I need to file tax return in India and showcase that I have paid taxes in USA to avoid double taxation. Which documents are good evidence for tax payments in USA?

If you are a US resident you must file a US tax return. Resident (for tax purposes) means that you are a citizen, a green card holder, or a resident alien who passes the substantial presence test. 

If you are a non-resident, you must file a US tax return for your US-sourced income.  Non-resident means you are an alien who does not pass the substantial presence test, which usually means that you were in the United States you lived in the United States less than 183 days counting all of the days this year and 1/3 of the days last year.  US sourced income generally means income that was paid to you while you were living and working in the US, and generally does not include income paid to you while you were living overseas, even if the company is based in the US.  TurboTax cannot prepare a tax return for a non-resident alien, this is form 1040-NR and TurboTax does not include it. You will have to find another software provider.

 

If you are subject to US taxation and file a tax return, that would be the proof that you show to your home country, the completed and signed tax return.

Financial year in India is April to March. I started earning in USA in Feb. Now I will file taxes in USA next year but I have to file taxes in India now (and declare US income). So I don’t have US tax return. Also tax return would not be able to show taxes specifically paid in Feb and March.

@pk  is quite knowledgeable about international tax situations and may have a suggestion for this situation when she is next in the forum.   (Thanks, pk!)

@ashishjwr 

Given the timing of things, I suspect that you have not actually paid any US tax yet and have nothing to report in India.  Your US tax is only calculated on your tax return,  and any withholding you have paid so far is only an estimate that might be wildly inaccurate.  For example, withholding will only be approximately correct if you work the same job at the same average monthly salary for the entire year. If you were to quit midway through the year, you might owe much less than was withheld, or if your marital status changes, you might owe much less or much more than was withheld.

 

I suspect the correct answer is that for your India tax year ending March 2021, you have paid no US income tax. For the India tax year ending March 2022, you would report the results of your US 2021 income tax return that you will prepare next winter.  However, I agree that @pk  is the best international tax expert here.

@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

 

 

Hi @ashishjwr, what did you do for your situation?

I'm in the same boat this year. I came to the USA in February. My CA says paystubs are not accepted as proof. What documents did you submit while filing your tax in India?

@Anonymous , is there something I can do for you ?

 

I will circle back once I hear from you .

 

pk

---

@Anonymous wrote:

Hi @ashishjwr, what did you do for your situation?

I'm in the same boat this year. I came to the USA in February. My CA says paystubs are not accepted as proof. What documents did you submit while filing your tax in India?

---

Pay stubs show withholding.  For social security and Medicare tax, that is the actual tax you paid, but for state and federal income tax, withholding is only an estimate of the taxes you might owe, and your 2024 tax bill is not final until you file your return in the spring of 2025.  (At which point you might owe more tax or get a refund, depending on whether your withholding was less or more than your actual tax.)

@Anonymous , noting the answer by my colleague @Opus 17 , I am just wondering :

(a) if you are a resident of USA, then why are you filing a return for  India  ( unless you have  had  income in India for the current Indian tax year  -- April 1 2023  through Mar 31st 2024 ?

(b)  A citizen of India  and residing  in the USA with income from US sources ONLY may or may not have to file a return in India.

 

Please tell more about your income sources,  visa under which you are in the USA,  the date you entered the USA and if  this was your first entry within the last three years.  And  if you "must" file an Indian return then  the reason for  using  Indian version of double taxation clause  ( US-India Tax Treaty )?

 

I will circle back once I hear from you 

@Opus 17 Thanks, that makes sense. So for now, I need to declare my income in the US while filing taxes in India and claim returns for these 2 months in the spring of 2025 when I file my taxes in the US correct?

@pk Yes, I had income in India from April 2023 to Jan 2024.

I entered the USA in Feb 2024 & yes, this was my first entry. I'm salaried currently

@Anonymous , please tell me more about your situation --- Iam not sure I am understanding the full issue here --

(a) what visa ?,, Citizenship  of which country ?, when did you enter this country?

(b) is your income from US sources ONLY, or a mix of both India and  US ?  Did you pay any taxes  in India  on the income that is also being taxed by US ?

 

Please ant details  you provide will help in getting you an answer that is  focused to your situation -- yes ?

 

If you are uncomfortable in putting more herein, you can always PM me  ( just no Personally Identifiable Information).

 

Namaste ji

 

pk

@Anonymous , ok  and based on your this post, 

 

(a) you file  your Indian return including/ recognizing all  world income  from April 1st 2023 through Jan  31st  , 2024 -- it is a short year for your income.  ( I am assuming that you came  here on L visa or H1 visa and your last work/paycheck in India was Jan31st of 2024 )

(b)  For US you file  ( around  April 2025 ) recognizing world income from  Feb XX, 2024 through  Dec. 31st, 2024.

(c) there may be  other smaller issues  in my summary above ---  see my suggestion for PM  ( where you can tell me details that may or may not be of interest to general public ).

(d) also  your marital status may be important including any children ( and of which nationality )

 

Namaste ji

 

 

pk

 

Hi @pk  same for me, Oct 2023 travelled to USA through h1. from Apr 2023 to Oct 2023 i received salary in INR and tds also detected from my employer. from nov 2023 to Mar 2024 i got paid by usd the same employer. But in my form 16 employer mentioned gross salary for all 12 months and detected based on that salary. how to file ITR in india. actually i should get returns but there is no refund as per form 16

@selvi , please can you tell more about the dates  -- which date   you entered with H1-B;  was this your first entry for any reason  in the last two years  i.e. 2021, 2022 and 2023 ;  Are you still here in the USA ?

 

I suspect what your employer did  is  to  take advantage of a loop hole here   ( till you passed the SPT,  they paid you in INR and thereby  put you at risk of not having paid the FICA taxes and withholding of  Federal and State  taxes ) --- you worked in the USA with a work visa  and so this income should be  US sourced and taxed as such .  I hope I am wrong in this.

 

Once you passed SPT, then  world income would be taxed and therefore  pay in US dollars.     Also if you are resident of US ( passed the SPT )  you cannot be paying taxes to India  -- per  US-India Tax Treaty.

 

Again , I may be jumping to conclusions without sufficient facts.

 

Please answer my questions  and I  will come back and help.

 

Namaste ji 

 

pk

Thanks guys, @pk @Opus 17 @mesquitebean . Need some help, i have been reading the comments:

 

I am Indian working with an Indian MNC from 2021 onwards and got transferred to US entity on L-1 visa on Jan 1, 2024. I have to submit my Income Tax returns in India for April 2023- March 2024.

 

For submitting my tax in India for 3 months of US Income:

• From my earnings in USA , can I remove the one-time benefit, my employer gave to purchase furniture and car (~USD 10,000) as a relocation amount. This amount was considered as an Income by my employer in US and already taxed me here in US.
• To claim relief in India, my advisor was telling me the only relief which will be given to me is the Federal Taxes i paid for 3 months. However, that is a very small part of overall taxes in US ,and there is in addition Social Security tax, Medicare Tax, and the biggest one is State Income Tax.

If the relief considered only to the tune of Federal tax, then I will have to literally pay a lot of “double taxes” 😊

Thanks a lot for your kind help :). Regards, Rahul

@rm2701 

It's not double-taxation, the problem is the different tax years.  Under US law, any withholding is only an estimate of the tax you might owe, and your tax is only officially computed on your tax return that covers 1/1/24-12/31/24 and will be filed around March or April 2025.  So you may have had withholding on the relocation bonus, but that is not really your official tax.  If you can only claim credit on your India return for 1/1-3/1/24, you would claim the rest of the credit next year.  But how to document your US tax owed for the Indian tax year?

 

@pk will have to help you resolve the problem of the differing tax years.  It's not something I understand or can deal with.    

@rm2701 ,  Namaste Rahul ji. 

Generally agreeing with my colleague @Opus 17 , I am not sure  that I understand your issues fully here.    

(a)   Since you left India and would have been a resident of US for the year 2024,  India will tax you ONLY on Indian source income.  Thus for the Indian tax year 2023/2024, you are  reporting/ recognizing  ONLY world income  April 1st 2023 through  the day you left India  ( i.e. probably 12/31/2023).

(b) Note that you became a resident of US from 01/01/2024 -- the day you were admitted to the US on L-1 visa.  Thus for US purposes, ( unless you chose to be a dual status ), you would have been taxed  on US sourced income for the whole year.

(c) For India purposes you are not reporting  US sourced income for the calendar year 2024 at all.

(d) Do not understand why you are filing the Indian ITR so late -- Nov 15th was the last date  without penalties.

(d)  You need to decide which country you are going to use for foreign tax credit --- generally  if there was  double taxed income and under the tax treaty between US and India, one would choose  the US to give credit for taxes paid to India  on ONLY the doubly taxed income.

(e)  The FICA taxes ( Social Security and Medicare ),  is not addressed in  the tax treaty.  Also the US states are not signatory  to the federal  tax treaty with India.  Thus , and absent a totalization agreement , you are not immune to FICA taxes.  And  yes, that means that foreign tax credit is ONLY for the federal income tax.

 

Does this make sense  and/or is there more I can do for you

 

pk

@pk and @Opus 17 

 

Thanks for taking time out to understand and address my queries. Really Appreciate.

 

I got delayed in filing taxes in India for period 1 April 2023 to 31 March 2024 and am doing now, largely due to lack of clarity on taxation policy for someone in my situation.

 

You have understood my situation correctly- I was present and working in India for the period 1 April 2023- 31 December 2023 and have been living in USA from 1 January 2024.

 

For taxes to be paid in India, for the period 1 April 2023 to 31 March 2024 (already delayed),

• As per law, Would India tax me on my global income for 1 April 2023 to 31 March 2024? OR only for the time I was on Indian shores “1 April 2023- 31 December 2023”
• As a corollary to above, Do I need to show US Income, I received for period 1 January 2024 to 31 March 2024, or can be avoided given I am a US tax entity for Calendar Year 2024
• If answer to above question is Yes,
  1. Would the relocation benefits given by my employer and also taxed in USA, be a part of “global income” which I declare in India?
  2. Subsequently, would you suggest, that I choose US to give credit for taxes paid to India on ONLY the doubly taxed income when I file returns in March/ April 2025 for CY24?

thanks and Best regards, Rahul

@rm2701 ,  thank you for your response.

 

While you have  two options  to handle the  US sourced income (  at least till you passed the SPT  ( Substantial Presence Test ) , some time in June/July of 2024 ) i.e. 

            (a) include  all  US sourced income till SPT in your  ITR for India  ( i.e.  Jan-March in 2023/2024 and  April-June in 2024/2025) and then use the foreign tax credit for US purposes to reduce the double taxation bite  )

           (b)  Do not include any of US sourced income on the India ITR for  2023/2024 tax year.  Just pay US taxes.

 

Personally I stand behind the  (b) path.  My logic for this is :

1.   Your start of US resident for Tax purposes  in case of SPT,  is the first full day present in the USA

" If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year."

See this page -->  Residency starting and ending dates | Internal Revenue Service

2.   US-India Tax treaty  Article  4   ( Residency)  --para 1 and 2  &  Article 16  ( Dependent Personal Service) .  Here it is generally stated that  once you are domiciled  or  considered resident  ( i.e. taxed on  US sourced income by US ), then that income is taxed by the state of residence.

 

In conclusion and based on above, I suggest that you file your  Indian ITR covering all earnings ( worldwide income ) for  23/24 from April 1st. 2023 till the  day you became a US tax resident  i.e. Jan 1st 2024).  Thus  you will have no double taxation to deal with.  Nolte  that by taking this  position , you would be taxed on world income by the USA -- residency starting date  of first full day in the USA.

 

A point also to consider  is that  this will also allow you to use the  full standard deduction  ( it is available ONLY for the full calendar year residency , else you have to use itemized deduction ).

 

On your lump sum  amount  , because it has been included on your W-2 for the year 2024 ( if that is what your employer does ) ,  you will be taxed  on this for  US federal, State and possibly for FICA) --- I am not sure that this handling is correct  ( on your employer's part though.  But that is a different matter and based on their accounting practices.

 

Does this cover your situation ?   Is there more I can do for you ?

 

Namaste  Rahul ji

 

pk

@pk  ji

 

Thanks for your reply. This clears up a lot.

 

I was speaking to a CA friend, who was telling me that given I have spent >183 days in India in between April 1 2023 to March 31, 2024, I should be following the path (a) mentioned by you. However, your detailed explanation clears up the doubt. 

 

thanks for writing and clearing doubt for me and many other people who chance on this thread.

@rm2701 , glad  to be able to help you.

On your friend's  comment , the 183 days  is ONLY applicable  for a  "  Resident  , Not Ordinarily Domiciled"  i.e. persons meeting the 183 days living in India  whom are  of foreign origin and not for Indian citizens.  It  cannot be applied in your case because  you are an Indian national.  

 

Is there more I can do for you ?

 

Namaste  Rahul ji

 

pk

thanks a lot @pk  for taking time to address my query, regards, Rahul