r2i forum

I R2I'ed in August 2009 as an employee of a US company and earned wages from that company till December 2009. I have the following questions about how to file Indian taxes.

1. Are the wages earned during August to December 2009 taxable in India?

2. My tax consultant has computed Indian taxes simply based on the wages reported in W-2 as "Gross Pay". In the W-2, there were plenty of deductions from the "Gross Pay", namely Federal Income Tax, Social Security Tax, Medicare Tax, State Tax, County Tax. Shouldn't these be deducted for Indian taxes?

3. Should Employee contributions to 401 K be taxed in India?

4. During this time, I continued paying mortgage and property tax for my US house which was kept vacant. Can I deduct that mortgage and property tax from my wages for Indian tax calculation?

5. During this time, should I have to pay PF to the Indian government?

6. My company helped me with relocation. Is that amount taxable in India? I agree that it would be taxable in the US.

7. My tax consultant has computed Interest for taxes due on the US wages during the above period under section 234B and 234C. I am wondering why this is required.

Thanks for your help!!

I think people will need more information to give you advice (especially length of US stay - which decides RNOR period - which in turn decides if your US income comes under Indian taxation).

You can read similar questions to Rajesh Dhruva here http://www.r2iclubforums.com/forums/forumdisplay.php/115-Rajesh-s-FEMA-Tax-Forum

Do not take the advice from your tax consultant at face value. He may not have any idea of US taxation - what is 401k or what a W-2 means - The one that came to our office did not know what RNOR period is.

vsblr,

Thanks for the response. I wasn't aware of Rajesh's Forum.

Length of US stay is 15 years. Any help answering my questions will be greatly appreciated.

For such a long stay you should have 2 (definitely) or 3 years (if your past 7 years of visits to India are short) of RNOR status in Indian taxation -please find the RNOR calculator in one of the other threads or for definition and RNOR period calculation refer to:

1. chapter 10 - taxation of expatriates page 60 for definition of RNOR in http://incometaxindia.gov.in/Archive/Taxation_Of_Salaried_Employees.pdf
2. Page 10 of the following handbook for NRIs/overseas indians has a flow chart: http://www.manicat.org/HandBook_NRIs.pdf note that PPY - previous preceding year for (tax year) 2009-2010 is Apr2008-Mar2009. You have to go back 7 years including the PPY to determine if the year is RNOR or ROR. You will be RNOR in 2009-2010 and 2010-2011. To determine the same for 2011-2012, you will have to calculate visits in India in the years before 2009.

From 1.
"...10.3 SCOPE OF TAXATION:
Based on the residential status of payer, his tax liability will be as follows:-
(iii) Resident but not ordinary Resident: All Income accruing or arising or deemed to have accrued or arisen or received in India. Moreover, all income earned outside India will also be included if the same is derived from a business or profession controlled or set up in India...." (read the full chapter to get a better understanding)

Also review some of the articles in (things have moved around, so am not sure where exactly the relevant articles are)
http://www.r2iclubforums.com/forums/content.php/2-Finance-Investments
http://www.r2iclubforums.com/forums/content.php/43-USA
http://www.r2iclubforums.com/forums/content.php/42-India


Based on my understanding of Indian taxation -

1. US income not taxable in the RNOR period and does not have to be declared here.
2. Deductions in context of US taxation should not matter. In any case, none of this income is taxable in RNOR.
3. Again 401k (tax deferred) employee/employer contribution is not counted in RNOR period
4. Again does not enter into the Indian tax equation. Mortgage deduction etc. are very different in India, both in the scale and actual mechanism compared to US. Also the (foreign) double tax avoidance seem different.
5. Yes, all employees contribute a percentage of basic salary to PF (this is matched by the employer)
6. I dont think moving expense is considered Indian income. Also keep in mind that though this gets added to the marginal tax bracket in US tax treatment, you can also deduct moving expenses from your US income (see discussions in http://www.r2iclubforums.com/forums/forumdisplay.php/87-US-Taxes)
7. Since you do not need include your US income in RNOR period, the question of paying interest on tax due does not arise. You should find another tax consultant, one with experience with dealing in cases like yours.

Also consider my input as from any other online forum; please do your due diligence and get expert advice. As mentioned before, Rajesh Dhruva promptly answers such questions in one of the threads in that sub-forum. You can ask him. There may be other such consultants available in your city. There are many esoteric discussions on most of these subjects, you will have to dig deeper to hit pay dirt ;-)

R2ICLUB compadres, please bless my input if it seems correct.

sunsanshre;308359I R2I'ed in August 2009 as an employee of a US company and earned wages from that company till December 2009. I have the following questions about how to file Indian taxes.

1. Are the wages earned during August to December 2009 taxable in India?

vsblr Member has given a very comprehensive and authoratative opinion.
There is one point that I differ with, however. I believe that the income earned for work done in India is taxable in India as you became a resident in August. A RNOR still pays tax on income earned in India even if in FEx. I could be wrong as I have but rudimentary knowledge of taxation. Rajesh Dhruva is probably the best person for advise as suggested by vsblr.

You will be taxed on the income you earned in India for work done in India. As a US tax resident US will also tax you on that.

On your US tax return, you will be able to claim Foreign tax credit. You will not qualify for Foreign earned income exclusion.

On Indian taxes, you will not be able to claim any US tax credit.

Considering that Indian taxes on income are going to be higher than US taxes, in the end your US taxes on this income would be zero due to credits.

The above is my understanding to the best of my knowledge.

Thanks for all the advice. As suggested, I have posted my questions in Rajesh's forum.

Moderator: Please let me know if this is considered double-posting and if I should delete one of them.

#1 OP
01. Assuming your cumulative stay in India from August 2009 to April 1, 2010 is >182 days, you are liable to income tax in India on your wages.

02. Your W-2 for 2009 will reflect wages only up to December 2009.

03. The 401k amount withheld from your pay is not taxable by India. Because, you are not an owner of that money presently. I think the numbers in W-2, box 10 – “wages etc.” reflect an amount that already excludes the employee’s 401k contribution. You need to check that. See IRC (Internal Revenue Code) sections 401(k)(2) and 402(e) (3), www.law.cornell.edu/uscode/26/usc_sec_26_00000402----000-.html).

04. The amount for relocation expenses is not attributable to work performed in India. It should be outside the scope of taxation in India.

05. For US filing, you may look into Dual-Status. Without crunching the numbers it is not possible to determine if that is an advantage.

06. The interest calculation on W-2 wages is indeed puzzling. It is still not July 31 - the cutoff date for filing a return.

07. Not knowing, whether you are an USC or eligible for RNOR, I refrain from going further.