namitsaksena, assuming that you are a US citizen/ resident/ resident-for-tax-purposes ( i.e. ataxpayer whom is being taxed on world income by the USA ), you report the interest earned ( in India ) just as if it was earned here in the USA. This will raise your taxable income and also raise your US / State taxes. Then you file form 1116 to get credit for the taxes you paid to India, thus lowering the bite. Something to consider the foreign tax credit is not always $ for $ , it is usually less because while 100% is recognized , the allowable amount is based on a ratio foreign income to world income ( modified). Sometimes it is better to take all of it as a deduction , if you itemize -- just like you deduct for State taxes withheld. Where as NewYork will give credit for taxes paid another state, it may not ( I am not sure -- please call the DOR ) give credit for taxes paid to another country. Hope this helps Namit
