@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
