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av2799
New Member

Need help - Capital gains and dividends/interest from India

I have redeemed some mutual funds in India last year and made some gains from them. Also have received dividends and interest from bank accounts in India. 

 

A couple of questions :

- How do I enter the TDS (tax deducted at source) in India in Turbotax desktop for the capital gains ?

- Similarly for the dividend and interest paid, TDS was deducted in India.

 

In the past 2023/22 similar payments have been made, and I have claimed Foreign tax credit, but want some guidance this year on whether I need to enter some specific information clearly on account of having the tax treaty between US and India.

 

I'm a GC holder, and live in New Jersey, filing jointly with spouse.

 

@pk https://ttlc.intuit.com/community/user/viewprofilepage/user-id/72105 pls help

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2 Replies
pk
Level 15
Level 15

Need help - Capital gains and dividends/interest from India

@av2799 , 

Namaste ji

(a)  First  on TDS.   Because TDS is essentially  an "estimated withholding",  the use the amount  for US  Foreign Tax credit is a bit iffy.  The reason is that  if the final Tax liability ( i.e. when the ITR is finalized and  accepted by IT Department ) is different from the TDS ( often likely ), you may have to file an amended US federal return to recognize the change.  Therefore , if at all possible it is best to wait past the filing of ITR in India.

(b) Dividend and Interest earnings  should generally be recognized  just like  you would for domestic  interest and dividend  earnings --- the difference of course being that you do not have  corresponding 1099s ( INT or DIV).   You would enter these  incomes under  "personal income " tab and select the correct type from the drop down list of incomes.

(c) Any Capital gain reporting is also just as if these assets were domestic.  Note that the gain/loss computation here is under the US laws ( and therefore the gain/loss figure may be different   than that   shown on your Indian ITR ).  Depending on the type of asset  and  the use , this would be either  forms 4797 or 8949, on to Schedule-D and then  gain/loss showing up on form 1040.

(d)  For claiming Foreign Tax Credit,  go to "Deductions & Credits " tab, select  "I will  choose what I work on " and then from the list of credits etc. select  Foreign Tax Credit.  This will walk you through  filling out the form 1116.  The questions are a bit abstruse and often  do not result in  what you want to do.  But  what you are trying to do  (1) is to select  Passive Category ;  (2) Enter the gross income  from the  Foreign Source --- this generally should be the gross amounts  for Interest and  Dividend -- that is do not deduct any TDS or any adjustments / fees etc.  and for Capital Gain/Loss should be  the amount  per  US computation;  (3) Enter the  Final  ( or TDS ) taxes paid to India  on these  incomes.

Form 1116 , while recognizing the full amount of taxes paid, will compute the allowable credit for the year to be  lesser of actual paid  and  US taxes on the same doubly taxed income.  The rest ( if any ) is banked , available to carried back one year or forward for 10 years.

 The above is based on article 25 of the US-India Tax treaty.  There are articles dealing with  maximum taxation rates on Dividend and Interest  ( these are achieved  by adjusting the  foreign source income ) but I am ignoring these adjustments because   US   generally does not have a fixed  tax rate  ( for all filers ) for dividend  and/or interest income.  But it may become  germane for  very high earners where the marginal rate  is  say 20% or more .  

I don't know if I have answered  your query.   Please add your response to the PM that you had sent .

 

Namaste ji

 

pk

av2799
New Member

Need help - Capital gains and dividends/interest from India

Thanks @pk - I was able to enter the foreign capital gains and tax credits. However, am not able to enter the interest and dividends anywhere on TT desktop - when I go to the personal income tab, it only shows whether I received something and "sold" it - a dividend or interest received does not fall under that category. Please advise. TTax seems to have changed this interface in 2025, it was easily entered in 2024 and previous versions.

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