As global mobility grows, many Indian families continue to build and preserve wealth in India through property, equities, fixed deposits, or family held investments while living overseas. What often goes unnoticed, however, is a critical tax reality: most countries tax residents on their global income, including income and gains arising from Indian assets.
Adding to the complexity, certain Indian investments can trigger severe tax consequences abroad especially in the U.S. if not structured carefully. The good news? With informed planning, NRIs can significantly reduce their global tax burden while remaining fully compliant across jurisdictions.
Below are four high impact cross border tax strategies that can unlock meaningful savings for NRIs with income or assets in India.
A. Gift Income Producing Assets to Parents or Senior Family Members
Many NRIs regularly support parents or senior family members in India. With thoughtful structuring, this support can also become a powerful tax planning tool. Under Indian tax law, gifts to close relatives are fully tax exempt, and any future income from gifted assets is taxed in the hands of the recipient, often at a much lower slab or even zero tax.
Smart Planning in Action
- Gift income producing assets such as fixed deposits, rental property, or equity shares
- Ensure parents file tax returns if their income exceeds the basic exemption limit
- Factor in one time stamp duty costs for property transfers
This approach legally shifts taxable income, preserves family wealth, and reduces the overall tax outflow without compromising control or intent.
B. Plan the Sale of Indian Shares and Real Estate
Capital gains from Indian assets are taxable in India and may also be taxable in your country of residence as part of global income. Smart timing of sales can help reduce overall taxes, especially during life transitions.
Tax Planning Strategy
- Sell assets in a year when your income is temporarily low (relocation year, break, job change)
- If expecting a higher salary/bonus this year, postpone the sale
- For shares, harvest losses before December 31 to offset taxable gains
Strategically aligning transactions with income cycles can lower global taxes without changing your investment goals.
C. Use Foreign Tax Credit (FTC) to Avoid Double Taxation
Income from India whether interest, rent, dividends, or capital gains is often subject to Tax Deducted at Source (TDS). Thankfully, most major jurisdictions such as the U.S., Canada, and the U.K. have Double Taxation Avoidance Agreements (DTAAs) with India, allowing NRIs to claim Foreign Tax Credits (FTC).
However, claiming FTC is not automatic. Robust documentation is essential.
What to Keep Ready
- Form 16A and TDS certificates
- Annual Information Statement (AIS)
- Capital gain computations and supporting workings
Proper record keeping ensures taxes paid in India are credited overseas preventing income from being taxed twice.
D. Avoid U.S. PFIC Tax Traps on Indian Mutual Funds and ULIPs
For U.S. tax residents, citizens, Green Card holders, or those meeting the substantial presence test Indian investments require extra caution. Most Indian mutual funds, ETFs, REITs, and certain insurance products qualify as PFICs (Passive Foreign Investment Companies) under U.S. tax law.
PFIC exposure can result in:
- Taxation at the highest U.S. marginal rate
- Interest penalties on deferred income
- Mandatory and complex reporting under Form 8621
How to Protect Your Returns
- Avoid Indian mutual funds and PFIC classified products
- Prefer direct equity investments, U.S. brokerage platforms, or NRE deposits
- Review ULIPs, AIFs, and PMS structures before investing
A single PFIC misstep can erode years of investment gains. Proactive structuring can eliminate this risk entirely.
Global Compliance + Smart Planning = Real Tax Savings
Cross border taxes are complex, but the right strategy can help NRIs:
- Reduce overall tax paid
- Protect family wealth in India
- Stay compliant in both countries
- Avoid hidden tax traps like PFICs
The goal is not just filing returns it is structuring investments to minimize global tax impact.
Need Personalised Cross Border Tax Planning?
We at Finpracto design customised tax strategies tailored to:
- Indian and global investment portfolios
- Property ownership and rental income
- Family gifting and income distribution
- Retirement, insurance, and long-term wealth planning