Why am I getting only a part of my foreign income excluded through foreign income exclusion

[tbudd]

Hi,

I relocated to India back in April 2021, and have been working a full time job here since May 2021. Now on reporting the income earned, say $X through salary until Dec 2021 and moving expenses and choosing the physical presence test, TT comes back saying only $Y (around 71%) is excluded from US taxes. I read here that upto around $108k is deductible under "Foreign Earned Income Exclusion". This is jacking up my US tax liability

Why am I running into this discrepancy?

Should I consider claiming FTC (Foreign tax credit) on my salary income too, besides other foreign income such as interests on bank deposits?

[Vanessa A]

No, you cannot claim both, you can only claim one or the other. 

Yes, the maximum amount is $108,700, however, since you were not in India for the full year, the amount you can exclude is prorated. You would have had to be in India from Jan 1-Dec 31 in order to exclude the entire amount. 

Say you entered India on May 1.  You would have been a resident of India for 245 days.  This means your exclusion is limited $72,963  (245/365 *108,700)

So if you earned $101,000, you would only be able to exclude $72,963. 

[tbudd]

Ok, and is there any limit on the FTC amount that can be claimed?

[Vanessa A]

Yes and no.  The Foreign Tax Credit is not limited based on the number of days you were in another country.  It is limited by tax treaties and how it is calculated.  Meaning, you  may not get a dollar for dollar credit for the taxes you paid.