exception.
For more information, see Regulations section 1.1298-1(c)(2).

Exception if the value of shareholder’s indirect PFIC stock is $5,000 or less. A shareholder is not required to complete Part I with respect to indirect ownership of a specific section 1291 fund if the shareholder meets the $5,000 exception with respect to the section 1291 fund on the last day of the shareholder’s tax year. For purposes of determining whether a shareholder satisfies the $5,000 threshold, the shareholder takes into account only the value of the shareholder’s proportionate share of the section 1291 fund.
For more information, see Regulations section 1.1298-1(c)(2).
That's per Instructions for Form 8621 (12/2019)
ok so should I ask my Indian bank if they are PFIC ?
That's funny :D Do you think they could really answer?
In order to be a qualifying insurance corporation for a taxable year, the following requirements must be met: (i) the corporation would be subject to tax under subchapter L if it were it a US domestic corporation, and (ii) its "applicable insurance liabilities" as reported on the corporation's "applicable financial statements" constitute more than 25 percent of its total assets (or meet an alternative facts and circumstances test). For these purposes, "applicable insurance liabilities" include loss and loss adjustment expenses and reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks.
Maybe they know if they would "be subject to tax under subchapter L if it were it a US domestic corporation". But maybe not. Etc. etc. But it won't hurt to ask.

In any case, you should have a record of your determination in place should an audit ever come.
typical.investor
Posts: 2289
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Re: US citizen investing in India

Post by typical.investor »

ram wrote: Sun Aug 30, 2020 3:29 pm How about owning individual stocks in India. (not mutual funds)

You can easily get a Schwab International account and choose from any of the broad based ETFs that focus on India. ETFs are available to you as a US person outside the States. All you need is an account at one of the brokerages who support it (Schwab and IB do ...).

INDA iShares MSCI India ETF looks good, but there are other smaller funds with lower ERs like FLIN 0.19%ER. Great price but only about 155 holding so large cap to reduce transactions costs. Still, I can't see you doing 155 individual stocks by yourself :sharebeer

https://www.etf.com/channels/india-etfs ... 8_JCIiaevo

And best of all, ETFs are free to trade at Schwab. Not sure how Taxation in India works, but Schwab issues all the forms you will need to file in the US. Maybe you'd just need to get a CA there to do your Indian taxes.

Of course, a total market fund might be a useful ETF instead of overweighting-weighting India.
TedSwippet
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Location: UK

Re: US citizen investing in India

Post by TedSwippet »

typical.investor wrote: Sun Aug 30, 2020 8:09 pmActually, there are minimums which you can be below and have no need to file.
Thank you for the correction. I'll fix the post upthread. The topic author's holding here is apparently above these minimums.

I suppose another worry is Schedule B part III for any foreign accounts? The "You must complete this part if ..." conjunctive ';' appears to be 'or' in this case. This set of questions didn't exist when I was last a US taxpayer.
typical.investor wrote: Sun Aug 30, 2020 8:33 pm You can easily get a Schwab International account and choose from any of the broad based ETFs that focus on India. ETFs are available to you as a US person outside the States. ...
Shouldn't be necessary. In an earlier post the topic author mentions that they are a US citizen living in the US.
Topic Author
gautamsa
Posts: 33
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Re: US citizen investing in India

Post by gautamsa »

TedSwippet wrote: Mon Aug 31, 2020 2:28 am
typical.investor wrote: Sun Aug 30, 2020 8:09 pmActually, there are minimums which you can be below and have no need to file.
Thank you for the correction. I'll fix the post upthread. The topic author's holding here is apparently above these minimums.

I suppose another worry is Schedule B part III for any foreign accounts? The "You must complete this part if ..." conjunctive ';' appears to be 'or' in this case. This set of questions didn't exist when I was last a US taxpayer.
typical.investor wrote: Sun Aug 30, 2020 8:33 pm You can easily get a Schwab International account and choose from any of the broad based ETFs that focus on India. ETFs are available to you as a US person outside the States. ...
Shouldn't be necessary. In an earlier post the topic author mentions that they are a US citizen living in the US.
when you say I am above the minimums I am assuming you are saying the total interest earned correct ? or are you saying principal plus total interest earned ? My total principal plus interest is above the minimum but my total interest earned atleast til now is below the minimum. Do I still need to worry ? I always thought the tax is on interest (income) earned and not principal plus interest.
wackerdr
Posts: 118
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Re: US citizen investing in India

Post by wackerdr »

gautamsa wrote: Mon Aug 31, 2020 6:27 am
TedSwippet wrote: Mon Aug 31, 2020 2:28 am
typical.investor wrote: Sun Aug 30, 2020 8:09 pmActually, there are minimums which you can be below and have no need to file.
Thank you for the correction. I'll fix the post upthread. The topic author's holding here is apparently above these minimums.

I suppose another worry is Schedule B part III for any foreign accounts? The "You must complete this part if ..." conjunctive ';' appears to be 'or' in this case. This set of questions didn't exist when I was last a US taxpayer.
typical.investor wrote: Sun Aug 30, 2020 8:33 pm You can easily get a Schwab International account and choose from any of the broad based ETFs that focus on India. ETFs are available to you as a US person outside the States. ...
Shouldn't be necessary. In an earlier post the topic author mentions that they are a US citizen living in the US.
when you say I am above the minimums I am assuming you are saying the total interest earned correct ? or are you saying principal plus total interest earned ? My total principal plus interest is above the minimum but my total interest earned atleast til now is below the minimum. Do I still need to worry ? I always thought the tax is on interest (income) earned and not principal plus interest.
If you are US resident or a US citizen residing anywhere , investing in non-US domiciled financial products you could fall under PFIC.

The best course for you, since it is in NRE is to repatriate the amount back to your US account, and invest in the US domiciled international ETF. If you want to invest directly in the Indian market, you need to own the stocks. ETFs, Mutual Funds, Insurance linked investment products, fixed deposits - all other financial products come under PFIC rules.

If you own Indian mutual funds or ETFs for example - even the growth mutual funds that do not give dividend,and you do not sell them - you need to Mark to the market every year, recognize the gains, and pay taxes. That is a significant pain, not to mention hugely unfavorable tax treatment.

The compliance forms (FATCA, FBAR) is based upon the combined highest value during the year , and individual accounts higher than a threshold amount. I don’t remember the thresholds on top of my head. But the amounts are based on total account value, not just the interests or gains during the year.
TedSwippet
Posts: 3163
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US citizen investing in India

Post by TedSwippet »

gautamsa wrote: Mon Aug 31, 2020 6:27 am when you say I am above the minimums I am assuming you are saying the total interest earned correct ? or are you saying principal plus total interest earned?
The latter. It is the balance in the account at the end of the year that would let you off form 8621, if low enough.

This form's instructions state: "Exception if aggregate value of shareholder’s PFIC stock is $25,000 or less. A shareholder is not required to complete Part I with respect to a specific section 1291 fund if the shareholder meets the $25,000 exception on the last day of the shareholder’s tax year. ... Shareholders filing a joint return have a combined threshold of $50,000 instead of $25,000 for purposes of this exception." You say upthread that your NRE account is worth some 50 lakhs. That is well over $50k (actually around $68k, if my maths is correct), so apparently you do not meet the conditions for this form's filing exception.
gautamsa wrote: Mon Aug 31, 2020 6:27 am Do I still need to worry ? I always thought the tax is on interest (income) earned and not principal plus interest.
Perhaps. The tax if any will be on the gains (interest, plus capital gain), not on the principal. But you still have to account for it on form 8621, and potentially also a heap of other forms (FATCA form 8938, FBAR form FinCEN 114, 1040 Schedule B) for foreign accounts, where the account balance goes above these forms' filing exceptions (if any).

Again, it seems like you are in over your head on this one, and some proper tax advice would be useful at this point. Unfortunately that advice probably will not come cheap. At least, not if it is any good (although a lot of expensive yet poor advice in this area is also available).
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