Foreign Tax Credit (India) - allocating income and taxes

[skal]

I have foreign source income (India) from three sources - Rental, Interest and Dividend.
Tax financial year is from April to March in India. For credit using Form 1116 I have to report taxes paid on each source.

How do I allocate the income and taxes for foreign tax credit purpose
- Do I add up the foreign income from Jan to December and allocate the taxes paid from two different financial years of the foreign country to report on form 1116?
- Foreign tax is on the combined income but Form 1116 asks for taxes on each source - I am assuming I would allocate to each source from the total taxes paid using a fraction each source is out of total taxable foreign income.

- is there an IRS document that goes into these details where the financial year is different?

[pk · Accepted solution]

@skal  Namaste ji

For the US Tax Year 2023  ( assuming that what is talking about ),  you have allocate  the incomes  from Jan 1st through  Dec 31st  of 2023 --- it is easy to do  for rental income,  Interest and dividend.  However, for the taxes imposed / levied / paid ( foreign taxes )  by India is a bit messy.   Generally you have to use the average  income tax  from  the tax year 2022 ( Apr. 01 2022 through  Mar 31st 2023 ) for the months  Jan, Feb and March and then use the average rate of tax  from 2023 ( Apr. 01 2023  through  Mar 31st  2024)  for the months  Apr. through Dec 2023.

As far as I am aware , IRS docs/ rules do not take this issue into account ( it is kind  implied  in talking about  taxpayers/ entities  with  a  tax year different than calendar year and use of accrued  accounting basis ).   The nearest reference is Instructions for form 1116   ( most direct  ) and Pub 519  & Pub 54

Namaste ji

pk

[skal]

Thank you! Really appreciate the clarification.