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ashishjwr
Returning Member

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?

I only have salary slips to show deduction of taxes. I wonder if there is better document.
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5 Replies

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.

ashishjwr
Returning Member

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?

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.

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

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?

@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.

pk
Level 15
Level 15

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?

@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

 

 

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