Bobus and others,
Please let me know if you can help me.
I R2Ied to India in December 05 after 14 plus years in the US.
I got paid Indian Salary in the months of Jan, Feb and March 2006. I was taxed at source.
I decided to postpone my R2I by a year for various reasons and returned to the US in March 2006. Have been employed in the US for a different company since May 2006. I am still in the US working for the same company.
I am filing my tax returns in the US for 2006 now. Is there a way I can avoid paying taxes for the income I earned in India in 2006 for which I have already paid Indian taxes.
I currently have a green card and will be filing taxes jointly with my wife (who never left her job during the time I was in India).
Any help will be greatly appreciated.
Filing US taxes after a few months in India in 2006
Filing US taxes after a few months in India in 2006
Vair #1:
Foreign earned income exclusion under US tax law is ruled out since you did not spend enough time outside US.
You have two possible options regarding the salary for 3 months of work done in India from Jan to March 2006:
(a) You can claim foreign tax credit from IRS when you file your 2006 US return for taxes paid to Govt of India on the 3 month India source salary.
(b) Another possibility is to claim refund from Govt of India for tax withheld at source by filing an India tax return by citing Article 16 of India-US tax treaty. The Article stipulates that if a person has spent less than 183 days during an Indian financial year in India (you seem to meet this condition), then salary earned during such period for work done in India is exempt from India tax provided two other conditions are met:
(i) The employer shd not be a resident of India - was your employer an Indian firm or a US firm?
(ii) The salary shd not be borne by a permanent establishment in India of the foreign firm if condition (i) above is met.
First, you need to provide info about your employer for work done in India to check if (b) is even an option i.e. whether you meet all conditions of Article 16. If it turns out that (b) is an option, then we need to decide whether (a) or (b) is better for you, and to decide this, I would need additional info, which I will ask for after you respond, and in the event (b) turns out to be an option.
If (b) is not an option, have to just go with (a).
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Also, you have not provided any info on whether you have filed an India tax return for the Indian fiscal year April 2005 to March 2006 and included the Indian salary in that return, or whether you did not file any return. If your Indian income exceeded a certain threshold, then filing an India return is required by Indian law - cant say tax was deducted at source and wash one's hands off of the obligation to file return.
Foreign earned income exclusion under US tax law is ruled out since you did not spend enough time outside US.
You have two possible options regarding the salary for 3 months of work done in India from Jan to March 2006:
(a) You can claim foreign tax credit from IRS when you file your 2006 US return for taxes paid to Govt of India on the 3 month India source salary.
(b) Another possibility is to claim refund from Govt of India for tax withheld at source by filing an India tax return by citing Article 16 of India-US tax treaty. The Article stipulates that if a person has spent less than 183 days during an Indian financial year in India (you seem to meet this condition), then salary earned during such period for work done in India is exempt from India tax provided two other conditions are met:
(i) The employer shd not be a resident of India - was your employer an Indian firm or a US firm?
(ii) The salary shd not be borne by a permanent establishment in India of the foreign firm if condition (i) above is met.
First, you need to provide info about your employer for work done in India to check if (b) is even an option i.e. whether you meet all conditions of Article 16. If it turns out that (b) is an option, then we need to decide whether (a) or (b) is better for you, and to decide this, I would need additional info, which I will ask for after you respond, and in the event (b) turns out to be an option.
If (b) is not an option, have to just go with (a).
---------
Also, you have not provided any info on whether you have filed an India tax return for the Indian fiscal year April 2005 to March 2006 and included the Indian salary in that return, or whether you did not file any return. If your Indian income exceeded a certain threshold, then filing an India return is required by Indian law - cant say tax was deducted at source and wash one's hands off of the obligation to file return.
Filing US taxes after a few months in India in 2006
Bobus,
Thank you for your detailed response. I really appreciate it.
The company I worked for in India is an Indian company eventhough they do business in other countries. So it looks like this rules out option b).
Can you tell me how I should go about pursuing option a) ?
As far as filing a return in India, I took the help of a chartered accountant friend of mine in India. I printed out a "Naya Saral" form from a Govt. of India web site, signed at the appropriate places and sent it to this CA friend along with the copy of form 16 (similar to US W2) that I received from the Indian Company. He was going to take care of the formalities which he said he would do. I haven't checked back with him. I should do this sometime.
Thank you for your detailed response. I really appreciate it.
The company I worked for in India is an Indian company eventhough they do business in other countries. So it looks like this rules out option b).
Can you tell me how I should go about pursuing option a) ?
As far as filing a return in India, I took the help of a chartered accountant friend of mine in India. I printed out a "Naya Saral" form from a Govt. of India web site, signed at the appropriate places and sent it to this CA friend along with the copy of form 16 (similar to US W2) that I received from the Indian Company. He was going to take care of the formalities which he said he would do. I haven't checked back with him. I should do this sometime.
Filing US taxes after a few months in India in 2006
#3 Vair:
Get a copy of the India return from your CA. IRS will allow foreign tax credit on your actual Indian tax liability per your India return which may be different from tax deducted at source. Regarding how to claim foreign tax credit from IRS, check
http://www.irs.gov/taxtopics/tc856.html
Get a copy of the India return from your CA. IRS will allow foreign tax credit on your actual Indian tax liability per your India return which may be different from tax deducted at source. Regarding how to claim foreign tax credit from IRS, check
http://www.irs.gov/taxtopics/tc856.html
Filing US taxes after a few months in India in 2006
Bobus,
Thank you for your help. Let me try to get the return from the CA friend of mine and do as you have advised.
Thanks so much. This has been very helpful.
Thank you for your help. Let me try to get the return from the CA friend of mine and do as you have advised.
Thanks so much. This has been very helpful.