Have you recently inherited property in India and are looking for ways to bring this inherited money back to USA? Taxation can be a really complex issue, especially if it involves two different countries. It is, therefore, important to know the tax laws of both countries, before you can plan to bring the inherited money from India to the United States.
Indian Tax Laws on Inherited Property
Most people worry about the amount of money they will have to give away as tax on their inherited property. However, India does not charge taxes on inheritance property itself. Tax is levied only when income is generated from the inherited property and this income generation can include interest, capital gains, dividend, rental income or financial assets earned from the sale of the inherited property, says an article on The Time of India.
It is crucial to know how tax is calculated on the income generated from inherited property. It is the difference between the original cost of purchase, paid by the bequeathor, after indexation, and the present selling price.
Taxation in USA
The US government levies tax on inheritance property, only if the bequeathor was a US citizen or Green Card holder. If you are a US citizen or Green Card holder and you have inherited assets or property in India, you are not subject to inheritance or estate tax in America. However, it is necessary to comply with some reporting requirements. You need to report the inheritance to the IRS and submit Form 3520, with your annual tax return details, says an article by NRI Legal Services.
If you are earning from the inherited property, including interest, capital gains or dividends, you will need to pay tax on such income, as per US regulations. However, you can claim foreign tax credit for the amount you might have already paid in India.
There are two major reasons to file Form 3520. First, this will help in developing a trail of receipts and generate the source of this extra income you have. Second, it will help in establishing the “basis” of this inheritance. “Basis” is the market value of the inherited property at the time of the bequeathor’s demise.
There is another way to take this inherited property from India, without having to pay tax in the US. You can take the money or assets in the form of a gift from your friends or relatives in India. Gift tax is not levied on the receiver, the person who is gifting needs to pay the tax. And, since your relative or friend in India are not a US citizen, they don’t owe any taxes to the US government. However, make sure that you are reporting the gift and inherited money to the concerned authorities, to avoid any misunderstandings and complications in future.
For more information on taxation of inherited property and regulations associated with the process, seek the help of an experienced legal advisor from India, as well as the US. This will help you make an informed decision on bringing inherited money from India to USA.