New thread to specifically address double taxation questions of US Citizens returned to India and living in India.
R2Iers who have Green card or US Citizenship must file as Residents as per US tax laws. They are subjected to Global taxation as per US Tax laws.
Since they are residents of India, they are subjected to Global taxation from Indian tax perspective too.
RNOR and NRI status exempt persons from including foreign income in Indian tax computation. Once the person become ROR, all income are taxable by India.
Further, there is no concept of Married Filing Jointly in India. Hence a family must show their income separately for Indian taxes - very different from US Tax computation.
Let us address all these issues in this thread.
MT: Tax for US Citizen living in India
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manukarnika
- Posts: 84
- Joined: Thu Mar 01, 2007 1:24 am
MT: Tax for US Citizen living in India
Is it true that during the 2 year RNOR period, foreign citizens need not file taxes in India?
MT: Tax for US Citizen living in India
manukarnika;17072Is it true that during the 2 year RNOR period, foreign citizens need not file taxes in India?[/quote]
No. It is incorrect.
Only foreign income is exempted in RNOR period. All income arising out of India - earning, interest, dividend and gains should be reported for Indian taxation.
This is true even if one is NRI. This is the reason NRO is not exempted from taxes and TDS is deducted.
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manukarnika
- Posts: 84
- Joined: Thu Mar 01, 2007 1:24 am
MT: Tax for US Citizen living in India
Thanks RRK. So, during RNOR should one file tax returns in both countries? or should we file in both forever?
What is the definition of foreign income? If working for a US company but living in India, being paid in the US in dollars, should one pay tax in India or in the US or both? How does that work during and after RNOR?
What is the definition of foreign income? If working for a US company but living in India, being paid in the US in dollars, should one pay tax in India or in the US or both? How does that work during and after RNOR?
MT: Tax for US Citizen living in India
This post is reg. the different tax years followed in the US and India, and the inconvenience it causes a USC operating a sole-prop. business in India.
Indian financial year runs from April 1st thru' March 31st of the following year while the US follows the calendar year (Jan thru Dec)
Let's assume you start a business on April 1st 2006. You are supposed to calculate the income as of Dec 31st 2006 and pay the US taxes before the deadline in April 2007. You'd continue the operation until Mar 31st 2007 and then file returns and pay taxes in India before the deadline in Jun(?).
You are now due for a credit refund from uncle Sam thanks to DTAA, because you have paid some tax in the US even before you filed the returns in India.
Is there a way to make all this simple? One person suggested that I just declare the taxes in the US after I first declare and pay it in India.
Which means
1) Business operates from Apr. 2006 to Mar 2007.
2) Defer calculating and paying taxes in the US for the months Apr thru Dec.
3) Pay taxes in India in Jun 2007
4) Using that as the basis, declare the taxes in the US for the US tax year 2007.
I'm unaware of the implications of doing this. Would the IRS accept this w/ or w/o some monetary fines? Paying the tax is not an issue. Maintaining the books as well as finding a CA in India who would understand the US taxation systems is definitely not easy.
Any comments, suggestion will be much appreciated.
Indian financial year runs from April 1st thru' March 31st of the following year while the US follows the calendar year (Jan thru Dec)
Let's assume you start a business on April 1st 2006. You are supposed to calculate the income as of Dec 31st 2006 and pay the US taxes before the deadline in April 2007. You'd continue the operation until Mar 31st 2007 and then file returns and pay taxes in India before the deadline in Jun(?).
You are now due for a credit refund from uncle Sam thanks to DTAA, because you have paid some tax in the US even before you filed the returns in India.
Is there a way to make all this simple? One person suggested that I just declare the taxes in the US after I first declare and pay it in India.
Which means
1) Business operates from Apr. 2006 to Mar 2007.
2) Defer calculating and paying taxes in the US for the months Apr thru Dec.
3) Pay taxes in India in Jun 2007
4) Using that as the basis, declare the taxes in the US for the US tax year 2007.
I'm unaware of the implications of doing this. Would the IRS accept this w/ or w/o some monetary fines? Paying the tax is not an issue. Maintaining the books as well as finding a CA in India who would understand the US taxation systems is definitely not easy.
Any comments, suggestion will be much appreciated.
MT: Tax for US Citizen living in India
I am a US Citizen returned to India in Oct/06
Started working from Nov in an Indian company.
As I am applying US taxes using taxAct, I have following basic questions, can anyone please share your thoughts.
1) Do I need to report my two month Indian Salary?
2) My company already paid basic relocation expenses, can I still claim moving expenses?
Or, should I claim only those which were not eligible - lease breaking fee.
3) I am giving my Indian address in tax forms, Can I file electronically? I feel this is more convenient.
4) Do i need to include address change form.
Started working from Nov in an Indian company.
As I am applying US taxes using taxAct, I have following basic questions, can anyone please share your thoughts.
1) Do I need to report my two month Indian Salary?
2) My company already paid basic relocation expenses, can I still claim moving expenses?
Or, should I claim only those which were not eligible - lease breaking fee.
3) I am giving my Indian address in tax forms, Can I file electronically? I feel this is more convenient.
4) Do i need to include address change form.
MT: Tax for US Citizen living in India
Here are the answer's to your question's based on my filing experience as an R2I candidate :
1. Yes, you will need to report your Indian income in the "other income" category of W2.
2. Company paid re-imbursement is not eligible for claiming relocation benefit.
3. Yes, you can file electronically with an Indian address.
4. I am not sure.
1. Yes, you will need to report your Indian income in the "other income" category of W2.
2. Company paid re-imbursement is not eligible for claiming relocation benefit.
3. Yes, you can file electronically with an Indian address.
4. I am not sure.
MT: Tax for US Citizen living in India
Please use "MT:" threads where ever applicable.
This thread is merged with MT: Dual taxation of USC living in India
This thread is merged with MT: Dual taxation of USC living in India
MT: Tax for US Citizen living in India
manukarnika;17166Thanks RRK. So, during RNOR should one file tax returns in both countries? or should we file in both forever?
[/quote]
If you are US Citizen, you will file taxes until your death for US Govt.
If you hav taxable income in India, you have to file taxes in India.
During RNOR period, if your only income is from foriegn sources, you dont have to pay taxes to GOI and also no need to file return.
But if you have income from Indian sources, wages, dividends, interests, etc, you have to file Indian tax return.
[quote]
What is the definition of foreign income? If working for a US company but living in India, being paid in the US in dollars, should one pay tax in India or in the US or both? How does that work during and after RNOR?[/quote]
Yes, you have to pay taxes to both country and claim foreign income exclusion in US tax return or claim foreign tax credit in US tax return.
MT: Tax for US Citizen living in India
#5 DosaiLvr:
One option is to go with cash method i.e. claim foreign tax credit in the year in which it is paid to India Govt. Perhaps one can also check if Indian tax law allows choice of financial year (other than one ending March 31) for sole proprietor businesses.
http://www.us.kpmg.com/microsite/IES/taa/content/chapter4.htm
Extract
Cash Versus Accrual Method
Although most individuals report income and deductions under the cash receipts and disbursements method when they file their returns, the foreign tax credit may be claimed using either the cash or accrual method. If the cash, or "paid," method is elected, the foreign tax available for credit is the total amount of qualifying foreign taxes actually paid during the year. If the accrual method is elected, a taxpayer claims the foreign tax credit in the year the related income is reported and in which the foreign tax liability accrues, regardless of when it is actually paid. Once the accrual method is elected, it must be used in subsequent years. A taxpayer may change from the paid method to the accrual method and claim credit both for foreign taxes "paid" for a prior year and taxes "accrued" but unpaid for the current year.
Planning Point:
The accrual method of claiming the foreign tax credit may be beneficial if the taxpayer is residing in a country that does not require payment of tax until a year after the liability arises. Conversely, when an individual already has sufficient foreign tax credits, the cash method may be preferable in order to add an additional year or more to the foreign tax credit carryover period.
It should be noted that the credit may not be claimed for foreign tax attributable to a year in which an election to deduct foreign taxes was made in the U.S. return.
Some foreign tax jurisdictions determine taxable income using a year that is other than a calendar year. The IRS takes the position that foreign taxes accrue on the last day of the taxable year of such foreign jurisdictions. This may cause the accrual method of claiming foreign tax credits to be disadvantageous to individuals living in countries that have taxable years other than the calendar year.
Example
An individual moves to London, England, on May 1, 2003. United Kingdom income taxes for individuals are determined based on a taxable period beginning April 6 of one year, and ending April 5 of the following year. For the year ended April 5, 2004, the individual incurs a U.K. tax liability of £15,000, none of which is paid during 2003. Based on the IRS position, no foreign tax credit can be claimed in the individual's 2003 U.S. return because nothing has been paid and because the tax does not accrue for foreign tax credit purposes until April 5, 2004.
Planning Point:
To avoid the outcome of the example above, individuals living in countries with fiscal year ends should generally utilize the cash method for claiming foreign tax credits and monitor their foreign tax payments to ensure the desired amount is paid during the U.S. return year (calendar year).
One option is to go with cash method i.e. claim foreign tax credit in the year in which it is paid to India Govt. Perhaps one can also check if Indian tax law allows choice of financial year (other than one ending March 31) for sole proprietor businesses.
http://www.us.kpmg.com/microsite/IES/taa/content/chapter4.htm
Extract
Cash Versus Accrual Method
Although most individuals report income and deductions under the cash receipts and disbursements method when they file their returns, the foreign tax credit may be claimed using either the cash or accrual method. If the cash, or "paid," method is elected, the foreign tax available for credit is the total amount of qualifying foreign taxes actually paid during the year. If the accrual method is elected, a taxpayer claims the foreign tax credit in the year the related income is reported and in which the foreign tax liability accrues, regardless of when it is actually paid. Once the accrual method is elected, it must be used in subsequent years. A taxpayer may change from the paid method to the accrual method and claim credit both for foreign taxes "paid" for a prior year and taxes "accrued" but unpaid for the current year.
Planning Point:
The accrual method of claiming the foreign tax credit may be beneficial if the taxpayer is residing in a country that does not require payment of tax until a year after the liability arises. Conversely, when an individual already has sufficient foreign tax credits, the cash method may be preferable in order to add an additional year or more to the foreign tax credit carryover period.
It should be noted that the credit may not be claimed for foreign tax attributable to a year in which an election to deduct foreign taxes was made in the U.S. return.
Some foreign tax jurisdictions determine taxable income using a year that is other than a calendar year. The IRS takes the position that foreign taxes accrue on the last day of the taxable year of such foreign jurisdictions. This may cause the accrual method of claiming foreign tax credits to be disadvantageous to individuals living in countries that have taxable years other than the calendar year.
Example
An individual moves to London, England, on May 1, 2003. United Kingdom income taxes for individuals are determined based on a taxable period beginning April 6 of one year, and ending April 5 of the following year. For the year ended April 5, 2004, the individual incurs a U.K. tax liability of £15,000, none of which is paid during 2003. Based on the IRS position, no foreign tax credit can be claimed in the individual's 2003 U.S. return because nothing has been paid and because the tax does not accrue for foreign tax credit purposes until April 5, 2004.
Planning Point:
To avoid the outcome of the example above, individuals living in countries with fiscal year ends should generally utilize the cash method for claiming foreign tax credits and monitor their foreign tax payments to ensure the desired amount is paid during the U.S. return year (calendar year).