The Ventura Pranas Quarterly Newsletter (July – December 2022)
- Tax Highlights
- You Ask, We Answer
- Parallel Universes
- Recommendations (Gift of Ghee + Hylobiz)
- Prabha’s Office Location
To stay posted on all tax law updates, follow us on LinkedIn
Happy holidays! We hope all of you had a wonderful celebration and gathering with friends and family for the end of 2022. Wishing you a happy and prosperous 2023! It’s during a quiet moment after a busy year that we realize how quickly time flies. This year has been a whirlwind of changes, progress and growth for us. We’ve expanded our production team, opened an office in Singapore, and we’re ready to embrace this new momentum.
Rather than add more words to describe this feeling of immense pride and joy after a year of rewarding toil and hard-work, this picture of our four offices says it all. The beauty of it is that we all seem united, coordinated and working in unison. We had our last All Hands meeting before the year closed and this picture was taken momentarily after. We could not have done this without the counsel of our Advisory Board and lessons we learnt from our field trips! We’re grateful for all the support we’ve received, from our team, our families and friends, and our clients.
Another recent highlight is we had an offsite retreat with Prabha and her direct team in Udaipur a few weeks ago. The retreat was combined with a business segment that covered lessons learned from 2022 and changes we wish to implement in 2023. A big takeaway is that we’re thinking of implementing a maintenance break – around 10 days during the week of Thanksgiving – during which the entire firm will shut down. The idea is for our team to take a break from the rigour of client work and get time with their families and themselves to come back refreshed to take on the December (month of ) year-end planning. We will need the support of our clients to make this work.
In the next segment we discuss items to keep in mind for year-end planning. Try and ensure that whatever you choose or set in motion remains consistent between tax years so if there is some development in your business that is likely to remain in effect over the next few years, this may be the time to share it in anticipation of making the correct elections when your India and/or US returns are filed for the year 2022. A lot of your planning decisions will impact your actual filings next year.
Some action points to consider for this financial year:
- 1. The markets have not done well this year, and it’s likely it might be a few (or more) months before they pick up again. Some of you may have made exits and you might want to harvest your losses and re-enter these positions subject to the Wash sales window.
- 2. If you run your own small business, it’s a great time to make decisions on income that you can properly defer, pension decisions, what you want to take out as compensation, etc – keep in mind you still have time to set up the pension plans for the year 2022 and the contributions are not due until September/ October 15, 2023
- 3. If you have created irrevocable trusts in 2022, you may have to decide whether to tax the income should be taxed in the hands of the trust or distribute the income and tax in the hands of the beneficiary as they might be at a lower tax bracket. Keep in mind distribution decisions have to be made within 65 days of the year- end.
- 4. If you are an accrual basis tax payer you have the ability to accrue bonuses and compensation before the end of the year as long as it is remitted within 2.5 months of the year end. It is not too late to make these decisions if you are corporation.
We’re excited to roll out a few webinars on topics that we know are of interest to many of you. The first of them is on funding your child’s education abroad and it covers many legal and accounting aspects.
Topic: Funding Education Abroad – dos and don’ts
Presenters : Shaan Katari Libby (lawyer) , Prabha Srinivasan (CPA)
Date : January 11th, 530PM IST
Duration : 1 hour
Format : Hybrid – Zoom and in person at the Ventura Pranas Chennai offices.
If you are registering : please email us at email@example.com and send in your warn-ins. Please specify if you are registering for the Zoom session or in-person so we can make appropriate arrangements.
The IRS has recently announced a change in limits for 401(k), annual contributions, and several other plans. Here is a table that shows you a snapshot of the changes for 2023 – particularly important to keep in mind in relation to retirement plan limits and amounts.
|Description||New 2023||2022 Amounts|
|Standard deduction – Single||$13,850||$12,950|
|Standard Deduction – MFJ||$27,700||$25,900|
|Top rate for MFJ 37%||Income > $693,750||Income > $647,850|
|Top rate for Single 37%||Income > $578,125||Income > $539,900|
|Lowest rate 10% for MFJ||Income < $22,000||Income < $20,550|
|Lowest Rate 10% for Single||Income < $11,000||Income < $10,275|
|Foreign earned Income exclusion||$120,000||$112,000|
|Life time exclusion||$12,920,000||$12,060,000|
|Annual gift limit||$17,000||$16,000|
|Description||2022 Amounts||2023 Amounts|
|401(k), 403(b), most 457 plans||$20,500||$22,500|
|IRA contribution limits||$6,000||$6,500|
|IRA catch Catch up contribution||$1000||$1000|
|401(k), 403(b), most 457 plans catch up||$6,500||$7,500|
|SEP catch up||$3,000||$3500|
|IRA AGI limits- single||$68,000 and $78,000||$73,000 and $83,000,|
|IRA AGI limits- MFJ – contributor not covered
but spouse is covered by a plan at work
|$204,000 and $214,000||$218,000 and $228,000|
|IRA AGI limits- MFJ – both covered by a plan at work||$109,000 and $129,000||$116,000 and $136,000|
|Roth Income ranges- Single||$129,000 and $144,000||$138,000 and $153,000|
|Roth Income ranges – MFJ||$204,000 and $214,000||$218,000 and $228,000|
|Retirement Savings Contributions Credit- AGI limits for MFJ||$68,000||$73,000|
|Roth Income ranges – MFJ||$204,000 and $214,000||$218,000 and $228,000|
|Retirement Savings Contributions Credit- AGI limits for MFJ||$68,000||$73,000|
|Retirement Savings Contributions Credit- AGI limits for Single||$34,000||and $36,500|
|Simple retirement cont||$14,000||$15,500|
Federal Emergency Management Agency (FEMA) disaster declarations
The Internal Revenue Service reminds taxpayers in areas covered by certain Federal Emergency Management Agency (FEMA) disaster declarations they may have more time to file their returns to qualify for the penalty relief for their 2019 and 2020 tax returns.
Under Notice 2022-36, penalties for late-filing certain tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return was filed on or before September 30, 2022. But individuals and households that reside or have a business in recently declared FEMA disaster areas have postponed deadlines to file the return to get this relief, as noted below.
- • Areas with a deadline of November 15, 2022, include: (already passed)
- o Counties in Missouri identified under FEMA's Major Disaster Declaration 4665.
- o Counties in Kentucky identified under FEMA's Major Disaster Declaration 4633.
- o The island of St. Croix in the U.S. Virgin Islands.
- o Members of the Tribal Nation of the Salt River Pima Maricopa Indian Community.
- • Areas with a deadline of February 15, 2023, include: ( still open )
- o Florida,
- o Puerto Rico,
- o North Carolina,
- o South Carolina,
- o Areas in Alaska identified under FEMA's Major Disaster Declaration 4672 and
- o Hinds County, Mississippi.
The relief under Notice 2022-36 applies to the failure-to-file penalty that is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series.
Unlike the failure-to-file penalty, the failure-to-pay penalty and interest will still apply to any unpaid tax. The failure-to-pay penalty is normally 0.5% (one-half-of-one percent) per month, up to 25%. The interest rate is currently 6%, compounded daily.
Penalty relief for 2019 and 2020 returns is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in a compromise or a closing agreement, or where the penalties were finally determined by a court. This relief is limited to the penalties that the notice specifically states are eligible for relief. For ineligible penalties, such as the failure-to-pay penalty, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate program. If you’d like to read about this in more detail, visit IRS.gov/penaltyrelief
Indian FEMA developments:
There have been new ODI Rules & regulations that have been released in August 2022.
Please note that if you made any structuring decisions based on the old rules and have yet to set it in motion or have already done so, you will need to revisit the new rules to see how to fix any issues. The rules have become tighter and clearer.
Most importantly the recent rules have restricted Indian (FEMA residents) from owning more 10% of a foreign holding company that has underlying subsidiaries. In this case you may have to work on securing their ownership directly in the subsidiary to avoid falling foul of the latest rules.
So please seek out help from your FEMA consultant before you undertake any steps to restructure.
You Ask, We Answer
Q: If I were filing US 1040 returns and earning income in India should I avail the Foreign earned income exclusion or Foreign tax credit?
A: You are free to choose either Foreign Earned Income Exclusion (FEI) or Foreign Tax Credit depending on which is beneficial to the taxpayer. FEI is beneficial to some taxpayers and FTC for others. It is based on the marginal tax rate (where the taxpayer is at), expected future foreign income (for which the FTC carryover needs to be maintained) and credits (some credits will not be allowed if FEI is claimed). However, if you want to switch from FEI to FTC, there is a 5 year lock-in period to switch back to FEI.
Q: If I choose one do I have to stick with it or can I keep changing from one to the other between successive financial years?
A: You could switch from FTC top FEI at any point in time. However, if you want to switch from FEI to FTC, there is a 5 year lock-in period to switch back to FEI.
Q: Can a GC holder file 1040NR one year and form 1040 the other year?
A: Yes, you could file 1040NR (along with form 8833 for treaty based return position) in one year and 1040 in the next year. However, frequently switching between 1040NR & 1040 is not recommended.
Q: If I am a US citizen, living in India, have been filing returns as a ROR or RNOR in India, change my status, by properly claiming the tie breaker test (under the US and India treaty) and file as an NRI in the USA?
A: As long as you are filing as resident (ROR or RNOR) you could claim the treaty benefit and file as NRI in USA.
Q: . If I am a US citizen living in India, have been filing returns as a ROR or RNOR in India, change my status, by properly claiming the tie breaker test (under the US and India treaty) and file as an NRI in India in a future year? (Same scenario as above, but filing as an NRI in India)
A: You can but keep in mind that this may result in scrutiny by the IT department and one should be ready for it. A condition to file as NRI in India is you should be filing as a resident of the US. So Filing as a resident of the US is the easy part. Have us closely evaluate the pros and cons of switching before you take this route.
Q: I have made gifts to my spouse and she is a home maker. Will that impact my US and India returns from an Income tax standpoint?
A: In India, gifts between husband and wife has no tax consequence and can be made tax free. However, the income earned on this gift will be taxed in the hands of the spouse with the higher income under the clubbing rules.
In the US, if both spouses are US citizens, gifts between spouses has no tax consequence using the Martial Deduction rules. If either spouse is a Non-US person, then we need to be alerted. If the donor is Non-US person and recipient is US person, there will be only information reporting. If the donor is a US person and the recipient is Non-US person, filing a Gift tax return is required if it exceeds a threshold of approx $164,000 Depending on the gift size, the donor could use up his/her life time exemption and still not incur any taxes as a result.
Q: If I am named a beneficiary of a foreign trust and I am a resident of India, what are my disclosure obligations? If I did not know this in the prior year, will this impact my returns?
A: If you are a resident filer in India and a beneficiary of a foreign trust, the same needs to be reported on Foreign Asset Schedule every year till you are the beneficiary of the trust. If you received any distribution from the foreign trust, the same will be subject to tax in India. If the reports were not done in the previous year and there is time to revise the return, it is advisable to revise the India Income tax return and correct the non-disclosure. If the filing is time barred, the accurate reporting needs to be done in the future. Please note that it could open up the prior non-compliances and IT Department could send notices. It will be the responsibility of the tax-filer to provide the “reasonable cause” for the non-compliance.
Q: I am an Indian resident Moving to the US on a job, I would like to know if I should be deemed to be a Resident for FEMA in the year of my move or will I be deemed to be an NRI?
A: Residency under FEMA is based on the numbers of days you were in India in the previous financial year. If a person is in India for more than 182 days in the previous financial year, they will be considered as resident in the current financial year. If you are going outside India for the purpose of employment, you will be considered as Resident outside India (Non-resident) under FEMA effective the date you leave India. This is one of the exceptions to the common rule.
Q: Is there a reason to prefer one over the other?
A: If you are going outside India for the purpose of employment, you will be considered as Resident outside India (Non-resident) under FEMA. There is no reason to be Resident. The advantage of being NRI is you will get a higher repatriation limit ($1million outside India per financial year) where Residents get only $250,000 per financial year. There is no known disadvantage in becoming a NRI under FEMA.
Q: I have a query for you regarding moving money to the US. How can US expats (OCI holders) working in India for Indian companies transfer more than 250K USD to their US accounts? The 250K limit is apparently coming from RBI but is there a way out?
A: Unfortunately, if you are in India for the purpose of employment, you would be deemed to be a resident for FEMA purposes until you leave the country (and until then you will be bound by the $250K limit). The only way to get past it is to make an application to the RBI to permit a larger remittance. The rule says anything over the $250K should be based on approval from RBI. The $250K is per financial year per Indian resident. You can transfer monies to your spouse's Resident account and he/she can send another $250K.
A citizen of a foreign state resident in India being in employment with a company incorporated in India may open, hold and maintain a foreign currency account with a bank outside India and remit the whole salary received in India in Indian Rupees, to such account, for the services rendered to the Indian company, provided that income-tax chargeable under the Income-tax Act, 1961 is paid on the entire salary accrued in India.
A citizen of a foreign State, resident in India, being an employee of a foreign company or a citizen of India, employed by a foreign company outside India and in either case on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India of such foreign company may open, hold and maintain a foreign currency account with a bank outside India and receive the whole salary payable to him for the services rendered to the office/ branch/ subsidiary/ joint venture/ group company in India of such foreign company, by credit to such account, provided that income tax chargeable under the Income-tax Act,1961 is paid on the entire salary as accrued in India.
Q: Let’s say someone earns $1 million USD through ESOPs, income, etc., during their tenure in India. Then, a few years later, the person is moving back to the US. How do they move their monies back home from their Indian savings account?
The way to do it is when that person has moved or is about to move to the US indefinitely or on employment, they must convert their account to an NRO account. Thereafter, when they make an application for the remittance, they will be permitted to move $1million. The limit is per financial year, and their spouse too can take up to $1million. The key is to transfer the funds to the spouse before the conversion to an NRO account. This way, the spouse can tap into those funds after. In case the transfer is done after the NRO account conversion, then any transfer to that account will count towards the $1million limit for the person moving.
Do note that this person will have to furnish FormA2 and a declaration to the effect that the total of all remittances being made by him or her does not exceed $1 million during the Financial Year. Also, Form 15CA-15CB has to be filled and submitted for each remittance from India exceeding INR.5 lakh in value.
A foreign national of non-Indian origin who has retired from an employment in India or who has inherited assets from a person referred to in section 6(5) of the Act or who is a widow of an Indian citizen who was resident in India, may remit an amount not exceeding USD one million, per financial year (April-March), subject to the satisfaction of the Authorized Dealer bank, on production of documentary evidence in support of acquisition/ inheritance of assets and payment of applicable taxes in India, if any.
Stories and scenarios you can relate to, for families in the US and in India, to help you understand the complexity (and humour) involved in financial planning. Please note that the following is simply a case study. Any references to names and situations are entirely coincidental.
We strongly advise that while planning or setting things in motion – with regard to business plans and life plans that will affect your taxes- stay consistent between tax years so that it’s easier to anticipate returns every year. Here, we explore two scenarios to drive this suggestion home.
Rajany is a US citizen who moved to India around 4 years ago and founded a logistics solution start-up called Track Back US (TB US), a US S corp., which is a passthrough entity (a process by which the organization can be relieved from the double taxation burden). She functioned as their CEO and she continues to file taxes as an NRI in India by invoking the tie breaker test.
Track Back US has a wholly owned sub in India called Track Back India (TBI). A couple of years ago, the TB US sold a portion of its Indian interest and so capital gains arose in India.
These capital gains were offered to tax in India by TB (US), and because it is an S corp in the US, TB (US) will have to report back that gain and tax to the US shareholder. Since Rajany is filing a resident return in the US, the gains were taxed in her hands but the credits for taxes paid in India by the S-Corp flowed through to her. She did not have to pay taxes again.
Had Rajany filed as a resident in India, she would have had to again declare the same income on her Indian returns. While it can be argued that the principles of taxation mean that the same income cannot be taxed twice, try explaining this convoluted flow of events to an IT officer! Rajany would have run the risk of being taxed twice and lost 75% of her gains in taxes twice over in India. Keeping her as an NRI (by properly meeting the tests under the DTAA) obviated this difficult predicament while ensuring there was no tax loss to either tax government.
Let us take the Opposite: Indian on a GC, living in the US, owning an India company owning a US entity
Take the example of an Indian company Expo India owned by Manish (a US citizen). Manish lives in Texas. The Indian company owns a wholly owned subsidiary in US, Expo US. Manish is an employee of Expo US and gets compensation from this entity.
Expo India sold a portion of their interest in the US subsidiary. The Indian company would be subject to capital gains taxes in the US as this amount to the sale of an asset giving rise to effectively connected income in the US. The sale would be suffer a tax of 20% and will be withheld at source. Expo India would report the gain on sale to tax and the taxes paid in the US will be allowed as a credit.
Meanwhile the Indian company will declare a dividend to Manish as the founder. At this point there are taxes that will need to be paid in India at the rate of 23.92%. This dividend will have to be reported in the US by Manish and will attract tax at 23.8%. The 23.92% paid in India can be credited against his tax in the US. If you have been following this trail of events, there are two layers of taxation in this instance which we cannot avoid because this is a PLC in India that is owned by Manish.
Let us say the Expo India is an LLP, akin to a pass through. Then in this case too, the LLP’s capital gains on the sale of the US asset will be taxed in India and taxes paid in the US will be creditable. In India LLPs distribute tax free income to the partners. Manish would get his share of profits without the added dividend tax. This will be the case on Manish’s US returns as well, which is quite similar outcome to Rajany’s situation in the previous example.
Recommendations (Gift of Ghee + Hylobiz)
Hylobiz: a software to automate day-to-day Accounts Receivables (AR) management for SMBs
Small and Medium Businesses (SMB) are key to the health and well-being of economies around the world- they’re agile, responsive to customer needs, and cater to local communities’ specific needs. However, they are also often strapped for bandwidth and resources, and routine procedures like payroll, rent payment, and expense management can take headspace away from the core business.
These businesses also tend to expand organically, often making do with systems that worked well in their early days- such as small teams working across disconnected systems, using multiple tools and dashboards. Without a holistic understanding of the entire view of their business, SMBs sometimes inadvertently make hasty decisions, including those related to their own payments and financing needs.
Hylobiz is an AR automation software by Vayana Network, a global fintech with presence across US, India, Singapore, Dubai and ASEAN. It is also India’s largest platform for supply chain financing. Vayana is a client of ours, hence this recommendation.
Hylobiz was built specifically for SMBs. Its intuitive workflows offer a depth of automation that you might not find in other software (for example, setting up rules right down to a customer level to trigger follow up emails on payment reminders). Hylobiz already has over 3000 clients globally and it has cut down more than 50% of the manual efforts involved in mundane AR processes for these clients, as well as reduced their collection time by up to 40%.
Available as a phone as well as desktop application, it also integrates with third party applications, such as accounting systems, payment methods like cards and ACH, allowing businesses to automatically reconcile payment data back into their accounting systems.
Ventura Pranas uses Hylobiz to send payment links and payment reminders to their customers through an automated dashboard, which auto syncs invoice and payments data to and from their accounting system, with no need for any manual intervention. Their customers make payments in less than 30 seconds through secure, easy-to-share payment links using cards or ACH. The Ventura Pranas team can also use the system to generate transaction reports and digital ledgers for better compliance and to increase transparency in their customer engagement.
If you’re looking for a solution to help improve your cash flow, collect payments faster and get control over your own cash, you can book a demo with the Hylobiz team, or reach out to them at firstname.lastname@example.org.
The Gift of Ghee (a book we’d like to share with you)
Our clients, Chitra and Susanne, have been experimenting with Indian recipes for the past 12 years. They both claim that pure ghee is the basis of the magic created in Susanne’s beautiful Beverly Hills kitchen!
Chitra lived most of her life in Mumbai, learning much of her food and cooking knowledge from observing her grandmother, mother and house help. She brought up her boys in Mumbai and later migrated to the USA where she discovered her latent love for traditional Indian recipes.
Susanne has always been fascinated by India and ancient Indian medicine. For her, discovering Indian food, the spices and techniques used - helped make a big positive shift in her overall digestive health. Susanne is a certified Yoga instructor and now an Ayurvedic Counsellor, pursuing her studies in Ayurveda to date. She loves all things organic and natural. Susanne has wonderful memories of growing up in Germany - where her family grew vegetables and herbs in the garden.
Susanne and Chitra love cooking together and having people over. This collaboration resulted in The Great Gift of Ghee, which is a collection of recipes divided according to the ancient wisdom of changing food patterns in keeping with the four seasons. Not only are the recipes easy to follow, the book itself is replete with gorgeous photographs and is so aesthetically printed, it makes an excellent and festive gift! We sent a copy of this book to our clients this year. We hope you love it and enjoy gifting it to your special ones too!
Prabha’s Office Location + appointments
Our director, Prabha Srinivasan will be available for appointments in Bangalore, Singapore and Los Angeles over this quarter. Below is her schedule:
Bangalore : January 5th and 6th, 2023.
Los Angeles: 17th – 29th January 2023; and again from March 10th to 28th.
Singapore : January 30th for one day and again on February 12th for a day.
To book an appointment, send in an email to email@example.com , along with details of what you would like to discuss and your time zone. Alternatively, email Prabha directly at firstname.lastname@example.org