How to determine source of funds
for Indian EB-5 investors
EB-5 applicants from India need to consider many unique cultural aspects and local
regulations when proving their source of funds, including the Indian Income Tax Act, Hindu
Succession Act and the Foreign Exchange Management Act.
By Ullas Shah
D
ocumentation of lawful source of funds in India presents
multifaceted challenges that EB-5 applicants need to
carefully assess, including implications from the Income Tax
Act, Foreign Exchange Management Act, Stamp Duty and
Hindu Succession Act.
There are at least six aspects that needs to be weighed
against the legal and practical framework which is highlighted
in the chart. Let’s discuss what nuances one should keep in
mind for each of these aspects.
ENTITY EARNING INCOME
The Indian Income Tax Act considers notional entities for
tax purposes like a Hindu Undivided Family (Commonly
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EB5 INVESTORS M AGAZINE
referred to as an HUF). It is not enough just to be able to
comprehend a notional entity and consider their taxes
and income as a lawful source but also to understand
the legality of it. Continuing with the same example, an
HUF can be created by a male head of the family only by
receiving a gift in the amount of initial corpus from their
elders, barring a few exceptions. Thus, a comprehensive
explanation of lawful source of funds would encompass
a document trail of such initial corpus gift and then would
go on to explain their taxed income which might be used
to fund EB-5 investment for any of the constituent member
of the HUF. There are similar provisions concerning a trust,
co-operative society and so forth.