@curious4913 , please accept my apologies for not providing complete answers and for the delay. I will try covering your comments & questions per your reply. For comment
#1 --- yes proration and the reporting regime by the banks in India make it a challenge but luckily US allows US persons abroad on 4/15 to file by 6/15 without any extensions request -- however the payment date still remains the same ( 4/15 ). Generally there is no requirement to submit proof of the incomes ( being reported/recognized ) but it is always a VERY good idea to keep contemporaneous notes as to how you arrived at the figures you claimed on the return -- the foreign income, the taxes etc. both in foreign currency and in US dollars. What you are trying to prove here is that you followed a method using available information to arrive at the reported amounts --- that it was deliberate, best effort and disciplined and that there was no knowing dis-regard of the law.
Thus , for the tax year 2020, by April 2021, you would have had the paperwork from the Indian banks/ brokers covering the investment incomes for the year 2020/2021 and also for the year 2019/2020. The pro-ration is generally on a straight line i.e. all earnings are assumed to be earned at the same rate over the period ( of US interest ) Jan 01/2020 through 3/31/2020 shown on paperwork for year 2019/2020 ( Indian ) and the nine months 04/01/2020 -- 12/31/2020 shown on 2020/2021 reporting. The only thing you have to careful about is the exchange rate used to convert the INR to US$ --- the safest is to use monthly average exchange rates but you may be able to getaway with yearly average published by the US Treasury.
#2 All incomes other that self-employment and/or wages is generally considered passive income. For Tax purposes, interest/dividend etc are Passive and taxed as ordinary. Barter/Exchange/Sales of assets generally fall under capital gains ( but still Passive but segregated/ reported differently ) because of Capital gains treatment eligibility. Rental income is treated like self-employment but is passive or active depending on the owner's involvement in the investment.
You are right in that foreign "earned" income exclusion is available ONLY for active income. Thus her interest/dividend income would be Passive Ordinary income while sale of capital assets would be Passive Capital income;
#3 if her total foreign tax ( paid to India and pro-rated to the 2020 ) is within the safe-harbor amount ( US$300 ) then she can claim the foreign tax credit directly , for the whole amount and not have to use the form 1116 ( where limitations apply ) Note that this is ONLY for foreign taxes on Passive ordinary income such as Interest , Dividend and other passive income ( sale of stocks for short-term holding ).
#4. Suppose her world income is US$20,000 of which only US$5,000 is from foreign sources and she paid $400 in taxes to India. In such a case if she chooses to report the full $500 as foreign taxes paid for credit , she has to use form 1116 which will ( and I am using the simple straight line method -- not reality ). If her total US tax ( including the foreign income is US$800, the her allowable foreign tax credit would ( again I am simplifying things and rounding up/down ) would be approx 5.000/20000 times 800 =US$200. The disallowed amount of US$100, would be carried over ( forward or backward ). If instead she recognized ONLY US$300 as the foreign taxes paid ( even though she paid $500 ), she would have gotten all $300. TurboTax will work this for you and you will have to try different scenarios to see which is best for your particular case ( facts and circumstances ).
#5 I do not understand what you mean here -- can you please expalin
hope this answers your query(ies) --- again apologies for my tardiness
pk
