Tax on income earned in USA and stayed more than 183 days in India

Hi Nagaraj

Such income shall not be taxable in India.

Slow such income in the Income tax return and claim DTAA relief.

He has to file return in India showing income under all heads including income from US and also taxes already paid are also to be shown so that income should not be double taxed as per DTAA.

I think you have wrongly mentioned the year as "NOV 2018". Anyways, the answer to the query is that no income can be taxed twice. If your cousin has already paid tax on the income in US so must get a Tax Residency Certificate (TRC) which is generic terms is called as Tax paid certificate.

Once tax on income is paid in US, the same will not be taxed again in India.

However, the condition on the above is that such salary should be received in the US Bank Account of your cousin first and then should be transferred from that bank account to a bank account in India.

Hence, your query is resolved that:

1) He needs to show the same as income earned in US only.

2) The income cannot be double taxed, he can claim the same through a TRC received from US.

Feel free to get in touch for any further clarification.

Dear Nagraj,

You are absolutely correct. He can claim rebate if taxes paid in US whole filing his return of income in India.

He should have tax residency certificate of USA.

Please feel free to call/revert in case you need more clarity.

Hi Nagaraj,

The simple premise here is that no income can be taxed twice. Since your cousin has already paid tax on the income in US, he should get the Tax paid certificate and then use it to file returns in India. He should show the Income earned in $ as part of Income and also show the taxes already deducted in US so that the income is not double taxed as per the DTAA between India and US.

Hope the explanation helps! Feel free to get in touch for any further clarification.

Regards.

Yes,

There is a provision in Income tax Act, which provides that if you are earning Foreign income and Tax has already been deducted there, in that case, you can avail a relief of lower of following:

i) Actual taxes paid in Foreign country, or

ii) Taxes payable in India on such Income treating it as part of normal income earned in India

Thanks,

Sourabh Pahuja

As an Indian Resident during the FY 2017-18, his global income will be taxable in his hands under the Indian Income Tax Act. As there is Double Taxation Relief, under the Double Taxation Avoidance Agreement between India and US, the taxes withheld in US can be set off against his tax liability in India. Thus, if for instance, his Indian Tax liability for the Financial Year comes to, say, Rs 1 Lakh in respect of his income earned in US and if he paid, say, Rs 75,000/- in US as withholding tax, then his net tax liability will be Rs. 25,000/-. Thus the taxes paid in US are given credit for while discharging his Indian Tax liability. If the Indian tax liability is say, Rs 75,000/- only in this example, instead of Rs 1 Lakh, he need not pay any tax. On the other hand, if his Indian tax liability is, say, Rs 50,000/- only, he can still get credit for Rs 50,000/- and need not pay any tax in India but at the same he will not get any refund of tax.

He will get credit for only US Federal Taxes withheld and not for the State Taxes.

Hi Nagaraj,

we understand that your cousin has stayed in India more than 182 days and we assume that he is resident in 9 out of the 10 years preceding the previous year and he is in India for 729 days or less in the 7 years preceding the previous year.(as the same has to be clarified by you).

Article 25 of the Double Taxation Avoidance Agreement between India and USA provides for tax credit being allowed by the country of residence in accordance with the Double Taxation Avoidance Agreement in respect of the tax paid in the country of source. The tax credit that can be taken will be the tax paid on the doubly taxed income but cannot exceed the tax payable on such income in the country of residence.

Queries & Answers

Q1. Does he needs to show income earned in US as income in India?

A: yes , he needs to consider that income received in US also while computing tax under Income Tax Act as he is

resident in India, his global income will get taxed in India.

Q2. If he needs to show then income is double taxed. Is there any way he can claim relief under DTTA or any other

relief.?

A: As discussed above one can take a DTAA relief(Tax credit) under Article 25 of INDIA-USA DTAA, whereas your

cousin can get the credit of Federal tax paid in US as per Rule-128, Income-tax Rules (Foreign Tax Credit)

I Hope we clarified your queries well , if you have any further queries please feel free to contact us.

Thanks & Regards,

CA Chaitanya Krishna

Hi,

First of all, we are in Jan 2018. Nov 2018 is still 10 months away!! Maybe you meant Nov 2017. My answer is based on the assumption that your Cousin moved in Nov 2017.

Since he is a Resident and Ordinarily Resident in India for FY 2017-18, he has to show his Global Income in Indian Income Tax Returns. Also, Since he will be non-resident in USA during the period Nov 2017 to Mar 2018, he cannot claim any exemptions under India-USA DTAA.

However, he can claim Foreign Tax Credit (FTC) for the US Federal Taxes only (Not the State Taxes) in his Indian Income Tax Return.

Answer to Q-1 : Yes he needs to show income earned in US as income in India

Answer to Q-2 : In this case, Income will not be double taxed as India has already entered under DTAA agreement with US and so Section 90 will apply in which there is option to apply Tax Credit method in which Taxes paid in US will be allowed as set off against his total tax liability in India but limited to the tax payable on such foreign income at Indian tax rates.

Hope I have answered above is clear now.

Nagraj,

He needs to file return and the income which he earned in India is fully taxable. Regarding USA income, assuming he has received the income in NRE A/C, it will be exempt.

In any case, he is iable to file the Return as he is Resident

Hi Nagaraja,

Thanks for your queries. Please refer to the below replies:

1. Since he has stayed in India for more than 182 days, as such he qualifies to be resident and ordinarily resident in India. As such, he will be taxable on his global income. Therefore, the income earned in US shall also be shown in the income tax return to be filed in India.

2. This income being sourced in US shall be taxable in US too. However, there is a Double Taxation Avoidance Agreement between India and US with the help of which you shall be able claim relief. Your resident country (India) will give the tax credits for the taxes paid in US. This shall more clear with the help of the following example:

Incomes earned in India: 3,00,000

Income earned in US : 5,00,000

___________

Total taxable income 8,00,000

Taxes on above income 74,675

Less: Taxes paid in US 50,000

__________

Balance tax liability 24,675

Note: All the figures have been taken hypothetically. Numbers will change depending upon the actual figures.

Thanks & Regards,

CA Damini Agarwal

Hi Nagraj,

I am assuming that your cousin has received salary income from USA.

Keeping that in mind, as per Article 16 of the India-USA DTAA, salary income earned in USA, by an Indian resident, will be taxed only in USA. It will be taxable in India only if he is getting paid by a non-USA resident.

Hence, in his return of income, he has declare that amount, but state that it is exempt by way of the provision of DTAA.

Trust this clarifies.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B