Reporting NRI Demat and Brokerage Accounts on FBAR

As a U.S. person (citizen, green card holder, or U.S. resident for tax purposes), it is well known to you that under the FBAR (Report of Foreign Bank and Financial Accounts), you need to report your foreign financial accounts if the aggregate maximum value of all your reportable foreign financial accounts exceeds $10,000 at any time during the calendar year. However, many NRIs and other U.S. persons often get confused about whether they need to report a demat account on the FBAR. An Indian demat or securities account maintained with a financial institution physically located outside the United States may be reportable on the FBAR when you are a U.S. person with a financial interest or applicable authority over the account and the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000 at any time during the calendar year.

Considering this, the FBAR also includes securities and brokerage accounts held at foreign financial institutions if you meet the requirements, i.e., you are a U.S. person, and the combined value of all your foreign accounts exceeds $10,000 at any point during the calendar year.

Want to know more about FBAR brokerage account reporting? Read the blog; it provides you with complete information.

Are Indian Demat and Brokerage Accounts Reportable on FBAR?

Yes, Indian demat and brokerage accounts may be reportable under FBAR if they qualify as foreign financial accounts, you are a U.S. person, and the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000 at any time during the calendar year. The FBAR includes brokerage and securities accounts held with foreign financial institutions.

This is an important point to consider, as not every person living in the U.S. with an Indian demat and brokerage account is subject to the FBAR obligation unless the person is a U.S. person for FBAR purposes and the applicable foreign-account reporting threshold is exceeded.

Now, moving ahead, let's find out whether being an NRI automatically means your demat account is reportable under FBAR.

Does Being an NRI Automatically Mean Your Demat Account Is Reportable?

No, being an NRI does not automatically mean you need to report your Indian demat account under FBAR. The FBAR obligation applies to U.S. persons who hold foreign financial accounts and whose aggregate account values exceed $10,000 at any time during the calendar year. For FBAR purposes, a U.S. person includes a U.S. citizen or U.S. resident, as well as certain U.S. entities. For an individual, U.S. tax residency may apply under the applicable U.S. tax rules, including the substantial presence test.

For an individual, U.S. tax residency and NRI status under Indian tax law are separate concepts. Therefore, an individual may be an NRI under Indian law while still being a U.S. person for FBAR purposes.

Further, if you meet the FBAR requirements, even if you are an NRI in India, you must evaluate and, where applicable, report your Indian demat and brokerage accounts as those of a U.S. person.

If you want a complete breakdown of who qualifies as a U.S. person for FBAR purposes, read our guide on FBAR filing requirements for NRIs and resolve your doubts.

Moving further, let's know what part of an Indian demat account or brokerage relationship is reported.

What Part of an Indian Demat or Brokerage Relationship Is Reported?

This is where most people get confused when reporting an Indian demat or brokerage account under FBAR. A general Indian trading setup includes the following things:

• A demat account that electronically holds your Indian shares
• A trading account used for buying or selling orders
• A linked NRE or NRO account used to transfer funds

Most people assume that they need to report these accounts separately under FBAR. Considering this, the reporting depends on how the broker or financial institution maintains the accounts and whether they constitute separate foreign financial accounts.

For instance, some brokers combine trading and demat relationships into a single reportable securities account, while others may maintain separate accounts. So, when reporting an Indian demat and brokerage account, based on your account statements, identify each foreign financial account maintained with the broker or financial institution and report each reportable account separately.

Now, moving forward, let's determine whether you need to report each Indian stock separately on the FBAR.

Do You Report Each Indian Stock Separately on FBAR?

No, you do not need to report each Indian stock separately on the FBAR. This is because the FBAR focuses on the foreign financial account in which the securities are held, rather than requiring each stock held within that account to be reported as a separate account.

For instance, when reporting shares of HDFC Bank, Reliance, and Infosys, you generally report the relevant securities or brokerage account in which those investments are held rather than creating a separate FBAR account entry for each stock.

So, from the above information, it is clear that you do not report each of your Indian stocks separately on FBAR.

Moving ahead, let's learn how to determine the maximum value of an Indian demat or brokerage account.

How Do You Determine the Maximum Value of an Indian Demat or Brokerage Account?

As mentioned earlier, the maximum account value of an Indian demat or brokerage account generally includes the highest value of the cash and non-monetary assets in the account during the calendar year, subject to the applicable FBAR valuation rules. Here is how you can determine it:

• Gather your Indian demat and brokerage account statements from the relevant calendar year, January through December.
• To find the single highest combined value, check your account statements and other available account records rather than looking only at the account value on December 31.
• Determine the maximum value of the currency and nonmonetary assets held in the relevant financial account at any point during the calendar year.
• Once you get the highest account balance, convert it into USD using the applicable Treasury Reporting Rate of Exchange for December 31 of that calendar year.

So this is how you can determine the maximum value of an Indian demat and brokerage account.

This was just an overview; for in-depth information, read our blog post, "How to Calculate the $10,000 FBAR Threshold for Multiple Foreign Accounts."

Now, moving forward, let's determine which exchange rate you should use for a U.S. dollar conversion in an Indian brokerage account.

Which Exchange Rate Should You Use for an Indian Brokerage Account?

You should use the Treasury Reporting Rate of Exchange for the last day of the calendar year being reported for an Indian brokerage account. Considering this, FinCEN states that FBAR filers should determine the maximum account value in the foreign currency and then convert it into U.S. dollars using the Treasury's applicable exchange rate for the last day of the calendar year. If no Treasury rate is available, another verifiable exchange rate may be used.

If you are still confused about how it works and need more information and examples, read our FBAR valuation blog.

Furthermore, let's know how the $10,000 FBAR threshold applies to demat and brokerage accounts.

How Does the $10,000 FBAR Threshold Apply to Demat and Brokerage Accounts?

The $10,000 FBAR threshold is based on the aggregate maximum value of all your reportable foreign financial accounts at any point during the calendar year, not on the year-end balance. Additionally, it is not a $10,000 threshold applied separately to each account.

Confused? Here is how it works:

Here, none of the foreign financial accounts alone cross the $10,000 FBAR threshold; however, when combined, they exceed it.

Therefore, the $10,000 threshold is exceeded and an FBAR is required, assuming the accounts are otherwise reportable and the person is a U.S. person. Each reportable foreign financial account is then reported on the FBAR.

So, this is how the $10,000 FBAR threshold applies to demat and brokerage accounts.

Now, moving ahead, let's consider what if you have multiple Indian demat or brokerage accounts.

What If You Have Multiple Indian Demat or Brokerage Accounts?

If you have multiple Indian demat or brokerage accounts, that is not an issue. It is common among NRIs to hold investments from more than one platform, such as an ICICI Direct account, a Zerodha account, and an HDFC Securities account.

Under FBAR, each reportable foreign financial account generally needs to be reported separately. You do not combine multiple brokerage accounts into one FBAR account entry simply because they are all investment accounts. However, the maximum value of each reportable account is included when determining your aggregate foreign-account value for the $10,000 threshold.

Considering this, the maximum value of each reportable account during the calendar year is included with the maximum values of your other reportable foreign financial accounts to determine whether the aggregate FBAR threshold is exceeded.

So, if you have multiple Indian demat or brokerage accounts, you report each reportable account separately on the FBAR rather than combining them into a single financial account.

Moving further, now let's know what if your Indian demat account gets closed during the year.

What If Your Indian Demat Account Was Closed During the Year?

If your Indian demat account was closed during the year, you still need to report it on an FBAR if the account was reportable and your aggregate foreign financial account values exceeded $10,000 at any time during the calendar year. Considering this, you need to report the closed Indian demat account, along with its maximum account value during the year before its closure, including its account number, financial institution, and address.

The zero balance of your closed Indian demat account does not prevent it from FBAR reporting. This is because FBAR considers the maximum account value during the calendar year, not merely the year-end balance.

For instance, in June, your brokerage account reached $6,000. This was the highest balance of this account during the financial year. Now in September, you sold your holdings and closed the account. Even though the account will not exist by December 31, its maximum value during the year remains relevant for FBAR reporting.

In simple terms, if you closed your Indian demat account during the year, you still need to report it on FBAR when the applicable FBAR filing conditions are met, using its maximum value during that calendar year.

Now, moving forward, let's know how joint Indian demat accounts are reported.

How Are Joint Indian Demat Accounts Reported?

Joint Indian demat accounts may be reportable in the same way as other jointly owned foreign financial accounts when the U.S. person has a financial interest in the account. If two persons jointly own a foreign financial account, each U.S. person with a financial interest generally must report the entire value of the account, rather than only their proportional share.

When completing FinCEN Form 114, the applicable information about the other joint owners is also reported.

So, if you hold a demat account jointly with your spouse, parent, or another family member, you should determine your FBAR obligation based on your U.S. person status, financial interest in the account, and the applicable reporting rules. A U.S. person with a financial interest in a jointly held foreign financial account generally reports the entire account value rather than only the person's proportional share, subject to applicable exceptions.

However, there are certain considerations to keep in mind when reporting joint accounts on FBAR. Want to know what they are? Read our blog on FBAR Reporting for Joint Accounts and Signature Authority and get a complete idea of it.

Moving forward, let's know how NRE or NRO accounts linked to a demat account are reported under FBAR.

What About an NRE or NRO Account Linked to a Demat Account?

An NRE or NRO account linked to a demat account is generally reported separately from that demat account as a different financial account. In simple terms, the brokerage or securities account and the NRE or NRO bank account should not automatically be treated as one FBAR account merely because they are linked.

If the demat or brokerage relationship and the NRE or NRO bank account are separate financial accounts, each account should be separately evaluated under the FBAR rules. If both are reportable foreign financial accounts, each must be separately identified and reported on FinCEN Form 114.

To get a detailed overview of how these accounts are reported, read our blog on NRE, NRO, FCNR, and PPF accounts reporting on FBAR.

Further, many taxpayers often get confused between FBAR and Form 8938, as both report foreign financial assets. To give you an idea, let's look at the difference between an Indian demat account on FBAR and on Form 8938 in the next section.

Indian Demat Account on FBAR vs Form 8938

The table below showcases the difference between FBAR and Form 8938 reporting regimes:

For a detailed comparison of these two regimes, check out our blog post on FBAR vs. Form 8938.

Now, moving ahead, let's know: does FBAR reporting mean you are liable to pay tax on your Indian stocks?

Does FBAR Reporting Mean Your Indian Stock Gains Are Taxable in the U.S.?

It is not necessary. This is because FBAR reporting does not mean your Indian stock gains are taxable in the U.S. FBAR reporting and U.S. tax laws are two different things. FBAR is an important information-reporting requirement that provides the U.S. government with information about financial accounts you hold outside the U.S. It does not itself impose an income tax on the account or its contents.

That said, whether interest, dividends, or capital gains from Indian stocks are taxable in the U.S. is a different question and is governed by different tax rules.

Additionally, FBAR reporting and income-tax reporting are separate obligations. An account can be reportable even when it does not generate taxable income, while income from a foreign investment may be taxable even when the related asset is not reportable under FBAR.

Furthermore, for more information on the tax treatment of your Indian investment income in the U.S., it is advisable to consult a tax expert familiar with India-US tax obligations.

Moving forward, let's know how to report an Indian brokerage account on FBAR.

Step-by-Step: How to Report an Indian Brokerage Account on FBAR?

Here is how you can report an Indian brokerage account on FBAR:

• Step 1: Verify that you are a U.S. person for FBAR purposes and that the combined maximum value of your reportable foreign financial accounts exceeds the $10,000 threshold at any point during the calendar year.
• Step 2: Confirm with your broker whether it maintains the demat and trading relationship as one financial account or as separate financial accounts.
• Step 3: Gather the account details for each reportable foreign financial account, including each account number, the financial institution, the broker name, and the address.
• Step 4: Determine the highest account value of your demat or brokerage account at any point during the calendar year, including the applicable cash and securities or other assets held in the account.
• Step 5: After obtaining the highest account value, use the Treasury Reporting Rate of Exchange for December 31 of the calendar year to convert the amount into U.S. dollars.
• Step 6: Report all your reportable foreign financial accounts, including their maximum account values, on FinCEN Form 114 and submit it online through the BSA e-Filing System. The FBAR is filed separately from your federal income tax return.
• Step 7: Keep the records of your foreign financial accounts for five years from April 15 of the year following the calendar year reported, or from the date the FBAR was filed if it was filed after April 15. The records should contain the account name, account number or designation, financial institution name and address, account type, and maximum account value.

So this is how you can report an Indian brokerage account on FBAR.

Moving ahead, let's better understand this with an example of Indian stock reporting in the FBAR.

What If You Forgot to Report an Indian Brokerage Account?

If you forgot to report an Indian brokerage account on FBAR, do not automatically assume that the Streamlined Filing Compliance Procedures are the correct solution. The appropriate correction procedure depends on why the account was omitted, whether the failure was willful, whether income was omitted from the tax return, and other facts.

For example, taxpayers who have properly reported all taxable income but failed to file required FBARs may be able to use the IRS Delinquent FBAR Submission Procedures if they meet the applicable conditions. Taxpayers with broader offshore compliance issues may need to consider the Streamlined Filing Compliance Procedures or another correction procedure.

Furthermore, for a detailed overview, check out our blog on Missed FBAR Filing to learn about the available options for correcting missed or delinquent FBAR filings and understanding potential penalties.

With this, moving forward, let's know the common FBAR mistakes that U.S. persons should avoid when reporting Indian demat and brokerage accounts.

Common FBAR Mistakes With Indian Demat and Brokerage Accounts

Common FBAR mistakes that U.S. persons should avoid when reporting Indian demat and brokerage accounts include:

• Assuming brokerage and demat accounts are not reported under FBAR as they are investments.
• Reporting every stock as a separate account.
• Using the December 31 investment value to determine the FBAR threshold.
• Not adding the applicable cash and other reportable assets held in the account.
• Forgetting the brokerage account that closed mid-year to report under FBAR.
• Using an unverifiable or incorrect currency exchange rate.
• Overlooking the NRE or NRO accounts linked with a demat or brokerage account.
• Getting confused between FBAR reporting and Form 8938.
• Assuming no tax obligations on capital gains means there is no FBAR obligation for a foreign financial account.
• Combining multiple separate brokerage accounts into a single FBAR account entry merely because they are held with the same broker or platform.
• Assuming that being an NRI automatically means that an Indian account is exempt from FBAR.

These are some common FBAR mistakes to avoid when reporting Indian demat and brokerage accounts.

Final Thoughts

Lastly, like other foreign financial accounts, an Indian demat or securities account may need to be reported on the FBAR if you are a U.S. person and the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000 at any point during the calendar year. When mentioning the brokerage or securities account on FinCEN Form 114, report the applicable financial account as a whole rather than each individual stock held inside it. Additionally, if you closed a foreign account, then you also need to report it on FBAR for that year if the account was reportable and the FBAR filing threshold was met, using its maximum value during the calendar year.

Furthermore, if you are facing issues with FBAR brokerage account reporting, connect with Savetaxs. The tax experts on our team will help you determine your demat, trading, and linked NRE or NRO accounts and file them correctly and accurately on FinCEN Form 114. We can also help you with investment and U.S. tax planning.