USA foreign tax credit and ITR filling on TDS

[PV1985]

Hello - I am filing USA tax as a resident. I also have some income [3000$] in india as a form of TDS [1000$]. When i am showing my india income as a interest 1099-INT in USA tax filing then USA impose tax on it, says 25% i.e 750$. When i claiming Foreign tax credit then i am only getting back around 300$. I read and this $300 is because of dual tax.

In above calculation, i ended up paying india tax $1000+USA tax [750-300=450] = Total 1450$ on 3000$ TDS.

i think something is wrong. Am i eligible to file india ITR to get my 1000$ TDS back although i have shown the same in USA tax filing?

[DaveF1006]

It depends. There are a number of factors that are considered here.  

If you earn interest income in India, the bank or financial institution may deduct TDS before crediting the interest to your account. This ensures that taxes are collected in advance rather than at a later stage.

In your case, TDS was deducted from your interest income in India, which is why you have $1,000 deducted before you receive the remaining amount. You can later claim a refund for any excess TDS if your actual Indian tax liability is lower. My suggestion is for you to claim a refund on your India tax return if the excess amount is greater than the tax liability on the same income. 

This is analogous to making an estimated tax payment. If the payment is excessive, you may claim the excess back as a refund on your tax return if the Indian tax code allows it. 

Since i suggest filing for a refund on the TDS, erase the $1000 amount reported in the Foreign Tax Credit and report actual taxes you ended up paying for in India. If weren't able to claim the full amount of the credit this year, the excess amount may be carried back one year and then carried forward 10 years.

[PV1985]

Thank you Dave for the detailed explanation.

It means if i am able to get $1000 TDS as refund [100% refund] then i do not need to avail foreign tax credit. I only need to show all income in USA?

Is it regal if i can claim foreign tax credit on $1000 in USA and also do file indian income tax to get refund of $1000?- Because i am not sure how much amount i will get back unless i file. India filing will be few month later than USA filing.

[DaveF1006]

No, this is not regal. In fact, if you try to claim the TDs on the US tax return, the tax would need to be reported as a "high tax Kickout" so that your foreign tax paid is not artificially inflated on a US tax return. This process can be highly complicated and can produce errors in determining your foreign tax. I would not suggest doing this because it may cause more trouble than it is worth.

i would suggest filing the Indian tax return to receive the refund. What amount that is not refunded, you can report this on the American tax return.  I realize the filing seasons are probably different so this may mean you will need to file an amended return to claim your foreign tax paid that was not refunded to you.

@PV1985