I wish to bequeath an equitable portion of my assets and investments made in Mumbai to my daughter who is residing in the US. Do US citizens have to pay inheritance tax or any other tax on the transfer of the value of the assets and investments to her? If so, what options does my daughter have? Can she invest in instruments such as tax-free securities in the US or put the money in a family trust?
The US levies an inheritance tax or estate tax at the time of inheritance. However, such tax is leviable only if the transferor is a citizen, resident or a green card holder of the US. In a situation where the US citizen inherits property from a person who is not a US citizen, resident or a green card holder and also the property is not located in the US, it will not levy taxes on such inheritance.
Given the above, as a US resident, if your daughter receives a portion of your assets and investments situated in India from you, and you being an Indian resident, the US would not have any right to levy taxes on such inheritance.
However, do note that if your daughter receives any income out of such property located in India, she would have to pay taxes on it in the US. Also, note that such income can be taxed in India too. Further, she could take benefit of the provisions of the India-US Double Taxation Avoidance Agreement (DTAA) to avoid paying tax on the same income twice.
Does TDS (tax deducted at source) of 31.2% apply on rent paid to a non-resident Indian (NRI), irrespective of the NRI’s taxable income in India?
Yes. Rental income falls under the residuary category of “other income" which requires a tax deduction at the rate of 31.2% by the person making the payment to an NRI, irrespective of what tax slab a non-resident falls under in India. However, such non-resident can approach his jurisdictional assessing officer in India to obtain a certificate of nil or lower deduction of taxes, as the case may be, and furnish the same to the entity in India deducting taxes.
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Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at firstname.lastname@example.org