For Non-Resident Indians (NRIs) with unreported foreign income and assets, compliance with tax regulations in India and abroad is crucial. The Streamlined Filing Compliance Procedures (SFOP) offer a simplified way for NRIs, especially those in the U.S., to rectify past tax non-compliance. This guide covers SFOP, its benefits, and how it aligns with tax regulations in India and the U.S.

What is the Streamlined Filing Compliance Procedure (SFOP)?

SFOP is an amnesty program by the Internal Revenue Service (IRS) in the U.S. It allows taxpayers who were non-willfully non-compliant with their U.S. tax obligations to become compliant without facing severe penalties. Many NRIs residing in the U.S. fail to report foreign income, including Indian bank accounts, investments, and property transactions. SFOP helps them rectify this in a structured manner.

Who Qualifies for SFOP?

• NRIs in the U.S. with undisclosed foreign assets/income.
• Those who did not willfully evade tax.
• Individuals who failed to file FBAR (Foreign Bank Account Report) or Form 8938.
• Taxpayers who were unaware of their U.S. tax obligations on foreign earnings.

Key Benefits of SFOP

• Avoidance of heavy penalties on unreported income.
• Compliance without criminal prosecution.
• Simplified reporting requirements.
• Opportunity to file tax returns for the last three years and FBARs for six years.

SFOP vs. Voluntary Disclosure Program (VDP)

• SFOP is for non-willful defaulters, whereas VDP applies to those who intentionally evaded taxes.
• SFOP has reduced penalties, while VDP may impose higher fines.
• SFOP requires filing for limited years, whereas VDP can demand disclosures for longer periods.

SFOP and Indian Taxation: Do You Still Owe Taxes in India?

NRIs benefiting from SFOP must also comply with Indian tax laws. Key considerations include:

• Double Taxation Avoidance Agreement (DTAA): To prevent double taxation, NRIs can claim tax credits for U.S. taxes paid with the help of DTAA Consultancy.
• FEMA Compliance: Ensure that foreign asset declarations align with Indian Foreign Exchange Management Act (FEMA) regulations.
• TDS on Indian Income: If an NRI has rental income, dividends, or capital gains in India, applicable TDS deductions, including TDS deduction for NRI on sale of property, must be considered.

How to File Under SFOP?

• Determine Eligibility – Assess whether your non-compliance was unintentional.
• Gather Documentation – Collect income statements, FBAR reports, and Indian tax records.
• File Amended Returns – Submit tax returns for the last three years.
• Submit FBAR – Report foreign bank accounts for the last six years.
• Pay Outstanding Taxes – Clear any pending tax liabilities.
• Consult a Tax Expert – Given the complexities of international taxation and NRI taxation, consulting a professional is recommended.

Common Mistakes NRIs Make in Tax Compliance

• Failure to report interest income from Indian NRO accounts.
• Ignoring Form 8938 (for foreign assets above a certain threshold).
• Misinterpretation of DTAA provisions leading to double taxation.
• Non-disclosure of real estate transactions in India.

Conclusion

NRIs must proactively address their tax obligations in both India and the U.S. The Streamlined Filing Compliance Procedures (SFOP) provide an excellent opportunity for U.S.-based NRIs to correct their tax filings without facing severe penalties. Given the complexities of cross-border taxation, seeking expert assistance ensures full compliance while optimizing tax benefits.

For expert guidance on SFOP and NRI tax compliance, feel free to contact Dinesh Aarjav & Associates today!