New Tax Proposal in the U.S. Could Affect Non-Resident Indians
New Delhi: A new proposal known as the “One Big Beautiful Bill” from the United States may have significant implications for Non-Resident Indians (NRIs) who are working and investing from the U.S. The bill could lead to higher costs for sending money abroad and introduce stricter rules around reporting foreign income.
Currently, the bill does not change how U.S.-based NRIs are taxed on foreign income, including rental income from properties in India. U.S. tax law stipulates that citizens and residents are taxed on their global income, which includes earnings from overseas real estate. NRIs still need to report their rental income on their U.S. tax returns and can usually claim a foreign tax credit to avoid being taxed twice.
One point of debate is Section 899, referred to as the “revenge tax.” This section suggests a surtax on payments made to residents of countries that impose unfair taxes on U.S. investors. However, this proposed tax will primarily affect payments going out of the U.S. and won’t directly change how rental income and capital gains are taxed.
Concerns Over Proposed Remittance Tax
The proposed 1% tax on cash-based money transfers from the U.S. to other countries, including India, has raised concerns among the Indian community in America. Although this tax is lower than previous proposals, it may still increase costs for sending money home for family support or investments.
Amarpal Chadha, a Tax Partner at EY India, mentioned, “If passed, this bill could place a greater financial burden on Indian nationals in the U.S. Many may need to think about adjusting how often and how much they send back home.”
For NRIs planning significant transactions, such as buying properties in India, this new remittance tax might influence when and how they transfer funds. Ankit Jain, a Partner at Ved Jain and Associates, stated that NRIs might reconsider their transfer strategies or opt for bank or card-funded transfers that could be tax-exempt.
A Tougher Compliance Landscape
While the bill does not change existing requirements under the Foreign Account Tax Compliance Act (FATCA) or the Foreign Bank Account Report (FBAR), it does call for stricter enforcement. Increased IRS resources and higher penalties for not complying could make it more difficult for NRIs to meet their reporting obligations.
Tax experts clarify that Indian properties don’t need to be reported under FATCA or FBAR unless held through certain financial entities. However, income from these properties still needs to be reported.
No Change to Capital Gains Taxation
At present, the bill does not alter the taxation of capital gains from overseas properties for U.S. taxpayers. They still must report these gains, with long-term holdings benefiting from lower tax rates. Foreign tax credits can help offset Indian capital gains taxes to prevent double taxation.
As the legislation progresses, experts advise NRIs to keep a close eye on its developments and seek professional advice to navigate any upcoming changes in international financial transactions.
