pk
Level 15
Level 15

Deductions & credits

@ashishjwr , having read through and generally agreeing with the comments by @mesquitebean  and @Opus 17 , I would like to add the following assumptions:

1.  You are a citizen of India; residing in the USA since Feb (1st? ) of 2020; 

2. You have not been present ( days present for any reason ) in the USA during 2019, 2018; --- "returning member" implying you have filed US return before ? 

3. You were not married to a US resident ( Green Card, or resident for tax purposes ) or citizen prior to your entry to the USA with H-1B/work visa on Feb (1st ? ) and with whom you intend to file a joint return for 2020;

4. you are employed by a US  entity

 

Please can you confirm and/or  correct  these assumptions ?

 Under article  16 of US/India tax treaty- --- bolded words are my interpretation, underlined ones are operative ones:

 

"  2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a
Contracting State  (INDIA ) in respect of an employment exercised in the other Contracting State (USA) shall be taxable
only in the first-mentioned State  (INDIA) if:
(a) the recipient is present in the other State  (USA) for a period or periods not exceeding in the
aggregate 183 days in the relevant taxable year;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the
other State; and
(c) the remuneration is not borne by a permanent establishment or a fixed base or a
trade or business which the employer has in the other State  "

 

This would allow  India to tax any earnings from the USA during the 2019/2020  Indian tax year-- thus while India recognizes  that the  source of income from  1st Feb through Mar 31st are foreign source, it still asserts the right to tax this solely. In practice , all US tax treaties  while protecting  the tax payer from  double taxation,  still will not circumvent its own tax laws.   Thus India will tax the "foreign" sourced income  that falls within  its tax year definition  ( US income during Feb and March ).  

 

Then under article  25

"ARTICLE 25
Relief from Double Taxation ...........

2. (a) Where a resident of India derives income which, in accordance with the provisions
of this Convention, may be taxed in the United States, India shall allow as a deduction from the
tax on the income of that resident an amount equal to the income tax paid in the United States,
whether directly or by deduction. Such deduction shall not, however, exceed that part of the
income tax (as computed before the deduction is given) which is attributable to the income
which may be taxed in the United States.

 

Note  that  this article, in operation,  is identical to the USA modus for allowing  foreign tax credit or deduction.  The difference ( if any ) may be in the limiting of  the tax credit --- equivalent to  the tax that it would have attracted in India --  and  allowance of carry back / forward as allowed in the US .

 

 The definition of resident  ( for the applicability of  the tax ) is in article 4 and generally  is consistent with  the use of the term  in the USA.

 

This leaves us only with  how to prove  that you have paid taxes to the USA on the income during the  period in question ( your original  question ).  My contention here  is that you do not need to provide any documentation --- you declare your income  and the  taxes  prorated / allocated  on that amount taxable by India.   Note that this cannot be done till you have prepared your return for the USA and based on effective tax rate -- this allows  for  your deduction/ exemptions/ credits etc. that may be applicable to you.   Keep a good record of how you created this effective tax  and allocation thereof to the income that is being taxed  by both countries.   US will not generally allow  you to resource the  double taxed  income to India  and thereby get the  foreign tax credit against Indian tax.

 

Is there more I can do for you 

 

stay safe  -- Namaste

 

pk