HNI Indians Have Short Window to Make EB5 Investment

300% Indian TCS Tax Increase Delayed until Fall

Changes to Indian tax law had prospective Indian EB-5 investors scrambling to meet a July 1st increase in the Tax Collection at Source (TCS) rate. The Indian Ministry of Finance (MOF) had announced it would raise the TCS on foreign remittance through its Liberalized Remittance Scheme (LRS) to 20% from the existing 5% — a 300% increase — beginning this month. Just days before effectiveness, the MOF delayed implementation for a short window — until October 1, 2023.

Currently, an Indian national can remit abroad for expenses like travel, employment abroad, education, gift or donation and emigration — all prime motivators for Indian EB-5 investors. Once the MOF proposal goes into effect, the 20% TCS will be applicable on all foreign remittance transactions that come under LRS, with few exceptions.

According to the India Times, the TCS proposal had come as a big surprise and is slated to cause hardship on middle class and High-Net-Worth (HNI) Indians. Nangia Andersen India Partner Amit Agrawal noted, “[t}his is especially true since many students aspire for foreign education and the cost of education and living is usually met by parents through LRS, the blanket rate of 20 per cent on all residuary remittances would mean that foreign remittance for education / maintenance is likely to be costlier owing to the 20 percent TCS.”

HNI Indians often participate in the popular US immigrant investor program, EB-5, so that their children can study and ultimately work permanently in America. Under EB-5, Indian investors and their family members can obtain an American green card by investing US$800,000 in a qualifying project. If the Indian family invests in a rural offering, they are eligible for expedited processing under the revised program. EB-5 is often preferable as a permanent immigration solution for Indian nationals wary of decade-long backlogs or uncertain lotteries in other US visa categories.

Civitas CEO Dan Healy noted an uptick in interest by Indian investors in EB-5 offerings in advance of the proposed TCS increase to 20%. “There was a frantic rush in the market among Indian families who wanted to invest in EB-5 before July 1st. Many would not have made it. The temporary delay in implementation of TCS allows Indian investors additional time to prepare their EB-5 filings.”

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