Video transcript below (auto-transcription can cause some errors):
Welcome. In this video, I’m talking about, some points, that a person needs to keep in mind, who is returning from US but wants to keep his investments in US. So, at the outside, just, want to clarify that this is mostly what this video I have made is mostly from a perspective of a person who is a US nonresident, but not a US citizen or a green card holder. Right?
See, generally, if you are a US citizen or a green card holder, then most of the US tax provisions, almost all the US tax provisions apply to you as a US resident itself. Right? And you continue to be wedded to the US tax system. You continue to file your 10.40 on the global, world income, every year in US. Right?
So, but the situation is, typical for a person who is not a, USCGC, someone who is, like, on was on h one b visa and came back to India, did not apply for GC or did not get GCL or did not get the citizenship, what happens? So that person qualifies as a US nonresident alien, and what happens, and what things to be kept in mind. Just to confirm, I’m not a, a US CPA, and please check with the CPA before taking any financial decisions. Okay. So as per FEMA, as per Indian FEMA regulations, first so first of all, the question always is that whether the person can keep the investments outside India or there are any restrictions.
So the FEMA, Foreign Exchange Management Act, gives a general the RBI has given a general permission to, Indian residents to hold the investments outside India and even reinvest them outside India. No problem with that in indefinitely. Right? But the only requirement is that they were they should have been earned when you were a nonresident as per FEMA. Right?
So when you went outside India, you became nonresident as per FEMA. You earned income there. You made some investments there. Now when you become resident in India, there is no such compulsion for you to liquidate those investments, bring back to India. You have you you can keep them in US.
You can, maybe shift them from US to some other country, right, and indefinitely. Right? Okay. So this is a good thing. Now, estate tax.
So you need to keep in mind, I as I tell in my earlier post earlier videos all also, that if you become a nonresident as per the US tax law, there’s a very low threshold of 60,000 USD, above which, if you hold any US domiciled assets, you’ll be subject to 18 to 40% of taxes or the value of the assets plus a complicated, estate tax filing process. So your family, your beneficiaries will get the assets. Maybe it can take them 1 or 2 years before they get, the assets. So right? So you need to be mindful of keeping the investment value below this amount, and then there are various strategies.
I’ll make a detailed video on how to avoid estate tax liability legally in US, as a Indian, returning NRI. So I will make a separate video on that. Okay. Now do proper nominations. So you so when you have moved out to India, please ensure that your proper nominations are done on all of your investments.
Please draw up a will in US, right, if you wish to continue assets in US. So, basically, generally, the provision is every country has a different succession law. So in India, you have a succession, the succession law separate law. In US, you have a separate law. So if you have multi-country investments now you may be an internationally mobile executive, which is, like, who was in US, then the person has come to India, then you go to maybe some country like UAE.
You have assets there. Right? So if you have multi country investments, always advisable to make a will in separate will in each country and have a separate estate attorney in each country. Right? So it’s not that you make one will which will cover the all of the country’s assets.
It may be that if you make a will in India about your US assets, maybe that may not be enforceable in US. Right? So please consult a an estate attorney in US and get a will drawn up for your US assets, make the relevant nominations. Right? Okay.
After returning and becoming ROR, Indian tax. So once you return, you get a time period of 2 years, where, basically, 1 to 3 years, you may get you may get or it may you may not even qualify for r naught status. Right? So so do that is, like, the golden period where you can decide about your investments. So we are talking in this video about a point where person wants to continue after becoming ROR.
So after becoming ROR, India will you’ll have to offer the income, from those investments to tax in India every year, and it’s a mandatory filing. Right? Even if you are, like, a, homemaker, you don’t have, taxable income in India. Still, you have to file a tax return in India, right, and, declare the assets in schedule f FA. Right?
Now for 401k or IRA, traditional IRA, you can make a section 89 election, which is basically a deferral of tax in India till withdrawals. So India gives kind of this good provision that came in around 2021, where India gives, like, people from US, UK, and Canada, 3 countries, that if they have any investments in some plans, retirement based plans where, you know, the taxation is on withdrawal, so India says that, okay. We will also defer our tax till withdrawal. Right? So there will be no kind of every year taxation in India.
So you can take benefit of that. You can make a a a declaration file, a declaration online in form 10EE, on the income tax portal. Right? And, you can gain a tax difference. So for 401 k IRA, you can, take that advantage.
Okay. To now, when you have returned back to India towards the end of the r naught period till r naught, there is no tax liability in India. Towards the end of the r naught period, you can just, reset the cost pieces of the investments, even within which are there in your 4 zero one k and other places. You can you can maybe sell the shares. If you have share investments, you can sell the shares and repurchase them back.
Do everything to kind of step up the cost basis so that, the cost of acquisition for India tax purposes get gets reset. Right? And, the holding period also gets reset. So, in future, the Indian capital gains tax liability, may get reduced, right, so that you can do a reset of cost basis towards the end of the r naught period in India. Then very, very important thing that is that, please do update your Indian address with all providers.
Please don’t make this, mistake of giving friends at US address, all these it complicates matters. It is also not legal. Right? So please update Indian address. When you update your Indian address, the the payer that the the payer or or, the withholding agent in US, which is the broker or whoever is there who is going to pay you anything, will get a signal that, you are a nonresident for US purposes.
So, accordingly, they will with they will apply the nonresident rates. So they have to apply withholding rates on the, incomes, payments made to, anyone. So they will up they will apply the, withholding rates for knowledge and intelligence. And, also, if you update your w eight b e n, you will be able to claim a reduced treaty withholding rate. For example, for dividend, it is, instead of 30% flat rate, you can claim a lower rate of 25% withholding as for the India USTTA.
So you can update the Indian address with all providers, file a w a b e n. Right? These are very, very important compliances you need to make. Also, you need to switch. I don’t know whether I have covered it in my in my these points.
You need to switch, to providers. You need to switch to providers who allow who enable US nonresident, clients. Right? So not all US providers, allow the clients to be nonresident. Some may ask you if you go and update your Internet address.
They can ask you to close the account. So you have to move to, providers who do allow, nonresidents. Some what I have known is, like, Schwab is there and then Fidelity is there, which are nonresidents friendly, providers. So you can move your accounts to them. Okay.
Updating Indian address and filing w eight b e n gives them sufficient indication to consider you are nonresidential and apply in our withholding rates. If they still deduct now, that may be their mistake. If you have a given w eight b e n and if they still deduct as or, a flat 30% and all, then no option is there, at your end but to file a 1040NR. Right? Okay.
No state or tax obligations. So every state so in US, the federal structure is the structure is that there is a federal tax and then there is a state tax. Right? And the federal law is different, and state law is mostly aligned to the federal law, but some states have kind of a deviation from the federal law. So you need to understand the state tax obligations in US, if at all.
You need to first understand because, mainly, generally, if you are moving out of US, and you don’t own a home in US or no permanent kind of source of income within US, then you are considered as a nonresident for state purposes also. Right? But if you are, like, having a home in US, then you may still the state may still deem you as a resident and keep, applying, keep taxing you on a worldwide income. Right? So you need to know your state tax obligations in US as well.
Okay. Now consider now when you return back to India, you will start investing in India. You may already have, been investing in India. So you have Indian investments. You have US investments.
So what basically, you need to see, the entire investment, Right? The US plus India investment on a whole. Right? And what is very, very important is that you need to check your asset allocation. So, generally, people, spend a lot of time about, you know, which investment to make and, you know, which share to purchase.
The most important thing that can be a factor in terms of your wealth creation and wealth preservation is asset allocation. That means what is your allocation having a rule based kind of a system of asset allocation, a certain asset allocation between growth assets, which are equities and, you know, real estate and everything, and non growth assets, which is like a debt. So you need to have a proper balance depending upon your age, depending upon your risk profile, and also depending upon the time to goal. Right? So for a goal which is short term, you need to have a maximum allocation towards debt or fixed income.
But if your goal is far and you can take that risk, you can move a big chunk to risky growth investments. Right? So one important thing I’m trying to say here is that, when you draw up your financial plan, learn to make your own financial plan. No one can make you hire any financial adviser, any financial planner, any investment adviser. No one can, make a plan better than you because you know about your finances, the best.
Right? And so my request to you is understand a bit about these financial terminologies, how to create a financial plan. I’ll also post some videos on on some ways you can, you know, create your own financial plan. Right? Keep it simple.
My point here, friends, is keep it simple. So when you invest in US, when you invest in India, please do consider index funds. Right? Simple, low cost index funds. Understand this.
What mainly makes the difference is your asset allocation and not this this particular share will rise and all those things. Right? So, consider the US assets as part of your overall asset allocation. Don’t like work in silos. Right?
Take your entire asset and put it in Excel sheet. Right? Make a asset allocation. See where you are placed. If you’re too much on the risky assets side, shift some of the investments to debt.
Right? Then tag investments to financial goal. Right? Every investment should be aligned to a financial if you have if you have a 401k, you want to keep it, till 59.5, then decide what goal towards it you have tagged. You can tag it towards your retirement.
If you are not going to touch it till your retirement, you can still take x if your time is 20 years away, you can still take exposure to higher risky assets within the 4 one k. Right? So always advisable to tag every investment, be it Indian investment or US investment towards a financial goal so you know when you need the money. So if you have if you have tagged an investment to a financial goal which is only 5 years away, then you cannot make have any risky investment within that investment. Right?
So also evaluate from a currency risk perspective. That means if you are return you have returned to India, you don’t have any USD denominated goals, You don’t have, like, a child’s daughter’s education in US. All your expenses will be in India, and you’re keeping money in India. What happens if the exchange rate reverses? Right?
Rupee becomes stronger. Right? So you need to factor in all those things. Right? The currency risk angle also you need to factor in.
Right? Okay. Yes. Exception is geographical diversification as an example. Or if you have long term USD goals, then you can tag it to that particular goal.
Right? Now if you don’t cannot do it, take help of a investment adviser. But that investment adviser also should be someone who knows about the, the currency risks, tax implications of multi-country investments. So if you’re able to find such an investor, investment adviser who has expertise in both country taxation and both country investments and everything, very good. Otherwise, I will say do your own effort and, you know, work on your financial plan.
Right? Okay. Ease. Ensure the ease of access. So you want to keep your US your investments in US after return to India and because of various reasons, geographical diversification, or you may have kind of long term USD goals.
Right? But have you ever thought whether your spouse, right, your spouse or family member, will she be able to access those investments after your death? Right? Have you made written them somewhere that, okay. I have this 401 k.
It is there. Right? Do you understand how difficult it can be for a family member to access, foreign country investments? Right?
Getting them in India, right, doing all the formalities. So, please, your intention may be good in keeping some investments in US, but please also look at these aspects. You know, have some estate attorney or some someone’s number whom your family member can call. Right? So so that kind of foresight you need to have.
Right? Okay. Reporting in schedule, FSI and FA after become ROR. So once you return to India, then a mandatory obligation to file a tax return and disclosure in schedule, FSI and FA, you have to do Have a CPA and estate attorney, and if the assets are subject to estate tax, and share the details with the spouse. Then the last and final point, keep your passport, US income details, US investment details, tax payment details in US.
Right? Like, for example, w 2 or 1042 s or whatever documents, the official document or 10 forties that you have filed, all that should be filed properly. Right? Don’t rely on only kind of, that it is available, you know, online. Sometimes because, see, what happens is that now we have new, you know, finance provisions, which says that, before, like, they can only go back 5 years for reassessment purposes, but you can never say.
Right? My request to you is just keep these details indefinitely. See, don’t think that, just because you have own income outside India, Indian authorities cannot question it. No. Indian authorities have full rights to question it.
Especially once you become a resident of India, ROR, they can question these invest these investments, what is the source of funds, and if you transfer them to India. Right? All that they can question. So you need to have the details ready, like passport entries. So, for example, in 1 year, you, kind of file as a nonresident.
On what basis did you file as a nonresident? Do you have the proof? What proof you have? Like, the your own your passport entries are the only proof. Right?
So, for example, one case where the client file as a nonresident. When I asked, he said that passport is there, but because there was some, you know, the liquid spillage was there in the bag, so the entries, they got kind of blurred. Then that can be a problem. How will you then establish that you were a nonresident and your, global income was not taxable in India? So when you have these incomes and when you want to keep the investments in US, you need to preserve make a file every year wise, your, your 10 40.
They’re then on your income details, the employment contract, the passport. Take a kind of a one copy should be there in your scan, folder, a separate folder, and one copy should be there as a hard copy. Right? So all that precaution, and retain them indefinitely. Don’t kind of you know, in that intent of cleaning up things of past years, don’t touch your tax thing.
I still have my tax thing for, like, past 10 years. It is there. I do not destroy, so better not to destroy those things. And, right? So this is it.
I hope, this video give you some pointers. If you have any thoughts, any queries, do please share in the comments section below. Thank you so much.