Rajat is an IT professional living in the US for the past 12 years. His spouse, Rachna, works for an IT company too; they have two kids. Both are studying. All of them hold US passports. They are well-settled in the US and have chosen to be there for good. His parents are in India, and Rajat regularly sends funds to them.
Before leaving for the US, he worked for 10 years in India, made some financial investments and bought an apartment. He gets rent from this property. There has also been a significant appreciation in its value. However, he is constantly having to coordinate with his tenants for property maintenance. This constant effort makes him wonder if he really should continue holding on to the asset.
Monitoring investments from overseas
He can closely monitor his investments in the US now and has a proper plan; but for some reason, he has struggled to track his Investments in India. Despite being eager to invest further in India, he feels challenged due to the lack of clarity in managing it well. Also, he has to contend with a complex US tax policy.
Rajat moves any surplus funds straight into investments, keeping a small balance for free access. This leaves him anxious about the future most of the time. He is unable to decide on how much to set aside as an emergency fund. He also wants to plan better and avoid sending remittance every month.
Now, three broad areas appear as factors deserving attention.
Rajat does not have a clear plan for his India investments. Further, he is unable to identify suitable options to invest in. He continues to invest his surplus funds randomly by remitting funds to India in a piecemeal manner. He is not sure about the timelines for the portfolio. He weighs his concerns in terms of liquidity, compliance and risk while deciding on his portfolio; however, he is not sure how to go about dealing with it.
Now, Rajat, needs to decide on the following:
– Is there a need to assign a goal to his India assets?
– What should his asset allocation be, to meet a diverse expense situation, given that his aging parents are in India?
– Should he plan his remittance more regularly? Or, should he consider having a joint bank account arrangement with his parents?
These questions can help identify options for him and draft an investment plan—to generate a risk-adjusted return from a diversified portfolio, with adequate liquidity. This will further ease his stress relating to making routine transfers and suffering from adverse currency movements.
Tax and Reporting Decisions
Rajat finds taxation and reporting most serious due to the adverse impact non-compliance has. Having stayed in the US for a while now, he has become cautious about reporting. India investments are required to be reported in the US, and each category of investment is subject to different tax treatment. A mutual fund in India is treated as a PFIC (Passive Foreign Investment Company) in the US, which has a different tax treatment compared to, say, a PMS, which is treated as a normal equity investment.
Rajat needs to take stock of the following points:
– What if his portfolio is designed in consultation with tax experts from the US and India?
– Will it help, if he had access to a financial planner who can check for suitability of investments from a tax standpoint, in a cross-border situation?
He needs to connect with a CPA in the US, and a CA in India, to ensure his investment options are efficient and meet the reporting requirement. This will also help him reduce excessive erosion of his investment gains in either country.
Rajat needs to constantly work with the tenants, and follow-up for the maintenance of his property. While the rental income is of some benefit, the hassle on property management is extra work. He is unable to decide if it makes more sense to sell the apartment. He is undecided due to the tax implications, since the property has appreciated significantly in value.
His key concerns revolve around property management, opportunity to sell and the tax treatment of gains made.
Should Rajat continue holding the property? However, this decision has another layer of questions to it:
– Is there an emotional value to holding the property?
– Will outsourcing his property maintenance to a vendor suffice?
Identifying answers to these fundamental questions can significantly improve his financial decision making process, in his otherwise complex cross-border situation.