The Indian Central Bank recently introduced an increase of its transfer tax, presenting new regulations that will require an upfront 20% Tax Collected at Source (TCS) for any international investment. Upon Parliament approval, this increase (up from 5%) will impact investors seeking to transfer funds overseas. This increase is scheduled to take effect July 1, 2023 and will result in a substantial increase to the initial sum required for EB-5 investments.
There are options, however, to mitigate the costs incurred through the new tax on outward remittances and preserve your position as an EB-5 investor.
Rising Cost for EB-5 Indian Investors
Indian investors must invest a minimum of $800,000 to a regional center in the United States in order to actively invest in an EB-5 project. Under these new regulations, an investor seeking to wire $800,000 would need to ensure an additional $200,000 is available to cover TCS.
“This new tax on outward remittances may hinder some investors and will certainly add another layer of inconvenience to the process,” explains Nicholas Mastroianni III, President & Chief Marketing Officer of U.S. Immigration Fund. “Because of this, we are advising all Indian investors to file their EB-5 applications prior to July 1, 2023 so transfers can occur before the tax start date.”
Further increased costs for investors to consider are the proposed increase in USCIS filing fees. A January 2023 announcement stated the agency is adjusting immigration and naturalization benefit request fees as part of a comprehensive review at the agency. Under the new fee structure, EB-5 investors will see application fees increase from $3,675 to $11,160, a massive 200+% increase.
“Time is of the essence here,” adds Mastroianni. “There is a guarantee to avoid the incoming tax, as well as the increase in USCIS filing fees, by filing quickly and before the proposed changes take place.”
Initiate EB-5 Transfers before the Indian Budget is Passed
The most guaranteed way to avoid the 20% TCS is by initiating transfers before the announced deadline of July 1, 2023. Investors who are looking to remit money overseas this year for global investments should complete their transactions at the current 5% TCS rate before the new budget comes into effect in July.
If investors are unable to commit to a project before July 1, they can rest assured that the tax they pay can ultimately be reclaimed, though the process to receive recompensation may be prolonged.
Tax Refunds for Indian EB-5 Investors
The 20% tax can eventually be refunded for Indian EB-5 investors, as it is considered a form of advance tax that can be claimed back on the year’s tax returns. The TCS will be returned after the investor files their tax return and tax authorities complete their assessment.
As an investor, it will be important to consider the additional 20% tax on the investment as out of pocket for months.
Utilize LRS to Lessen Transfer Fees
The Liberalized Remittance Scheme allows Indian residents to freely remit up to USD $250,000 per financial year for current or capital account transactions or a combination of both. Any remittance exceeding this limit requires prior permission from the Reserve Bank of India. While Capital Account Transactions using LRS are still subject to transfer tax, the program ensures a seamless transfer of those funds, avoiding RBI approval and processing documents.
Act Fast to Streamline Your EB-5 Investment
The new tax on outward fund transfers from India will have a significant impact on EB-5 investors. Indian EB-5 investors should act fast and initiate transfers before the July 1, 2023 deadline to avoid the increased TCS rate. Further, investors should consider taking advantage of their $250,000 LRS limit before the end of the fiscal year on March 31, 2023.
Have questions about the incoming Indian tax increase, and how it may apply to your investment? Schedule a consultation to meet with an EB-5 expert.