India proposed a 20% tax on funds transfers from EB-5 investors
This new regulation is expected to have an impact on the inflow of capital into India by foreign investors, but will not affect existing projects or portfolios involving Non-Resident Indians (NRIs).
India is one of the world’s fastest growing economies, and consequently is also one of the largest markets for EB-5 investors.
However, its Central Bank has announced a series of new regulations regarding increased taxes on transfers of funds from the country, including foreign investments, which could directly affect EB-5 investments originating from the system. banking of the Asian country.
In its 2023 Union Budget, announced in February, the central government introduced an income tax on external transfers, which for EB-5 investments would include an extra 20% tax collected at source (TCS).
This new measure will come into effect on July 1. 2023, subject to parliamentary approval. This would be a sharp increase compared to the current TCS rate of 5%.
According to Utsav R. Doshi, managing partner of RK Doshi & Co LLP, the proposed rule means that “an amount equal to $1,000,000 will have to be made available to enable a net transfer of $800,000. Articles written on this subject recently have stated that a sum of $160,000 will be deducted from $800,000.”
“The deduction is always on a “grossorization” basis. Therefore, you need to make the INR equivalent of US$1,000,000 available to effect the network transfer,” Doshi explained.
Tax may eventually be refunded for Indian EB-5 investors
The tax can be claimed on tax returns, a reportedly lengthy process for such high figures.
However, it is not a new tax, says Jay Bhatia, managing attorney at JKB Legal Abogados: “Tax at Source (TCS) is not an additional tax, but it can be seen as a form of advance tax that can be offset. against your other tax liabilities when you file your tax returns for the year.”
“Having said that, this means that wealthy Indians will need to budget 20% more when transferring funds for overseas investment from July 1, 2023, and be prepared to lock in this 20% amount for a few months until they can. reclaim. from the tax authorities,” says Bhatia.
Doshi continued: “The pertinent question for any EB-5 investor is whether the TCS amount will be refundable. The answer is very much yes. All you have to do is file your tax returns and adjust the TCS. If your net tax liability is negative, then you can also claim a tax refund.
EB-5 investors in India must act fast
The most guaranteed way to avoid the 20% TCS is to initiate transfers before the announced deadline of July 1, 2023, according to Bhatia.
“In case you are looking to send money abroad this year for global investments, it may be more efficient to complete these transactions at the current TCS rate of 5%, before the new regime takes effect in July,” he explains.
In the short term, the “announcement to increase the TCS on foreign remittances will boost demand for foreign investment options, such as the EB-5 program, until July 1, 2023,” explains Sandhya Kapoor, director of ActiveAvenues, hoping that the announcement is the start of a trend for the Indian government.
“This indicates that the government is taking a path to make foreign remittances more cumbersome for the Indian investor and will continue to do so in the future, so it is pragmatic to take advantage of the current regime that is available,” he adds.
After July 1, Kapoor predicts, investors will smoothly adjust to the new tax as if it were simply an increase in the EB-5 investment threshold rate.
“Remember, the EB-5 program only accepts the most pristine funds, and such investors are familiar with such changes and are not necessarily intimidated by them,” he said.
Bhatia also notes that the tax is only collected from payments transferred through accounts of legal residents of India. “TCS does not affect transactions made from non-resident bank accounts.”
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