Calculating P F I C for income less than 20000

[kakinada]

Hello I am disabled and living off my savings in India. My maximum annual income is going to be around $20,000

This is from the fixed deposits that I have. With this income, I am still paying taxes at the marginal rate of 30 so I was wondering if I can invest into debt mutual funds and perhaps after 3 years I would have much less tax liability

Except of course I am not allowed to do that with PF IC rules because they will tax me at higher rate

However since my overall income is now much less I was wondering if I can still invest in mutual funds and not have to pay higher taxes because of PF IC

Can anyone please advise on how to calculate PF IC IC let me know of any chartered accountant in Bangalore who can help me out

Thank you for your help

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[kakinada]

As an example this is what I am thinking. Out of the $20,000 annual income, assume that $15,000 is from the fixed deposit and the rest $5,000 is from a mutual fund that will be eventually distributed after 3 years. So when I make a mark to market election in PF IC, then I will have to pay taxes on $5,000 even though I would not have received this money and it would happen only after 3 years.

Now given that the standard tax deduction is $10,300, and I have paid taxes to the Indian government on the entire $15,000 received from fixed deposit, it means that I will not have to pay taxes on the $15,000 and $5,000 would be the actual income that would be taxed. Will the standard deduction of $10,300 apply to this $5,000. In other words, since the PF IC income would be less than the standard deduction, is there a case that I would not have to pay any taxes or will the $10,300 apply to the entire income

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[realgoogler]

As an example this is what I am thinking. Out of the $20,000 annual income, assume that $15,000 is from the fixed deposit and the rest $5,000 is from a mutual fund that will be eventually distributed after 3 years. So when I make a mark to market election in PF IC, then I will have to pay taxes on $5,000 even though I would not have received this money and it would happen only after 3 years.

Now given that the standard tax deduction is $10,300, and I have paid taxes to the Indian government on the entire $15,000 received from fixed deposit, it means that I will not have to pay taxes on the $15,000 and $5,000 would be the actual income that would be taxed. Will the standard deduction of $10,300 apply to this $5,000. In other words, since the PF IC income would be less than the standard deduction, is there a case that I would not have to pay any taxes or will the $10,300 apply to the entire income

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I would guess PFIC income is something you should be able to apply standard deduction. I would wait for experts to confirm.
Also for 15000 $ , This should be added to the income and You will have to calculate the US tax liability and apply the foreign tax credit.
re: Standard Deduction are we talking of tax year 2015 ? and filing status as joint ?
If so
[QUOTE]
The amount of your standard deduction depends on the filing status you qualify for. In 2015 for example, single taxpayers and married taxpayers who file separate returns can claim a $6,300 standard deduction. Married couples filing jointly can claim an amount that's twice as large, $12,600, and taxpayers filing as "head of household" (single individuals with dependents) can claim a standard deduction of $9,250.

[okonomi]

I often end up giving homework problems to whomever, rather than give them the canned answer. When the person with the kwestin derives their own answer it tends to stick.... that is, they would remember it the longest.
When people pose kwestins on whether they could do this... versus... that, why isn't it apparent to them, that they could run a simulation and figure that out all by themselves ...eh ? Some forum readers might be tempted to lead such lazy bums astray and direct them in the wrong path.
I tend to prescribe to the opinion that those who are too lazy to find the answers with a simple google deserve to pay a tuition fee for learning that not so secretive how-to by getting misdirected and paying the price for it indirectly. In the end, everybody will get their payouts, and all will be happy. Even the totally ignorant who asked kwestins in the first place.

[bmukherji]

#4 okonomi

I agree with you 100+ percent. OP can simply download and try to fill-in
tax forms from GOI and US IRS as a simulation exercise to get the answer.