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NRIs to pay more tax in U.S.
By siliconindia
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Monday, 03 January 2011, 20:32 IST
Bangalore: 2011 has brought the re-introduction of the estate duty, also known as "Death Tax" for the Indians living in America. A massive rate of 35 percent will be charged on the estate before any distribution among the successors and will be imposed on the passing away of a tax payer whether he is a citizen or not.
Nishith Desai, international tax planning expert, explains, "The estate duty is applicable to all such persons who own assets in the US. The threshold for exemption, however, varies with the residential status of the person." But the exemption amount of a green card holder is low when compared to U.S. citizen. The exclusion amount has been set at $5 million for 2011 and 2012 for US citizens. In order to avoid incurring losses the gross estate value in excess of this amount is taxed if any individual dies over the next two years.
Also, if he/she is utilizing the annual Reserve Bank of India-limit of $200,000 for investing abroad, any asset created in the U.S. in excess of $60,000 will attract the estate duty, according to a paper released by Nishith Desai & Associates. "US law makes provision for it in the form of 'exit tax'. So, if an individual gives up his/her citizenship status, it is assumed that you have sold all your assets at FMV and are taxed at the rate of capital gains on such assets," says Suresh Surana, founder, RSM Astute Consulting Group.
Once the Fair Market Value of all 'global' movable and immovable assets, including cash and securities, real estate, insurance, art collections and cars is considered, the computation of the gross estate of the deceased is computed.
Marital Deductions can be advantageous as the American law only permits the inheritor to claim deductions to the extent of liabilities. Even when the spouse dies, the property that is passed on to the other spouse will not be treated as inheritance.
Gifts worth up to $1 million in a lifetime or $13,000 per year made by an individual are exempted from gift tax. When that amount is crossed, subjected to circumstances, it will be considered a 'gift in contemplation of death'.
Another way out is to set up a private trust, whose recipients are your heirs. But the setting up process is complicated, expensive and time-consuming. Anil Harish, partner, D M Harish and Co Advocates said, "Setting up trusts is complicated, as there may be numerous taxes involved, differing on the nature of the trust being set-up. One must study the liabilities pertaining to income tax, gift tax, wealth tax, stamp duty, etc."