Watch: Moving Back to India? Your Biggest Tax Mistake May Happen Before You Leave the US

2:22 Then you have India. India has its own residency tax residency framework [music] NR, RNR and R. If someone qualifies for RNR which is resident but not ordinary resident, there can be a period of 1 to 3 years where your Indian tax treatment of certain foreign income and assets is different from what it could be once you become an RO. This is a golden window for tax planning which you need to understand. This is the window where you need to do lot of asset restructuring. You don't necessarily have to make all the financial decisions on day one, but you need to understand what is your

3:09 residency status going to be. How long does your RNR period last? What happens when you become an ROR and what planning should you do during that RNR window? That's why we call the RNR a potentially valuable planning period. We have done a separate video on RNR and if you haven't watched it, we have a link below.

3:34 Residency determines how India looks at your worldwide income. But there is another issue that people with significant US assets often completely overlook. Even if India is not an immediate problem, the US might have a problem waiting for you. And that's number two. Don't ignore US estate tax. Let's say you return to India but keep your US financial life, the 401ks, IRA, brokerage account or you might have even US real estate and you're thinking I will leave everything in the US. The investments are working. Why disturb them? That's perfectly understandable

4:19 thought. But here is the question. What happens to those US [music] assets when you're no longer a US tax resident from a estate tax purpose? This is something many returning NRIs don't think about. For certain non-residents, non-citizen individuals, the US federal estate tax rules can be very different from the rules that apply for US citizens or green card holders. The threshold for non-resident citizens is only $60,000 of US assets. So if you're planning to leave a significant amount of wealth in the US for the next 10, 20, 30 years,

5:05 estate tax needs to be part of the conversation. Some of the planning may need to happen while [music] you are still in the US because once you move the and become an Indian resident and restructure your financial life, your options may be different. So don't only ask where can I get the best investment return also ask what happens to this investment if I remain an Indian resident for the next 20 30 years. And now we get to number

5:40 three. Because even after you have figured out tax, residency and estate tax, you still have to answer the question, which country gets to tax my income? This is where things get really confusing. You have income from the US, you live in India, and both countries have their own tax systems. So you naturally ask am I going to pay tax twice. This is where US India double taxation avoidance agreement DTAA becomes important. And here is a mistake. People often think DDA means I pay tax in the US so I don't have to pay tax in India. It's not that simple. The tax treatment is different for different

6:26 incomes. For example, interest income, [music] capital gains, 401k distributions, social security, rental [music] income have different tax treatments and the treaty can affect these taxing rights, withholding and how the foreign tax credit works. So if you have India investments, US investment like 401k, equity, rentals and so on, the question shouldn't simply be which country taxes me. You need to understand what type of income is this? Which country has the taxing right? What gets withhold at the source? What gets reported in India? Can I claim foreign

7:11 tax credit? and importantly how should I structure my assets so that the overall tax treatment is as efficient as possible. This is why crossber planning isn't simply [music] about filing the taxes correctly. It's about making the right decisions before the tax return is even prepared. And now here is where

7:35 things get even interesting because even if you have calculated tax correctly, you can still have a compliance problem and that's number four. This is probably one of the least exciting part of moving back but it can become one of the most important compliance because you're changing the status in two countries. So let's take a banking when your residential status change in India your existing NRE NRO accounts have to be updated to a resident savings account because you become a resident from a femar perspective. The same thing applies with your DMAT tax and other stuff. Now look at the US. You might want to tell the banks, brokerage forms

8:22 that you have moved, update your address, your tax residency changes, your tax withholding may change. There are forms that you might have to update. And there is things in India once you become a ROR, foreign assets and foreign income can create additional reporting and tax consideration. Think about all the accounts you had accumulated in the last 15 to 20 years. Your 401k, IRA, bank account, RSUs, foreign properties and so on. You may never had to think about reporting any of these in India before but your India tax residency can change that. And that's why I tell the

9:07 people don't think compliance just as a paperwork. Think of it as a part of your financial [music] plan because a missed filing or incorrect reporting can create headache that can have nothing to do with the actual tax amount that you owe. And there is the black money act that comes into picture. And now we have

9:30 reached to point number five. And this one is particularly important because even after understanding all the four of these things, you can still get the implementation wrong. This is the part that people often underestimate. You understand the tax rules, you understand your tax residency, have a good understanding of DTAA, but you fill out a wrong form or you didn't make the right election or you missed the timing, then your intended tax treatment may not happen the way you expected. Let's take an example, US

10:08 retirement accounts. Say you have a 401k, traditional IRA or a retirement account. When you return to India, understanding how India treats these accounts becomes extremely important. So once you become a ROR, you may need to consider a provision such as section 89 form 10E. Now it's called form 40 for eligible foreign retirement accounts depending on your circumstances. This isn't something where you should simply say my friend did this so I will do the same. The account type matters, your residency matters, the timing matters and the applicable rule matters. Now let's look at on the US side. You

10:55 may have to file W8BN with your bank or a brokerage account. [music] That form can be relevant once you are a non US tax resident receiving certain US income and can be used to claim applicable tax treaty benefits. You need to understand what am I declaring? What's my tax status? What withholding rates would apply? Does the treaty apply for this income and what does this mean when I file my taxes in India? And this brings

11:27 up to a bigger lesson. Now let's put all these five things together. First, tax residency. What's your status in US and India? US estate tax. What happens if you leave a significant US assets behind? Double taxation avoidance agreement. What types of income? How it will be taxed withheld between the two countries? Compliance. What needs to be changed with FEMA? banks, brokerage accounts, Indian reporting, etc. Forms and elections. What do you actually need to file, elect or change? And when you have to do that and notice something, these are not five separate problems. They are all connected. Your residency

12:13 can affect your tax treatment. Your tax treatment can affect how you structure the assets. Your asset structure can affect your estate tax exposure. Your residency can impact the compliance and your elections and forms affect how your intended tax treatment is implemented. That's why I don't recommend thinking about crossber taxation as I will just

12:40 hire someone to file my taxes after I move. By then some of these important decisions has already been made. At daycare, this is exactly the kind of planning we help returning families think through because you're not simply moving from one country to another. You are moving your entire financial life, career, investments, retirement accounts, your property, bank accounts, taxes, and your family's future life. And all of that has to work across two different financial and regulatory systems. Our goal is to help families think through these issues before the move, during the transition, and as they settle in India. You can fill in your

13:25 request in the link below. We post a new written and radown like this every week. No jargon, just exact forms and the numbers you need. So, consider subscribing so you won't miss it in the future. Here is one thing I want you to remember. Don't wait until you land in India to start the planning your return. The best time to plan your crossber financials is while you are still in US. [music] I will see you in the next this return video.