New RBI Rule Requires Repatriation of Unused Foreign Funds After 180 Days

The Indian Rupee has closed at a 20-week low against the US dollar. Paired with the unexpected outcome of the US presidential election this past week, the main reasons for dragging the rupee down can be accredited to the strike on black money via demonetization of high-value currency notes and weak industrial output. The US currency, in turn, has strengthened based on speculations that the policies of the US President-elect Donald Trump would be inflationary and lead to a rise in the interest rates, thus impacting foreign money flow to emerging countries like India.Foreign investors withdrew over Rs. 2,350 crore from the stock markets as the US-backed assets are looking more attractive and as a result, the economy is expected to improve in the coming quarters.According to India ratings, the sudden decline in money supply and a simultaneous increase in bank deposits - due to withdrawal of 500 and 1000 rupee notes - will adversely impact consumption demand in the economy. This, coupled with the depreciation of real estate, construction and informal sectors, will further weaken the rupee in the upcoming months. It is very much possible in the upcoming months, as well as even forecasted by many agencies, that US Dollars will become stronger against Indian Rupees. All this means is that the spending power of the NRIs will increase, leading to a rise in the remittance flow to India.Compare. Save. Send Money Home Wisely.TODAY'S BEST RATE USD to INRAdditional ReadingHow will India's Currency Ban Affect NRIs in the USA?How India's currency ban of Rs. 500 & Rs.1000 will affect NRIs?How much Indian Rupees can one carry to India?

Peer-2-peer (P2P) payment apps, also known as money transfer apps or mobile wallets such as Paypal, Venmo, or Cashapp, are popular online payment platforms for business - they are convenient, easy to use, and are highly efficient ways to transfer money. However, with new regulations, using P2P payment apps for business transactions will be subject to taxation in the United States.In this article, we will discuss what is Form 1099-K, who is required to file taxes under the new rule for P2P users, and what information should be included in declaring to the Internal Revenue Service (IRS).New P2P Tax Laws of 2022 in the US SimplifiedLet's first understand the current tax rule to get a broader picture of the changes.For the current or the old tax rule on 1099-K tax returns filed prior to 2022, the IRS has set thresholds as follows: You have received over $20,000 in gross payment in a calendar year, andYou have settled more than 200 transactions in a calendar year.Now, the new tax rule on P2P Apps for calendar years after 2021, the IRS has changed the threshold as follows:You have received a gross payment that exceeds $600, andApplicable on any number of transaction/s.Put simply - you are required to report your earnings on the sale of goods and services if $600 or more was processed through these platforms. If you cross the threshold, the IRS expects the third-party networks in this case the P2P Apps to issue Form 1099-K to you to report payment transactions.Even if you do not receive a 1099-K, you are required to file the earrings in your income tax return. These new P2P tax laws will impact many users such as gig workers, online sellers, self-employed business owners, freelancers, etc.The new taxation rule for third-party payment networks has been implemented under the American Rescue Plan, the $1.9 trillion stimulus package that came into effect in March of last year. The change doesn't impact 2021 taxes but will impact 2022 tax returns filed in 2023.P2P Payment Apps 2022 Tax FAQsWhat Are the New Tax Reporting Requirements?To reiterate, beginning January 2022, if you receive $600 or more payments for goods and services in the current year, through a third-party payment network, such as Venmo, CashApp, or Paypal, your earnings will be reported to the IRS through Form 1099-K sent by the P2P platforms and income tax return.The tax rule only applies to payments received for sales of goods and services and does not include payments to friends and family.Read Comparison between PayPal, Venmo, and Zelle.What Is a Form 1099-K?Form 1099-K, Payment Card, and Third Party Network Transactions is an IRS form used to report payments for goods and services transactions to improve voluntary tax compliance.Payment settlement entities such as debit/credit card companies including PayPal, Venmo, Stripe, Etsy, and others are required by law to file them with the IRS and share copies with the payment recipient.You would receive Form 1099-K by January 31st of the following year if you received payments in the previous calendar year.What Is Included in Form 1099-K?Your Form 1099-K includes the gross amount of all reportable payment transactions, excluding any adjustments for credits, discounts, fees, or refunded amounts.A Form 1099-K will be sent to you from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction covers a payment card transaction or a third-party network transaction.The minimum reporting threshold is meant only for transactions settled through a third-party network. There is no threshold for payment card transactions.What Additional Information May Be Required for Form 1099-K?Your third-party payment provider may request tax information such as your Employer Identification Number (EIN), Individual Tax Identification (ITIN), or Social Security Number to report payments on Form 1099-K properly. Once this information is confirmed, your tax forms can be issued without a hassle.If you cross the reporting threshold for the sale of goods and services on the payment apps, the Form 1099-K will be issued to you at the beginning of the 2023 tax period, and a copy of it will be sent to the IRS.You can also download account statements for any reporting obligations, even if payments received are within $600. If needed, seek a licensed tax expert to assist you.How Can Information on Form 1099-K Be Used for Income Tax Returns?You must report any income listed on your Form 1099-K from your business on your income tax return.Since Form 1099-K may include both taxable and nontaxable income, keeping good records is very crucial. If you receive money from a nontaxable source, such as money received as gift or splitting bills, you need not report on your tax return.Also, make sure that your business books and records mirror your business income. Business income is generally referred to as the gross receipts on income tax returns. Your business income can be in the form of cash, checks, and debit/credit card payments.So consider the amounts shown on Form 1099-K, along with the other payments received, when calculating gross receipts for your income tax return.How to Maintain a Good Record for Tax Reporting?Record keeping is vital for accurate tax reporting. If you receive the Form 1099-K at year-end, you can check your accounting records to see if the income reported to the IRS is accurate. Even if you don't receive Form 1099-K, the income still needs to be reported on your tax return.Go for a record-keeping system that reflects your income and expenses. Also include accounting and payroll records, bank statements, receipts, tax forms, returns, and relevant business-related financial records.Most importantly, set up a business account if you are receiving business payments through a P2P payment platform.Maintain a separate account for business and personal transactions.Having a separate business account and keeping good records can be practical when showing both taxable and nontaxable income sources if the IRS audits your income tax return.If you pay your business expenses using any of the payment platforms, get the invoice or a receipt from the vendor or the contractor to record the amount paid and the details of the business expense. This will serve as evidence for your expenses if the IRS questions the legitimacy of your business expenses.1099-K Guide: What if Multiple Payment Platforms Are Used?The IRS tax rules are the same for all the P2P platforms, including PayPal, Stripe, or Venmo, though it might be enforced differently. If you are receiving business payments from multiple platforms and the collective amounts from sales on these platforms exceed $600, consider speaking to a licensed tax professional for best practices.You can find the contact details on Form 1099-K if you have any questions on the matter.Are Transactions on Zelle Taxable?While this rule applies to most third-party payment networks, Zelle is not included. Only the P2P payment companies that deal with the settlement of funds in business transactions are required to issue 1099 forms to users. Zelle doesn't process payments but facilitates communication via messages between a financial institution and people making the payments.Zelle states that it does not report transactions made on its Network to the IRS, even if the total is more than $600. The new law to provide forms 1099K for information reporting does not apply to the Zelle Network, it added.Will I Be Taxed in the United States for Sending Money Abroad Through a Payment App?Most digital wallets or P2P payment platforms do not support international money transfers. The best way to send money from the U.S. internationally is through online money transfer companies such as Xe money transfer, Remitly, and Western Union.In general, when you send money from the United States, the first $15,000 USD, per recipient will be exempt from taxes by the IRS under the Gift Tax policy. Although sending money as a gift is not taxable, you may need to report it to the IRS. In conclusion, from the beginning of the 2022 tax year, P2P platforms will be required to send Form 1099-K to users and the IRS to report payment transactions totaling $600 or more in a financial year. While this does not have any impact on international money transfer yet, existing laws that govern cross-border transactions will be applicable including Gift Tax.

An Overseas Direct Investment (ODI) refers to investments made by a domestic firm in a foreign country to expand its operations.From an Indian context, Overseas Direct Investment refers to investments outside India as a business strategy. ODI can be made in different forms depending on the company such as:by way of contribution to the capitalor subscription to the Memorandum of a foreign entityor by way of purchase of existing shares of a foreign entity either by market purchaseor private placement or through the stock exchange, by setting up a Joint Venture (JV), or a Wholly Owned Subsidiary (WOS), signifying a long-term interest in the foreign entity.*ODI does not include portfolio investment.Difference Between FDI and ODIForeign Direct Investment (FDI) is when a non-resident Indian invests in an Indian company. Outward Direct Investment (ODI) is when Indian resident companies invest in a wholly-owned subsidiary or a joint venture in a foreign country as part of a strategy to expand their business.Routes of ODI From IndiaDirect investment outside India is governed by Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, as amended from time to time. Overseas Investment from India can be made through two routes:i) Automatic Route andii) Approval Route.Under the Automatic Route, an Indian Party does not require any prior approval from the central bank, the Reserve Bank of India (RBI), for making overseas direct investments in a JV/WOS abroad. All those proposals not covered by the conditions under the automatic route require prior approval of the RBI.Who Can Invest Through the ODI Route?An Indian Party can make ODI under the Automatic route in any bonafide activity. However, Indian parties are prohibited from making investments or financial commitments in a foreign entity engaged in real estate or banking business without the prior approval of the RBI.For the above restrictions, real estate means buying and selling of real estate or dealing in Transferable Development Rights (TDRs), not including the development of townships, construction of residential or commercial premises, roads, or bridges.Guide on property related taxation and money transfer for NRIsAn Indian Party is also not permitted to invest in an overseas entity, which offers financial products linked to the Indian Rupee (such as non-deliverable trades involving foreign currency, stock indices linked to the Indian market, rupee exchange rates, etc.), and need prior approval from the RBI.Who Is an Indian Party?Indian Party encompasses:a company incorporated in India or a body created under an Act of Parliament, ora partnership firm registered under the Indian Partnership Act, 1932, ora Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008, andany other entity in India as may be notified by the Reserve BankWhen more than one such company, body, or entity invests the foreign JV/WOS, such combination will also constitute an "Indian Party."Furthermore, the Indian Party should not be on the following list:RBI's Exporters' caution list/ list of defaulters to the banking system circulated by the RBI/ CIBIL (Credit Information Bureau of India) orList of defaulters by any other credit information company as approved by the RBI or under investigation by the Directorate of Enforcement or any investigative agency or regulatory authority.Also, all transactions relating to the investment in a JV/WOS should be routed through only one branch of an authorized dealer designated by the Indian Party.Investment Limit of an Indian Party:Indian Party can make ODI up to 400% of its net worth (paid-up capital and free reserves) as per its last audited balance sheet.Any Financial Commitment (FC) exceeding USD 1 billion (or its equivalent) in a financial year would require prior approval of the RBI even when the total FC of the Indian Party is within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet.The prescribed limit will not be applicable if the investment is made out of balance held in the EEFC account (Exchange Earner's Foreign Currency Account) of the Indian Party or out of funds raised through the issue of ADRs/GDRs (American Depository Receipts/ Global Depository Receipts).The total financial commitment of the Indian Party in all the JV/WOS comprise of the following:100% of the number of equity shares and/or CCPS (Compulsorily Convertible Preference Shares)100% of the number of other preference shares100% of the loan amount100% of the amount of corporate guarantee issued by the Indian Party100% of the amount of bank guarantee issued by a resident bank on behalf of JV/WOS of the Indian Party, provided that the bank guarantee is backed by a counter-guarantee/collateral by the Indian Party50% of the amount of performance guarantee issued by the Indian Party.** Investors need prior approval from RBI before transferring remittance beyond the limit prescribed for the financial commitment.Can Resident Indians Make Investment Through ODI Route?Resident Indians can make overseas investments, including purchase of securities and also setting up/acquisition of JV/WOS up to the limit prescribed by the RBI from time to time, per financial year under the Liberalised Remittance Scheme (LRS). Currently, LRS comes with a maximum cap of $250,000 a year per person.Why Is the RBI Warning People About ODI Transfers?RBI regulates ODI made by Indian entities and resident individuals in joint ventures and wholly-owned subsidiaries outside India pursuant to Foreign Exchange Management Regulations, 2004.Recently, RBI has been sending queries and notices to several domestic entities, including companies and large family offices, seeking the status of unutilized money remitted abroad through the ODI route.The remitted funds parked in foreign countries in financial assets including liquid funds by these firms could be a violation of ODI guidelines. Under the general permission, the remitted funds must be used for a specific business purpose. In this case, the firms would need to explain the retention of the remitted money in liquid funds.As per the rule, any Indian Party that plans to make an ODI needs to approach a designated authorized dealer (AD) for investing along with duly signed ODI form, along with supporting documents like Board Resolution, Statutory Auditor Certificate, and many other documents to essentially satisfy the bonafide business test.The investment can be processed once the AD Bank examines and approves the documents according to the regulatory guidelines. A Unique Identification Number (UNI) will be generated for the particular JV/WOS before the remittance. The UNI can be used for further remittances/ investments in the JV/WOS.Mutual funds are another concern of RBI. Investment in mutual funds abroad is that only entities registered as non-banking financial companies (NBFC) can invest the outward remittances in foreign securities. This means funds transferred via the ODI route cannot be used for investments in mutual funds abroad.Resident individuals can remit money outside India under the Liberalised Remittance Scheme (LRS) which has a maximum cap of $250,000 per year per person. The funds remitted under LRS can be used for investing in foreign securities, travel expenses, or sending money to Non-resident Indians (NRI) abroad.The low limit under the LRS is allegedly making more individuals route the remittances through their family offices via the ODI route because the cap for an entity sending money through the ODI route is $1 billion per year or 400% of the net worth.However, the ODI route is for large companies, corporates, or trusts that need to send large amounts of money out of India for business purposes. Sending money from India abroad through ODI to avoid the LRS limit is a violation of the ODI guidelines.ODI From India Dips 68% To USD 754 Million in February 2022ODI is also called outward foreign direct investment or direct investment abroad. The appetite for foreign investment was picking up and many Indian investors and companies were investing/acquiring stakes in numerous foreign companies.However, following the restrictions by the RBI, coupled with the global economic crisis, investments have dropped. According to the RBI data on Outward Foreign Direct Investment, investment for the month of February 2022 (USD 753.61 Million) has dropped by 68% compared to February 2021 (USD 2284.61 Million).*RBI said the data is provisional and is subject to change based on reporting by banks.An increase in ODI can also be seen as a sign of a country's investment competitiveness, higher growth prospects in foreign markets, and a maturing domestic economy.The Covid-19 pandemic has been widely cited as one of the reasons for not utilizing the money sent through the ODI route. Several deals didn't get through due to the second wave of Covid and people didn't want to lose interest in the money, hence have invested in products like liquid funds abroad. And maybe awaiting the right business opportunity to invest the money.In conclusion, for ODI-related investment opportunities, we recommend consulting with a tax advisor. To keep yourself abreast with the latest guidelines pertaining to ODI, the Reserve Bank of India has issued detailed guidelines vide Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, which can be accessed at RBI's website.A Master Direction that has consolidated instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions and is available at the 'Notification' Section on RBI's website.