WIDE ANGLE 2020, Quarter 3
The Ventura Pranas Quarterly Newsletter: July – September 2020

The Ventura Pranas Quarterly Newsletter: July – September 2020

Contents Overview



Dear Clients and Readers,

While the outcome of this recent election at times seems fait accompli, there are other times when you wonder if this is not the case. Perhaps this discussion on Trump vs Biden’s Tax Plan Comparison is not outdated after all.

The attached slides (courtesy Bloomberg BNAtax), is a great comparison of the changes that the Democrats will likely make in the next few years if the results of the recent election are, in fact, upheld.

The slides indicate that some of the bold reductions in tax rates by the Republicans may stay with some adjustments. Most importantly, the potential increase or reintroduction of the highest slab in the US to 39.6% (still a far cry from the 42.74% maximum marginal rate in India), the possible increase in the GILTI tax rate to 21% (again may not impact companies consolidating Indian companies which are already in a high tax zone with the rate of tax being 25.17%).

The QBI deduction may be removed. Many tax practitioners agree that much of last year was spent to ensure we got this reporting correct, only to have to “unlearn” it again.

So it looks like we all might have to go back to the drawing board once again.

Trump, Biden Tax Plan Comparison

Presidential Candidates' Positions on Taxes

The following table compares the tax proposals of the Joe Biden, the Democratic candidates for president and President Donald Trump. Changes will be made as warranted. Last updated October 29, 2020. Michael Bloomberg also sought the Democratic presidential nomination. He endorsed Joe Biden on March 4. Bloomberg Tax is operated by entities controlled by Bloomberg.

Current Law
Donald Trump Joe Biden
U.S. Individual Taxes
Individual Rates

Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%,and 37% applicable to tax years beginning after Dec.31, 2017, and before Jan. 1, 2026.

Considering 10% middle class tax cut. Otherwise, Fiscal Year 2021 Budget would extend 20l7TCJA provisions past 2025. Would make the rates permanent.

Increase top rate to 39.6%. Taxpayers making more than $400,000 would see taxes increase.

Capital Gain Rates and Investments

Top rate is 20%. Net investment income tax adds 3.8% rate to households earning over $250,000 for joint filers and $200,000 for other taxpayers. Taxpayers in the 10% and 12% tax brackets pay 0%. Taxpayers between 12% and top rate pay 15% rate.

Taxpayers may elect to defer recognition of, and avoid recognition of future appreciation related to, capital gain from certain sales or exchanges of property by investing the gain in a qualified opportunity fund (OOF)

Seeking to cut capital gains rate by executive action. Would cut maximum capital gains rate to 15% if re-elected.

Would consider indexing capital gains to inflation. Otherwise, Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Potentially doubling of the number of opportunity zones eligible for tax breaks. Would seek timing extensions of when investments must be made.

Tax at top ordinary income rate (39.6%) for taxpayers with over$l million income.15%

Would reform opportunity zones by:

Incentivizing Opportunity Funds to partner with non-profit or community-oriented organizations, and jointly produce a community-benefit plan for each investment, with a focus on creating jobs for low-income residents and otherwise providing a direct financial impact to households within the Opportunity Zones.

Directing that Opportunity Zone benefits be reviewed bythe DepartmentofTreasury to ensure these tax benefits are only being allowed where there are clear economic, social, and environmental benefits to a community, and not just high returns -- like those from luxury apartments or luxury hotels -to investors.

Introducing transparency by requiring recipients of the Opportunity Zone tax break to provide detailed reporting and public disclosure on their Opportunity Zone investments and the impact on local residents, including poverty status, housing affordability, and job creation.

Wealth Tax

No taxation on accumulation of wealth; IRS is required to assess the net worth of the wealthiest Americans when they pass away, to calculate estate tax liability.

No wealth tax.

Generally does not support.

Child Incentives

The earned income tax credit (EITC) is a refundable personal credit available for any eligible individual who has a qualifying child for the tax year, or any other eligible individual without children who satisfies certain conditions. A taxpayer may claim a $2,000 credit with respect to each qualifying child of the taxpayer and $500 for nonqualifying children and other dependents. The credit is phased out at higher incomes. A portion of the credit is refundable.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025 and would require a valid Social Security Numberfor work in order to claim certain tax credits.

Expand EITC to older workers. Expand dependent care credit to $8,000. Families will get back as a tax credit as much as half of their spending on childcare for children under age 13, up to a total of $8,000 for one child or $16,000 for two or more children. The tax credit will be refundable and will explore ways to make it advanced. The full 50% reimbursement will be available to families making less than $125,000 a year. All families making between $125,000 and $400,000 will receive a partial credit ensuring that in no case will they get less than they are eligible for today.

Raise the child tax credit to $3,000 per child for children ages 6 to l7 and $3,600 for children under 6 for 2021 or as long as economic condition require. Make credit fully refundable.

Credits and Deductions

Taxpayers are allowed to take eligible deductions and credits against their income tax liability. The itemized deduction for state and local taxes (SALT) is capped at $10,000.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Cap itemized deductions at 28%. Restore PEASE for incomes above $400,000. End SALT cap.

Supports a $3,000 tax credit allowing family caregivers to defray some of what they spend to assist their loved ones.

Student Loans/Education

Loan forgiveness is generally included in income unless an exception applies. Student loan forgiveness is includible in income unless the individual worked for a certain period of time in certain professions for any of a broad class of employers.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Supports passage of school choice legislation (H.R. 1434; S. 634)that would spend $5 billion a year on tax credits for donations to private school scholarships.

Student loans will be cancelled, tax-free, after borrowers have been enrolled in the income-based repayment plan for 20 years.

Financial Instruments and Transactions
Carried Interest

Income that flows to the general partner of a private investmentfund, known as carried interest, is taxed at the lower capital gains rates. Three-year holding period requirement for long-term capital gain and loss for certain service-based partnership interests.

Eliminate carried interest

Eliminate carried interest


Virtual currencies are treated as property for tax purposes. The IRS requires taxpayers to report on their Form 1040 if they own virtual currencies.

Tweeted "not a fan" of cryptocurrencies.

No specific plan announced.

Transaction Tax

There is no tax on entering into a financial transaction such as buying or selling stocks, bonds and/or derivatives.

No plan.


Compensation and Benefits
Employment/Social Security Taxes

Payroll tax applied on worker's wages up to $137,700 for 2020. FICA tax of 12.4% split between employer and employee.

Most workers can contribute and get preferential tax treatment on up to $19,500 a year in a 401(k) account (extra $6,500 if age 50 or higher) in 2020. Highly paid executives can contribute an unlimited amount in certain tax advantaged plans.

Through Executive Order optional deferment of payroll taxes from Sept. l through Dec. 31 for workers earning up to $104,000 a year. Treasury Secretary Mnuchin believes many businesses will continue to collect payroll taxes despite the order.

End employers intentionally misclassifying their employees as independent contractors to avoid paying employment taxes. Lift social security taxable wage base cap on high earners (taxpayers making more than $400,000).

Retirement Incentives

Eligible employees can contribute a portion of their salary to a qualified retirement plan (401(k), 403(b), 457, etc.). The deferred salary is not included in taxable income until withdrawn. Penalties apply for early withdrawal. No all employers offer qualified retirement plans. Minimum distributions required when taxpayer turns 72

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Create "automatic 401( k)" for workers without access to pension or 401(k) plans. Allow 401(k) plans to offer hardship withdrawals for survivors of domestic violence or sexual assault and allow penalty-free distributions for such persons. Equalize the tax benefits of defined contribution plans across the income scale. Allow caregivers to make "catch-up" contributions to retirement accounts, even if they're not earning income in the formal labor market. Offer tax credits to small businesses to offset much of the cost of starting or maintaining retirement plans.

Health Care and Long-term Care

Tax credits are available to lower income taxpayers to help pay premiums for purchasing health insurance in an Exchange under the Affordable Care Act. Long-term care insurance premiumsare eligible medical care expenses for purposes of the medical deduction.

Would repeal the Affordable Care Act. The 2017 TCJA repealed the individual mandate setting the penalty for not having health care at $0.

Eliminate the 400% income cap on tax credit eligibility for the premium tax credit. Base tax credits on gold plan (not silver). Impose a tax penalty on drug manufacturers that increase the costs of their brand, biotech, or abusively priced generic over the general inflation rate. Terminate pharmaceutical corporations' tax deduction for advertisement spending. Create a $5,000 tax credit for using informal caregivers, including family members. Increase tax benefits for older Americans who buy long-term care insurance and pay for it using their savings for retirement.

Expand access to refundable health premium tax credits so that no family spends more than 8.5% of their income on health insurance.

U.S. Business Taxes
Corporate Tax Rates


No change.

28% with 15% minimum book tax on companies reporting more than $100 million in the U.S. but paid zero or negative federal income taxes. Credit for foreign taxes paid and carryovers allowed

10% offshoring penalty surtax on the profits from any production by a U.S. company overseas for sale on American soil, making the overall tax rate on those profits 30.8%

Carbon Tax

The United States does not place a tax on fuels that emitgreenhouse gases into the atmosphere.

Backed carbon capture efforts under pro-coal agenda.

Supports, but may not push for carbon tax as part of climate change plan.

Community Development

A taxpayer who holds a qualified equity investment on a credit allowance date that occurs during the tax year is allowed to claim a new markets tax credit for the taxable year. The NMTC limitation for 2020 is $5 billion. There is no allocation after 2020.

Fiscal Year 2020 Federal Budget would end funding for the Community Development Financial Institutions Fund discretionary grant and direct loan programs.

Expand the new markets tax credit program to provide $5 billion in support every year, and make the program permanent. Enact a manufacturing community tax credit.

Credits and Incentives

Businesses enjoy a nonrefundable tax credit for a portion of wages paid to certain new employees who qualify as members of disadvantaged groups

No specific plan announced.

Expanding the work opportunity tax credit to include military spouses. Impose a tax penalty on drug manufacturers that increase the costs of their brand, biotech, or abusively priced generic over the general inflation rate. Term in ate pharmaceutical corporations' tax deduction for advertisement spending. Create a new childcare construction tax credit to encourage businesses to build childcare facilities at places of work. Employers will receive 50% of the first $1 million of construction costs per facility.

A 10% "Made in America" tax credit for companies that create jobs for American workers. Available for revitalizing closed or nearly closed facilities, retooling or expanding facilities, and bringing production or service jobs back to the U.S. and creating U.S. jobs. It will also apply when a company is increasing manufacturing wages above the pre-Covid baseline for jobs paying up to $100,000.


Taxpayers can take a depreciation deduction as a mechanism for recovering the capital invested in an asset. Eligible property can be expensed entirely in the first-year placed in service.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

No specific plan announced.

Fossil Fuels

Several deductions and other incentives appear in the I.R.C. for businesses to invest in fossil fuels. The primary incentive is a deduction for intangible drilling costs paid or incurred by operators of oil and gas wells. The Code also allows for a deduction for the depletion of minerals and oil and gas extraction.

Supports tax breaks for fossil fuel companies.

End fossil fuel subsidies(e.g., deductions for drilling wells, depletion of oil and gas deposits, domestic manufacturing)


Repealed for tax years beginning after December 3l, 2017, businesses were entitled to a 9% deduction for domestic production activities

Fiscal Year 2021 Budget does not include any planned change to current law.

Enact a manufacturing communities tax credit. Impose a tax penalty on drug manufacturers that increase the costs of their brand, biotech, or abusively priced generic over the general inflation rate.

Create a 10% tax penalty on companies that move operations overseas and a 10% tax credit for companies that create jobs in the U.S. to incentivize manufacturing (see U.S. Business Taxes - Credits and Incentives, above).

Qualified Business Income Deduction

Taxpayers other than C corporations generally are allowed to deduct20%of qualified business income (0BI)from a partnership, S corporation, or sole proprietorship, as well as 20% of qualified REIT dividends and qualified publicly traded partnership income.

Fiscal Year 2021Budget does not include any planned change to current law.

End special qualifying rules, including those for real estate investors. Allow deduction to taxpayers making $400,000 and under.

Renewable Energy

Taxpayers are allowed an investment tax credit for certain investments in renewable energy, such as solar and wind. A tax credit exists for biodiesel and renewable diesel used as a fuel during the tax year.

No specific plan but favors fossil fuel energy benefits.

Restore the full electric-vehicle tax credit; reinstate tax credits for residential energy efficiency; expand tax deductions for energy retrofits, smart metering systems, and other emissions-reducing investments in commercial buildings; reinstate the solar Investment Tax Credit (ITC); tax benefits for carbon capture, use and storage

Real Estate

Taxes on gains of real property are deferred if the property is exchanged for that of "like-kind." Owners of certain residential rental property occupied by low income tenants may claim a tax credit of a percentage of the qualified basis of the property over a 10-year period

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025

Roll "back unproductive and unequal tax breaks for real estate investors with incomes over $400,000."

End qualified business income deduction for real estate investors. Would take aim at like-kind exchanges and prevent investors from using real-estate losses to lower their income tax bills.

Create new refundable, advanceable tax credit of up to $15,000 to assist buying first-home. Credit paid upon purchase, not when filing tax return.

Tax credits to renovate distressed properties in distressed communities, called Neighborhood Home Credit as part of general business credit.

Enact renter's tax credit.

International Business Taxes

Effective minimum rate of 10.5% on "global intangible low-taxed income"(GILTI) of U.S. shareholders of CFCs, with a deduction of 37.5% (and 21.875% for tax year beginning after 2025)for foreign-derived intangible income (FDII) plus 50% (37.5% for tax years beginning after 2025) of the GILTI. Minimum base erosion anti• abuse tax (BEAT) for certain taxpayers of 10% and 12.5% for tax years beg inning after 2025.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Raise minimum GILTI rate to 21%.


A special "mark-to-market" tax regime may apply to U.S. citizens who renounce their citizenship and to certain long-term resident aliens who terminate their resident status.

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

No specific plan announced.


Inversion transactions usually involve the transfer of stock of a corporation by one or more shareholders to a wholly or partly owned subsidiary of that corporation in exchange for newly issued shares of the subsidiary's stock. Under 87874 generally, if the domestic corporation's shareholders own at least 80% of the new foreign parent corporation's stock after the inversion transaction (whether by stock or asset transfer, or any combination of the two), the new foreign parent corporation is treated as a domestic corporation for all federal tax purposes for a period of lO years

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Would tighten anti-inversion rules.


American corporations can defer paying U.S. income tax on profits of their offshore subsidiaries until those profits are "repatriated." A one-time repatriation tax of past profits of U.S. corporations' foreign subsidiaries with a credit for foreign taxes paid on that income

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Would end incentives in the 2017 TCJA that allow multinationals to dramatically lower taxes on income earned overseas and allow the largest, most profitable companies to pay no tax at al I. Establish a "claw-back" provision to force a company to return public investments and tax benefits when they close down jobs here and send them overseas

Transfer Pricing

The IRS is empowered under §482 to re-allocate income and other items among related parties to prevent evasion of tax or to clearly reflect income

No specific plan announced. Supreme Court, in denying certiorari in Altera Corp. v. Commissioner, upheld appellate court opinion holding transfer pricing stock-based compensation regulations valid.

No specific plan announced.

Estate Taxes

Exemption amount $11.58 million (for 2020). Assets passed through at death get a basis step-up to fair market value for the recipient. Increased exemption amount reverts back to $5 million after 2025

Fiscal Year 2021 Budget would extend 2017 TCJA provisions past 2025.

Eliminate stepped-up basis rule that allows people to pass capital gains to heirs without tax after death.

Tax Enforcement and Compliance

Tax compliance runs on a voluntary system requiring taxpayers to file yearly tax returns. A tax gap, the difference between what is estimated to be owed and what the IRS collects, stands at approximately $440 billion per year.

Fiscal Year 2021Federal Budget would ensure that taxpayers comply with their obligations and that tax refunds are only paid to those who are eligible, including: improving oversight of paid tax preparers; giving IRS the authority to correct more errors on tax returns before refunds are issued; requiring a valid Social Security Number for work in order to claim certain tax credits; and increasing wage and information reporting.

No specific plan announced.

Wealth Advisory Service

Wealth Advisory Service

We are announcing a new service that we officially provide: Wealth Advisory.

Over the years, as we’ve grown to take on more tasks with the same loyal clientele, we’ve found that we are aware of their entirefinancial situation – tax needs, investments and evolving financial situation in relation to family members. Also, many of our clients with whom we have worked for many years are now making exits. There are a lot of mergers and acquisitions happening even in this environment. With a client’s needs evolving so quickly, so too have our services.

More recently, by nature of our close engagement with our clients, we have been playing the role of advisors in a less formal way. Today, we attach more structure and process to this service anchored in our unique skill in being able to tie back all financial decisions to taxation on a worldwide basis.

Our Wealth Advisory service will include:

  1. Investment, advisory and management.
  2. Tax planning and compliance.
  3. Accounting and reporting.
  4. Estate and Succession planning, Wills and Trusts.

This is a packaged offering for a client who has needs in all these areas, cutting out the back-and-forth of engagement letters for every task. As you can probably tell, most of these are services we’ve been offering already – some we marketed less than others

Commercials: This can vary, depending on the client portfolio, complexity of the investments, and the periodicity with which they are reviewed. Ideally, we would prefer to have a meeting to understand your financial situation and needs before we customize a proposal.

Get in touch with us, set up a time, and see if this service is applicable to you ea@venturapranas.com.

Services we recommend

Services we recommend

Investment Suggestions and Services we recommend

VOSS Insurance & Investments is a boutique insurance advisory firm that specializes in risk management and insurance backed solutions for individuals and businesses that have cross border financial interests between India and the US.

Many of their clients seek their Employee Benefits services to construct solutions surrounding the improvement of their employee benefits package. VOSS does this by bringing solutions normally available to larger employers to their small and medium business clients. In addition, due to the pandemic, many of their health insurance company affiliates have special discounts.

The other service VOSS is well known for is their Life Insurance service. They understand how to increase the weightage of Life Insurance in relation to a financial portfolio, while taking into account the advantages and pitfalls of currency exchange, creditor protection, and interest rates. Vignesh Shanker has been a genuine well wisher of the firm and we would like others to find out more about what he does. To get in touch with Vignesh, here are his details.

You Ask We Answer: Foreign Exchange Management Act (FEMA)

You Ask We Answer

1.  What are the current repatriation limits in a year for residents & non-residents?

  1.   For Residents - Residents of India can remit up to $250,000 per financial year.
  2.   For Non Resident Indians – LRS applies only to Resident individuals. NRIs cannot have any savings account in India. They can however have NRO, NRE or FCNR accounts. The amount in these accounts are freely repatriable and the maximum amount they can remit in a financial year is $ 1 Million.

2.  When you refer to NRI or Resident Indian – is it the same as would apply from an Income tax standpoint? In other words, if a person files a return as an NRI or Resident Indian does that mean the same thing from FEMA?

The definition of resident under FEMA is not the same as Income tax act.

  1.   While Income Tax Act considers Current Financial Year for determination of residential status, FEMA consider Preceding Financial Year.
  2.   While the Income Tax Act looks at the matter mathematically to decide whether you qualify as a resident or non-resident, FEMA looks at the intent too.
  3.   When it comes to Income Tax Act, you are either a resident or non-resident for the entire financial year whereas under FEMA you can be a part resident and part non-resident in the same financial year.

3.  Who is a FEMA resident?

Under Section 2(v)(i) of the FEMA, '’person resident in India’ means- (i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include –

(A)  A person who has gone out of India or who stays outside India, in either case

  1.   for or on taking up employment outside India, or
  2.   for carrying on outside India a business or vocation outside India, or
  3.   for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;'

(B)  A person who has come to or stays in India, in either case

  1.   For or on taking up employment in India
  2.   For carrying on in India a business or vocation in India
  3.   For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period

* If you need us to evaluate your status, get in touch: ea@venturapranas.com

4.  How does this change when one leaves India permanently?

When a person leaves India permanently for taking up an employment abroad, or for carrying on a business or any other purpose for an indefinite period of time, he/she will be considered non-resident under FEMA from the date they leave the country and not wait till the end of the financial year to evaluate his / her residency under FEMA.

5.  How does this change when one comes into India for employment?

When a person comes into India permanently for taking up an employment, or for carrying on a business or any other purpose for an indefinite period of time, he/she will be considered a resident under FEMA from the date they come into the country and not wait till the end of the financial year to evaluate his / her residency under FEMA.

6.  If one uses up his LRS limit, can he gift monies to relatives and have them use their LRS to send funds out of India?

Yes, as long as the relative is a FEMA resident he can gift money to them in INR to their savings account in India and they in turn can use their LRS limit to send funds out of India. Even a minor child can remit funds under LRS. Effective, 01.10.2020, the government has introduced Tax Collection at Source (TCS) @ 5% on all remittances under LRS beyond Rs 7 lakhs – under such condition it is not very clear how the TCS in the hands of a minor child will be treated – will it be clubbed in the hands of his/her parents or will he/she have to file a return to claim the refund. The law is silent on this aspect- clarification is awaited.

7.  Who are qualified relatives from a FEMA standpoint

The term “relative” under FEMA derives its meaning from the definition provided in the Companies Act, 2013 i.e. spouse, father, mother, son, son’s wife, daughter, daughter’s husband, brother and sister of the individual. The definition of the “relative” is narrower under FEMA than that of the ITA.

8.  What is the difference between a resident transferring funds to an NRI relatives NR account in India VS his foreign account ? Is it the same?

Only a close relative of the individual as defined in Q7 can transfer fund in Indian rupees into the NRO account of an NRI.

All others (who do not fall under the definition of close relative as above) can transfer money only in foreign currency to an NRI.

9.  What are the purposes under which a resident individual can repatriate foreign currency under FEMA?

Following are the various reasons (broadly) for which a resident individual can repatriate fund under LRS:

  1.   Overseas Travel – Business , Personal or medical treatment
  2.   Gift or donation
  3.   Going abroad for employment
  4.   Emigration
  5.   Maintenance of close relatives
  6.   Expenses in connection with medical treatment abroad
  7.   Education
  8.   Investment either for Portfolio, ESOP or business

10.  Under LRS are resident individuals required to repatriate the accrued interest/dividend on deposits/investments abroad, over and above the principal amount?

No, the investor can retain and reinvest the income earned from portfolio investments made under the Scheme.

However, a resident individual who has made overseas direct investment in the equity shares and compulsorily convertible preference shares of a Joint Venture or Wholly Owned Subsidiary outside India, within the LRS limit, then he/she shall have to comply with the terms and conditions as prescribed under [Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2004 as amended from time to time] Notification No. 263/ RB-2013 dated August 5, 2013.

11.  Is it mandatory for resident individuals to have Permanent Account Number (PAN) for sending outward remittances under the Scheme?

Yes It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.

12.  Are there any restrictions on the frequency of the remittance?

There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.

Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.

13.  Whether prior approval is required to open, maintain and hold foreign currency account with a bank outside India for making remittances under the LRS?


14.  Resident individuals (but not permanently resident in India) can remit up to net salary after deduction of taxes. However, if he has exhausted the limit of USD 2,50,000 as net salary remittance and desires to remit any other income under LRS is it permissible as the limit will be over and above $ 2,50,000?

Resident individuals (but not permanently resident in India) who have remitted their entire earnings and salary and wish to further remit ‘other income’ may approach RBI with documents through their AD bank for consideration to remit more than $250,000 in a financial year.

15.  Can a US person inherit Real estate that is in the nature of agricultural land? If yes, are there any reporting obligation to the RBI?

A US person who is an OCI card holder cannot purchase agricultural land in India however there is no restriction on their inheriting it. There is no reporting obligation at the time of inheritance, however they can sell the agricultural land only to a resident in India, who is a citizen of India. In the USA they might have to file form 3520.

16.  Is a CA certificate required for remittance of foreign currency abroad?

Form 15CB, which is a Form certified by a Chartered Accountant is required when payment is made to non-residents, which are taxable and if the payment exceeds INR 500,000. It is always a good practice to check with your banker if a 15CB is required for your repatriation as there are certain transactions for which this certificate is not required.

17.  Is there any Tax Collected at Source (TCS) at the time of remittance of Foreign currency and how will this be adjusted?

Budget 2020 introduced a tax collected at source (TCS) at the rate of 5% on all remittances under the Liberalised Remittance Scheme (LRS) of the RBI above ₹7 lakh. The tax came into effect from 1st October 2020.

The TCS can be set off against the overall tax liability of the tax payer. It is not an additional tax. If you have no tax liability at the end of the financial year, you can claim a refund of this TCS.

TCS does not apply to non-residents as money from NRO/NRE account is freely repatriable and do not fall under the LRS scheme.

18.  Clarification on remittance by sole proprietor under LRS.

In a sole proprietorship business, there is no legal distinction between the individual / owner and as such the owner of the business can remit USD up to the permissible limit under LRS. If a sole proprietorship firm intends to remit the money under LRS by debiting its current account then the eligibility of the proprietor in his individual capacity has to be reckoned. Hence, if an individual in his own capacity remits USD 250,000 in a financial year under LRS, he cannot remit another USD 250,000 in the capacity of owner of the sole proprietorship business as there is no legal distinction.

19.  If a resident of India wants to start a company in the US, can he just take funds out under the LRS and invest it in the company? What compliances are to be kept in mind to do so?

A resident of India can take funds under LRS and invest in a company abroad by following the rules laid under Regulation 20(A) of FEMA Notification 120/2004-RB (dated 07.07.2004), which lays down that a resident individual (single or in association with another resident individual or with an Indian party as defined in the notification) satisfying the criteria as per Schedule V of this Notification may make overseas direct investment (ODI) in the equity shares and compulsorily convertible preference shares of a JV/Wholly Owned Subsidiary (WOS).

20.  Before making investment, it is better to understand the Schedule V conditions. Can an individual setting up an entity through the ODI route abroad have a step-down entity? If not, how can it be done?

It can be done via the ODI route.

21.  21. What is FDI in India mean? What does it take to establish an inbound investment in compliance with FEMA requirements?

Notification No. FEMA 20(R)/2017-RB of November 7, 2017, [FEMA 20(R)] talks about Foreign Direct Investment (FDI) in India by a person resident outside India.

‘Foreign Investment’ is any investment made by a person resident outside India on a repatriable basis i.e. investment in foreign currency, in capital instruments of an Indian company or to the capital of an LLP.

A person resident outside India may make investment as stated hereinafter.

  1.   Subscribe/ purchase/ sale of capital instruments of an Indian company.

  2.   Purchase/ sale of capital instruments of a listed Indian company on a recognised stock exchange in India

  3.   Purchase/ sale of Capital Instruments of a listed Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis.

  4.   Purchase/ sale of Capital Instruments of an Indian company or Units or contribution to capital of a LLP or a firm or a proprietary concern by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on a Non-Repatriation basis.

  5.   Purchase/ sale of securities other than capital instruments by a person resident outside India.

  6.   Investment in a Limited Liability Partnership (LLP).

  7.   Investment in an Investment Vehicle.

  8.   Acquisition through rights issue or bonus issue.

Parallel Universes Story

Parallel Universes Story

Meet your characters: Arjun and Sunitha (no, they aren’t married or related).

Arjun grew up in Texas, he is a US citizen, but he’s had a close relationship to India since he was a child. Childhood summers were spent in Bangalore and Madurai, and of late he has been nurturing the thought of starting his own company in India.

Sunitha grew up in Chennai, spent many years working in IT, and through her company travelled and worked in the US for many years. She sees a clear void in the market for her service (being able to understand what the client wants and translating it to an IT team), and wishes to start a company with a US office address.

For Sunitha, the process seems relatively simple to get the ball rolling in terms of paperwork. Any Indian origin US person can start a company in the US in 24 hours. Choosing which state to set up her company however, proves to be a bit tricky. Sunitha would like to set up her office in either California or Texas, because that’s where she has met most of her potential clients and she feels familiar with those areas in terms of finding talent. However, state-to-state taxes vary in the US, and she wonders if it will be worth the tax price to have an office in CA or TX. One option she can consider is having her company registered in Delaware (because income from intangibles are generally exempt from DE taxes) with a virtual office, but conducting her business out of Texas and California.

Research she did threw up the following information:

If you’re in NY, you have a state tax, Fed tax and City tax.

Some states are tax friendly or tax-free (like Delaware that is tax free for industries without physical investment – like IT). Also, in DE the speed of incorporation is fast, and shareholders are protected. If you’re in the space of intangibles like cloud service, then there is no tax.

Nevada and Wyoming are also low income tax rates (little to no tax exposure). In short, in addition to the Federal Tax that everyone pays, Sunitha has to choose her state carefully because state taxes vary.

However, Arjun has a bit of a daunting task to get started with his company in India. The steps one has to go through in India almost serve as your first trial to see if entrepreneurship is something you can handle. For one, it takes at least 60 days for anyone to set up a company in India.

In other aspects however, Arjun is free to make decisions based on practical and good business practices, rather than having to work around tax laws. For example, he can set up his company base in Bangalore, because it’s an IT hub where he believes he will attract the best talent, and he doesn’t have to worry about the state of Karnataka having a higher tax than other states. For Arjun or any person starting a company in India, there is only one tax they need to concern themselves with and that’s Federal Tax.

Arjun wants the freedom to travel back and forth between India and the US, and he would like an Indian resident director. However, even if he wishes to manage the entire company remotely, that isn’t an option for him by Indian law. He requires a resident director (often that means leaning on a family member or having a minority partner). What Arjun was not aware of, and what he will have to make peace with, is that he has to pay a tax to the ministry of corporate affairs, and quarterly board meetings need a sign-off from the resident director. Arjun will also need to submit lease agreements in India, phone bills, etc – these documents will have to get apostled.

Sunitha, however, if she wished, could have a virtual address in the US and manage operations out of India, and she doesn’t even need to have a US social security number to get started (she will, eventually, have to applied for it though).

On the topic of foreign exchange management, for companies in the US, the US government isn’t particular about where the funding comes from (an easier process since they just want capital to come into the country). However in India if you want a foreign investor, and if he wants to be able to take funds out without any restrictions, then he has to prove that the funds came from a US bank account.

With relation to Indian law, for Sunitha (an Indian person) who is setting up a company in the US, she can’t go ahead without RBI paperwork. To get RBI approval, she needs an ODI. Once she fulfills that condition, then there are no issues. However, if she fails to do this, she could run into issues in the future where if she makes a sale, the Indian government might require all the money to come back to India. The FEMA angle is exceedingly important.

With Income tax the important consideration is tax rates. Currently, corporate tax rates in the US is 21% and in India is 25%. You have some ability to do tax planning.

Any Indian company that is more than 50% held by a US person is considered a foreign controlled company (this would be the case for Arjun). The fact that India is a high tax zone means that income derived from India is taxed higher than the high tax rate in the US. Essentially, you’re not burdened by an additional tax in the US.

A company in the US does not need an annual audit unless you take a loan, so until Sunitha gets external funding, she doesn’t have to go through an audit. But an Indian company is tied down to this – annual audits, quarterly ROC reports, etc – maintenance has a cost. Arjun has a lot to consider as her gets started. Even dissolution for him will be tough, because in India it requires a lot of paperwork. In the US, however, dissolution is a simple process.

Were this a real life scenario with Arjun and Sunitha our clients and both in IT, this would have worked out to be a fruitful partnership. However, our main goal here is to illustrate the advantages and factors one should be aware of in relation to the law and taxation when setting up a company in either country, based on one’s citizenship. Of course, one has to still go ahead with the business goals you have in mind, and we’re always here to help with the paperwork, the accounts, and understanding simple changes one can make to avoid excess tax.

Upcoming Deadlines

Upcoming Deadlines

Upcoming Deadlines (United States)

Filing requirement Tax Year IRS Forms Original due date Extended due date
Final Estimated Quarterly Payment 2020 Form 1040-ES 1/15/2021 N/A
Deadline for Filing 941 Forms for Employers 2020 941 12/31/2020 N/A
Deadline for Filing 940 Forms for Employers 2020 940 1/31/2021 N/A
Deadline for Filing W-2 Forms for Employees 2020 W-2s 1/31/2021 N/A
Deadline for Filing 1099 MISC for Independent Contractors 2020 1099 1/31/2021 N/A
Deadline for Filing 1042-S for Independent Contractors 2020 1042-S 1/31/2021 N/A
Tax Returns Due for S-Corporations and Partnerships 2020 Form 1120S/1065 3/15/2021 9/15/2021
Individual and Corporate Tax Returns Deadline 2020 Form 1040/1120 4/15/2021 10/15/2021
Trust Tax Returns Deadline 2020 Form 1041 4/15/2021 9/30/2021
FinCen 2020 Form 114/FBAR 4/15/2021 10/15/2021
Gift tax return 2020 Form 709 4/15/2021 10/15/2021
November End-of-Year Tax Planning 2020 Business Projection N/A
December 31st Deadline for End-of-Year Tax Plans 2020 Individual Projection N/A
India Individual Tax Returns Deadline 2019-20 ITR V 7/31/2020 12/31/2020
Final Estimated Quarterly Payment - Entity 2020 Form 1120 W 12/15/2020 N/A

Upcoming Deadlines (India)

Filing requirement Tax Year Forms Frequency Original due date Extended due date Remarks
SEZ Report-Monthly 2020-21 CSEZ MSReports Monthly 6th of every month N/A Due date differs as per SEZ
SEZ Report-Annual 2020-21 Form 1 Yearly 30-Jun-20 N/A Due date differs as per SEZ
Professional Tax Return-Monthly 2020-21 Monthly 10th of every month N/A Due date differs as per state
Professional Tax Return- Annual 2020-21 Yearly 30-Apr-20 N/A Due date differs as per state
TDS Tax Payment 2020-21 281 Monthly 7th of Every month N/A
TDS Return Filing 2020-21 24Q/26Q/27Q Quarterly 30th /31st of succeeding Quarter 31-Mar-21
Provident Fund Return 2020-21 ECR Monthly 15th of Every month N/A No Penalty for delayed payment
ESI Fund Return 2020-21 ECR Monthly 15th of Every month N/A
GST 2020-21 GSTR1 Monthly 11th of every month N/A
GST 2020-21 GST3B Monthly 22nd/24th of every month N/A
GST LUT 2021-22 GST 11 Yearly 30-Apr-20 N/A Applicable to Export dealers only
GST Annual 2019-20 GST9/9C Yearly 31-Dec-20 Not Announced
AOC4 2019-20 AOC4 Yearly 30-Sep-20 31-Jan-21
MGT-7 2019-20 MGT-7 Yearly 31-Oct-20 28-Feb-21

Prabha Srinivasan’s upcoming office location in 2021

Prabha Srinivasan, our Director, is currenty in Chennai, reachable via phone and email. She will most likely be back at the Santa Monica offices between February 20, 2021 and April 20, 2021.

To speak with Prabha, get in touch with her scheduling team at ea@venturapranas.com and tell us in brief what you would like to discuss with her. Alternatilvely, email Prabha directly at psrinivasan@venturapranas.com or send her a message via Whatsapp at .