@dhurandhar , Namaste ji .
First a caution -- your ID may be very similar to your gmail address -- perhaps you should consider changing.
My response to your questions in italics.
My father-in-law recently received his green card and entered US. We are awaiting to get the green card (for both father and mother-in-law). The are citizens of India. All of their income is from India and they file and pay their taxes in India
Which do you mean -- have they entered the country with a GreenCard or is it that they are in the USA on a visa ( which one ? ) and are awaiting adjustment of status? Which US tax year are you talking about ? When did they arrive in the USA, when was their change of status approved ?
1) When they file their US tax return - will they be able to get full tax credit for all the taxes paid in India (assuming there is such a provision in the India-US tax treaty)
Please tell more about the type of income they have -- active/ business/sale of assets/ pension ( and if so from whom ) ? Cannot fully answer this without this info.
2) Can the tax paid in India also be used to reduce state tax burden?
While there is a tax treaty between US and India , including the "elimination/mitigation of double taxation" clause, the US states do not usually recognize these treaties. So not the state(s) will tax this "foreign source" income as if it was domestic income
3) They will be spending time in two different US states (California and Georgia). How will this impact their state tax? Would state tax be calculated based on the proportion of time spent in either state? (They are planning to spend approximately 6 months in US and 6 months in India)
For immigrant status ( a federal status ) , the states generally will ignore this. You have to meet each states own residency requirement or you file as a Non-Resident covering in state sourced income.
From what you have described , it is a very messy situation. Generally States would like to see one fixed domicile and be a resident of that state. If all they are trying to do is spend time with families ( in California and Georgia ), GreenCard , i.e. permanent resident may get into trouble. Strong suggestion would be to talk to an immigration attorney ( nothing to do with tax par se ) and perhaps be domiciled in one state but visit other state as well as visit abroad.
Don't know what more I can do for you -- but you are welcome to PM me with any additional queries ( if ).
Namsaste ji
pk
