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?

[pk]

@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

[rm2701]

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

[Opus 17]

@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.    

[pk]

@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

[rm2701]

@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

[pk]

@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

[rm2701]

@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.

[pk]

@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

[rm2701]

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