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Does FATCA Apply to House Property and NRI Account in India?

NRI family looking at property together

As a Non Resident Indian and under the Income tax law of India, the NRI is not taxable in India for any of his income which he earns outside India. Although if an NRI earned any income or is deemed to have earned an income from any sources within India that would be taxed accordingly.

India and United States of America have signed a Double Taxes Avoidance Agreement in the year 1990. This was a comprehensive agreement, meaning that it covered all kinds of taxes either personal or businesses as regards Income Tax. This was also aimed at plugging the gaps where any one individual or business could avoid to pay tax in either one of the countries. And a tax paid in one country was deemed to be in applicable in full for the other country. Subsequently USA passed the FATCA or Foreign Account Tax Compliance Act. USA & India signed another agreement or Inter Government Agreement to make it applicable to both countries. This came into effect from 31st August 2015.

Who is FATCA applicable to:

  1. US Citizens (NRIs who migrated to USA on an Indian passport and now have become naturalized citizen of USA)
  2. US Individuals
  3. Non Resident individuals (Indian Citizens living and working in US including green card holders, holders of L1/L2 visas and holders of H1B visas)

Any individual belonging to one of the three categories above owning a foreign asset or off shore account will fall under the purview of this legislation.

Under the FATCA, US Citizens, US Residents & non-residents who own certain foreign accounts and other off-shore assets must report those assets. The person reporting has to attach this form (Form 8938) along with the Annual Income Tax Return. Taxpayers whose foreign account and specified foreign asset are valued below the threshold at the end of the tax year, do not have to file for FATCA.

The thresholds:

  • If the foreign account or specified asset is valued below US 50,000, at the end of the tax year & in no time during the year was the value above US $ 75,000.
  • The individual lives outside the USA
  • Married Individuals will have a different threshold, based on if they are filing jointly or singularly.

What does this mean for the NRIs? Does the house property they own in India fall under FATCA? Or if that house property in India is rented out, does that need to be reported?

The simple answer is NO.

This is the exception to the rule here. Real Estate or properties in India or outside the USA does not form part of the definition of Specified Assets. For the NRIs this means their assets they own in India does not fall under the purview of FATCA, especially the House Property they own in India. Plus, if that house property is earning some income by way of rent, it does not make a difference, since the same is not a specified asset. The income from the same will also not be counted. But that rented Income since generated in India will be taxed in India under the Income tax laws in India, but under the DTAA this income from property has to be part of the US tax payer’s worldwide income. The credit of the taxes paid in India is available to the taxpayer in USA. Also the bank accounts held by the NRIs in the form of NRO Accounts, NRE Accounts & FCNR Accounts comes under the purview of FATCA.

With the background of FATCA agreement the Indian Government has also amended the Income Tax Law in India. This lays down the procedures that an Indian financial institution has to follow regarding the reporting under FATCA. In case of a violation and non-reporting of an account information, the financial institution has been advised to close the account.

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