US govt to implement Foreign Account Tax Compliance Act, under which NRI deposits back home will be taxed.
Around 20 lakh non-resident Gujaratis in USA, who deposit more than Rs9,000 crore of money in banks of Gujarat, may now have to shell out some of their earnings as US government is planning to levy taxes on NRI deposits made back home.
The NRGs staying in US are worried about the Fatca (Foreign Account Tax Compliance Act), which will be enforced by US from January 1, 2013.
It is estimated that at present, around Rs23,000 crore of NRI deposits is saved in banks of Gujarat. It is believed that around 40%, that is around Rs9,200 crore comes from US alone.
“US government has folded its sleeves to unearth tax evasion on undisclosed earnings getting out of US. And so, now it looks like that the enforcement of Fatca will take care of it,” said president of Forex Advisory Division, Vadilal Enterprises, Aspy Bharucha. He said that in India, the external currency income is not taxed. “But, in a way, it is a good move by US government. By law, the US citizen has to withhold 30% of tax and pay to the US. So there are chances of US levying 30% tax on the deposits made by NRIs back home,” said Bharucha. US is likely to implement Fatca mandating full disclosure of bank accounts held by US taxpayers in foreign countries including India. The legislation directly affects deposits and investments made by NRIs and NRGs who are also taxpayers in the US.
Under Fatca, either the taxpayer or banks/institutions holding such deposits will have to disclose all details to the Internal Revenue Service (IRS).
It is the agency responsible for tax collection and tax law enforcement in America, no matter the size of assets. According to RBI data, the Indian banks held NRI deposits worth $53.30 billion (around Rs2,54,400 crore) as of July 31, 2011. "Currently, the Fatca is a bit complicated. If it starts taxing NRGs for savings outside US, it would not be feasible for us any more to remit and save in India. Better, we would prefer saving in US," said CEO of Elitecore Technologies Ltd, Hemal Patel who resides in New Jersey in US. It looks like the act will be implemented to tap the US earnings going to the countries where foreign income is not taxable, believes Patel. "For instance, in many Gulf countries, the income on savings by US citizens is not taxable. And recently, the Obama government has also hired many people in IRS team, especially to look after US earnings going outside country," said Hemal Patel. Dipak Patel, who resides in Denver city of Colorado state in US, has come to Ahmedabad at present. "As of now, I have not heard much about Fatca. But it sounds scary. If US government start levying tax on our deposits in India, it would not be feasible to save here," he said.
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