pk
Level 15
Level 15

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@Nkm171964 , Namaste ji.

 What I get from your post is that you have invested  in an ULIP in India ( and under Indian laws ).  As I understand these have two components -- one is  a life insurance and another is  "investement " in the market -- these work together .  There is a black out period  and thereafter there is also a loan and/or partial withdrawal facility, generally.  I am not familiar with the Bajaj version -- I know about the HDFC  and a few others including some US ones in the market in India.

  A.      While  the value of the  ULIP policy is growing ( and assuming that you do let it run to maturity ), absent any distributions  there is NO constructive receipt/ distribution and you may be able to not have to declare the gains ( i.e. no mark-to-market ).  I say "may be " because  it is possible that IRS may claim that this is a PFIC account requiring you to recognize  un-realized gains /losses i.e. mark-to-market..  This would become a bit complicated because you would have to  recognize gain based on market value of the investment component and your contributions till that point . This would also mean that your basis  in the investment would change  and that when you finally take distribution  there may be no more taxation.  This would put you in a bind because if India taxes based on final value  ( I thought  these are taxed advantaged  investments under section 10 and 30 of the IITC  ??  ) because foreign tax credit does not work very well when  there is large Foreign tax but very low US tax on the same income  ( US-India Tax Treaty -- double taxation clause )

 

B.   Your questions:

 

1- I paid one year premium in April. So, in the coming 2024 tax return next year, what do I need to declare on my return?  US tax would consider this as a personal expense -- so no recognition.  ( absent a mark-to-market recognition -- see discussion  above )   I need to investigate this more 

2- Is premium deductible and what proof do I need in order to claim deduction?    None , even if this is not PFIC.  This is not a tax advantaged  investment / savings account like the 401s.

3- For tax return 2024, what information would I need to collect from the Insurance company for reporting purposes?   No matter whether PFIC or not , you would still need the amounts paid in ( your basis for the growth/investment component) and the total value of the investment at the end of the Calendar year.

4- The policy is also an investment, and the total policy amount has so far increased by 10%. Even though the policy will mature in 10 years, do I need to report this increase of 10% in the account value on my 2024 tax return and pay taxes? I will not receive any money until the policy matures.   See earlier comments.

5- For a question for long term- When policy matures, Indian government may collect taxes from me on any investment profits in Policy amount. Do I have to also pay taxes in US then? I have heard there is a treaty between India & US to avoid double taxation for a situation like this. Any help and clarification would be really appreciated.  See my general comments  above in A.

6- If I don't have to pay any tax on investment profits until policy matures in 10 years, but what information should I still collect NOW in 2024 that I might need to report on my 2024 tax return in US?   If  the contract allows no recognition/distribution till maturity  ( not  generally true for PFICs ), then you will need all the  records to show  pay-ins  for the investment component and the valuation over the years.   As I said I am not more inclined to believe that this will be treated as a  PFIC and therefore  need to  check on this a bit more.

BTW ---  if you have not signed the contract yet ( just getting ready to do so ) , please consider discussing this  with an tax attorney  ( there are many in Florida and NJ ) familiar with Indian Tax code  and  PFICs etc.   Generally  investments in PFIC  is discouraged  because of the mark-to-market requirements.

 

Is there more I can do for you ?

 

Namaste Nalin ji

 

pk