Revealed: Should USA based NRIs need to report Indian property under FATCA?

Are you an NRI – owning property in India? Are you worried about reporting the Indian property under FATCA?

The FATCA (Foreign Accounts Tax Compliance Act) implementation by the US Federal Government has forced some of the Non-Resident Indians to sell off their properties in India due to the fear of being questionable on disclosing the concerned properties, the tax levied and penalties charged by the IRS.

The anxiety caused is due to the lack of knowledge and false information spread by halfwits. We will discuss the true motive of FATCA in this article.

The objective of FATCA forUS-based NRI

The objective of FATCA is to track down the taxpayers in the US who evade tax levitation by avoiding their worldwide income. The law differs with respect to the nature of property as we know are Movable property and Immovable property. As an NRI, you can avail certain limited tax exemptions on the immovable property through DTAA (Double Tax Avoidance Act).

Assets to be reported in Form 8938 — FATCA

As an NRI residing in the US, the asset types that you need to report in Form 8938 of FATCA are mostly movable properties or financial products mentioned below.

Deposit and Custodial deposit accounts in Foreign Financial Institutions.
Foreign mutual funds, hedge funds.
International stocks or securities apart from a bank account or a financial account.
Annuity contracts and foreign life insurance schemes.
Interest income from foreign partnership institutions.

Assets not required to be reported in Form 8938 — FATCA

You need not report the following assets you own in India in Form 8938 of FATCA.

Any foreign currency which is not held in a financial institution, but as in the form of a liquid currency is not necessary to be reported. If the foreign currency is held in a Foreign Financial Institution, then it must be reported as said earlier.
Collectibles like art, antiques, jewellery, and cars that are held in a foreign country need not be reported as foreign financial assets.
Safety deposit box held in a foreign financial institution need not be reported as a foreign financial asset.
Immovable property owned in India need not be reported in Form 8938. But there is an exception for this property under certain criteria.

Exceptions for Real-estate (immovable) property in Form 8938 — FATCA

If you own a real estate property in India then you need not report that in the Form 8938. It includes any personal residence or a rental property owned individually. But this is not the case if,

An immovable property held through a foreign entity such as a corporation, trust, or partnership comes into reporting foreign financial asset if the total value of your specified foreign financial asset is greater than the reporting threshold limit of IRS. (The reporting threshold limit is greater than $50,000 on the last year or greater than $75,000 at any time during the year)

Effects of FATCA on Indian property

FATCA does not have any direct effect on your real-estate property in India. But the FATCA will not completely replace the terms of DTAA. Article 6 of DTAA clearly mentions that,

US nationals who hold immovable property in India are accountable to tax by the Indian Government on any income arising from the same.
Indian nationals who hold immovable property in the US are accountable to tax by the US Government on any income arising from the same.

Conclusion

The FATCA is established only to track down the tax evasion of income in the US thus income arising from internationally owned immovable property is not a subject to be concerned in the US. So, you don’t have to worry about your property in India until you are paying the tax for that property to the Indian Government.

Even though you pay tax in India for the immovable property, it is also a part of the US worldwide income and must also be declared when filing US taxes. However, DTAA gives credit for the tax you paid in India when filing income tax in the US. Just to make sure that you do not pay tax twice for the same income.