The annual Union Budget announcement in India is a highly anticipated event. This year, several new changes would be implemented on July 1, which may affect EB-5 investments being processed through the country’s banking system. This includes higher tax collection at source (TCS) on outward financial transfers. Under the proposed law there would be an imposition of 20% TCS on outgoing transfers, including EB-5 investments by banks remitting funds overseas. This represents a significant surge over the current TCS rate of 5%. 

The EB-5 program has become a popular choice for investors seeking a clear path to U.S. residency. With no employment or educational prerequisites and no need for employer sponsorship, it offers a unique opportunity to lawfully invest in the US and obtain permanent residency. However, the recent changes in the union budget have raised concerns for investors. The increase in the TCS rate to 20% could significantly impact cash flow, making it more difficult for investors to take advantage of the benefits of the EB-5 program. With the USCIS also proposing significant filing fee hikes, it is crucial for investors to act quickly and submit their applications before the fee hike goes into effect. 

Many H1B Visa professionals are considering EB5 Visa as a path to US Permanent Residence to avoid having to leave the United States in the event of layoffs and hiring freeze. With more than 4,00,000 applicants for 85,000 H1B Visas, the demand for EB5 has also surged from international students studying in the United States. Most applicants on H1B Visa or on Student Visa source part or whole of their funds from parents and relatives residing in India. Increase in the TCS from 5% to 20% directly impacts their cost and ability to file an EB5 Visa application in the short term. 

Indian residents are allowed to remit $250,000 per financial year under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India. Between March and May many Indian residents were able to remit up to $500,000 because of the change in financial year in April. The remittances are expected to continue till July 1 when the new law with increased TCS is expected to come into effect. The funds are usually remitted by parents as a gift or maintenance money under LRS for applicants residing in the United States. 

On filing income tax return, the taxpayer can adjust the amount withheld as TCS against his or her tax liability. In some cases, increase in TCS is not bothersome for investors, as their annual income justifies the set off against their taxes the following year. However, for those who have accumulated wealth over a long time and do not have the means to claim the set aside, the increase is a cause of grave concern. To play it safe, many have decided to invest their funds overseas. EB-5 investors should investigate if the TCS payment is refundable, and they should seek the counsel of a qualified financial or tax professional.

Current Visa processing is available for projects meeting USCIS set-aside criteria, such as those located in high unemployment and rural, Targeted Employment Areas. Tuition discounts may also be available at U.S. Universities for immigrant investors and family members. Compared to other employment based green card categories such as EB2 and EB3, the wait time for a green card under the EB5 Visa Program is substantially lower. With a large investment amount of $800,000 EB5 Visa may not be for the masses, but for those who can afford it, it is helping them greatly with career progression and keeping their family together in the United States. 

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