I have paid tax to India (Bank interest , capital gains, dividends) & how do I claim credit for it. Each category is not separated & have paid tax on overall income?

[girigiri]

I live and work in US and due to my accounts being there, I have filed Indian tax return and paid tax on overall income. (Due to the Indian tax system, I can't separate how much of the taxes paid is related to Interest income, how much related to dividends..etc.,)

[Anonymous_]

@pk

[girigiri]

Dear Champ:

I did not see an answer. Not sure if you were trying to embed a hyperlink.

Regards,

Giri

[Anonymous_]

No, just paging another Champ.

[girigiri]

Thank you. Let me know if you have an answer. 

I paid tax to India when I filed the Tax return in April 2023 (Their tax cycle is from April 1st of each year to March 31st of next year - The taxes I paid was for interest, dividend, and capital gain income from April 1st of 2022 through March 31st of 2023).  I have also paid the taxes for the same income to US .  Looks like the system for claiming credit is setup in such a complex way, the tax payer at the end pays double tax!!!!. 

When I tried to claim credit, Turbo tax asks how much of the foreign tax paid is from dividend, how much is from interest, capital gains....etc., . From a tax perspective, after all applied tax credits, adjustments...etc.,  by the Indian tax structure, it is impossible to segregate how much of the total tax paid to India was related to interest income, how much from dividends, capital gains....etc., 

Hence, the question was posted. 

[Opus 17]

@girigiri 

Even though you only paid one tax bill, there must be a way to tell how much tax is associated with which type of income.  (For example, if you prepared your income tax return without the capital gains and compare the differences, you would know how much is allocated to capital gains.)

I don't know if @pk has experience with an actual Indian tax return, but he is the best expert here to answer international tax questions.  However, this is a bulletin board, not a live chat, and we are all volunteers.  So there is no way to guarantee when he will see and respond to your question. 

[girigiri]

Thank you Sir.

Is there anyway I will be able to take credit on the "overall tax" I have paid to India without going through the  demarcation of how much was related to interest income, how much capital gains,  dividends...etc., 

If not, I will have to just pay double tax (Since, it is extremely complex to unwind how much is being taxed for each of the category after applying their standard deductions and other tax elements) 

Looks like the US filing is structured in such a way folks from other countries will turn away from the impossible task of doing the splitting / demarcation of how much tax was assigned to which category (due  to the fact their tax structure is not designed similar to that of US) and just cough up US tax for the income for which they have already paid tax in another country. 

[girigiri]

Since I can't categorize the taxes paid against each of the buckets (Ex: Dividend, interest income...etc., ) can I put the total tax amount paid to India in the column "Other Foreign taxes paid or accrued"  as high lighted - (p) and (t)?

[pk]

@girigiri , having read through the thread what I get is that you have  paid  US$xxx as taxes to India   on income US$YYYY for the  Indian Tax year  04/01/2022 through 03/31/2023 and that  you would like to ameliorate  the effects of double taxation per US/India Tax Treaty.  You are a US person  ( Citizen/ GreenCard/ Resident for Tax purposes ).

1. The first  item I would like to make sure that you have allocated  the  foreign  income  and the taxes paid i.e.  you have annualize the income and the  taxes levied/paid  from the Indian Tax year to   US Calendar year.

2. Really need  more details as to what   the foreign incomes were  i.e.  what was the allocated  incomes by category  -- interest , dividend and of course capital  gain

3. Once we have allocated in comes for the year , you can generally allocate the  taxes  ratiometrically i.e. a straight line  ( even though that may not be actually true  but  that is the best one can do  unless it is actually possible to show that the interest income was taxed at a different rate than the capital gain  for example.

As you can see from the above we need more info to be able to help you .   IRS is not looking for an airtight logic but consistent  logic and best effort to harmonize between different  tax  systems .

I will circle back once I hear from you 

Sorry for the delay in responding

pk

[girigiri]

Dear Mr. pk:

Thank you very much for your insight. 

1. Based on your input, request your help / insight on how to  allocate / annualize income and taxes for the US calendar? To give you a broader insight, I have enclosed below screen shot of an Example showing hypothetical structure and allocation among different buckets. (To avoid any confusion, I have shown the income per Indian tax cycle). If you need, I have also attached the example Excel file
2. Key question is how to allocate / annualize income and taxes for US calendar due to the fact, there is always 3 months gap. (2022 - 23 India return contains only 3 months of 2023 and 9 months of 2022)
3. When you mentioned ratiometrically, did you mean take the example data below of $36 tax paid to India and allocate 39% of $36 tax paid to India ($39 dividend income divided by $100 total income), allocate 31% of $36 and 30% of $36 to each of the 3 buckets of dividend, interest and capital gains?

Let me know your thoughts on the above key questions.

-

will be straightforward if one can just use the column "Other Foreign taxes paid or accrued"  in the form 1116 for total tax amount paid to India without allocation in to different buckets. 

Let me know your thoughts

Again, thanking you,

Regards,

Giri

[girigiri]

Hi pk:

Just wanted to connect to get your thoughts.

Regards,

Giri

[pk]

@girigiri , please can you wait till tomorrow -- I am going through your spread sheet and will come back ( probably tomorrow -- PST )--- my very humble apologies

pk

[girigiri]

Dear pk:

No problem. 

Again, thank you.

Regards,

Giri

[girigiri]

Dear pk:

Just wanted to get your perspective on this.

Regards,

Giri

[pk]

@girigiri , please accept my apologies for delayed response.   I see from the notes on your particular notes  that 

   (a)  first for the US  2022 return you  would have to   cover the earnings  ( dividend and interests  earned  in calendar year 2022-- thus  you have to add the  earnings for the months  Jan  - March 2022  and delete the entries  for the same months  of 2023 ( as  shown on your post/table ).

 (b) You then have to  create / compute average  taxes  for  India's tax year  2022 + 2023 to come up with a defendable figure  per US dollar  of interest / dividend  income -- you then apply to the total of interest & dividend earnings attributable for US ta year 2022.  This is best approximation  you can get.

(c)  Once you have these figures under control, you n ow can allocate  the total taxes paid to India for the  Interest and dividend  incomes  for the tax year 2022.

(d)  Now , for the Capital  gains  --- you have  create a schedule D to enter the stocks/bonds that you sole  during the year 2022 --- you need  the name of the assets  you  sold , when bought, basis ( how much you bought these for  including any commissions, how much you sold the lot for less any expenses  such as commissions etc.   ---   and of course the taxes that you paid  on this  ( you may have to allocate  based on average tax rate ).  

Does this make sense ?   Is there more I can do for you?

Namaste ji

pk