Double Tax Avoidance Questions

Double Tax Avoidance Questions

Scenario: I was working in USA for the last 5 years and came back to India around June 2018 (but I had US salary coming to US bank till Nov 2018). So I no longer hold the status of NRI and isn't eligible for RNOR either. I have filed my tax returns in USA for Federal and State (California) tax for income earned in USA (the tax was deducted at source). I also had Minimum Alternative Tax levied due to stock options I purchased so the tax I had to pay was more than normal income tax.

DTAA: As per DTAA between India and US, Section 90 I can get tax credit for Federal Tax. However as observed in certain other scenarios, it's also possible to claim a credit on state tax by Section 91 (https://taxguru.in/income-tax/assessee-covered-dtaa-eligible-credit-state-taxes-91-dtaa-providing.html).

Here are my questions:
1. How do I calculate my tax credit based on US returns since it has income from prior financial year as well (US FY is Jan - Dec so Jan - Mar shouldn't be included in Indian tax return). There is a standard deduction of 10,000$ after which the tax is calculated and also the slabs change due to the extra income from Jan-Mar. Do I just find the percentage of tax I paid overall and use that percentage on the taxable income or I need to re-calculate the tax only for that amount (in which case it would be unfair since the slab goes down and I get less credit) ?
eg: Income from Jan - March : 20k, Apr - Nov : 80k (all in USD).
Normal Tax calculated : 20k.
Tax after AMT calculated: 22k.
What should be the tax credit I can apply for the income 80k (Apr - Nov)?

2. If I want to claim the CA state tax paid as a credit to my taxes owed in India, how do I represent them in form 67 and also in ITR filing. In Form 67, I can mention separately the 2 credits and have Federal credit as Section 90 and State tax credit as Section 91. However in the income tax filing document, if the country is same, only one of section 90 / 91 can be applied. Which one should I use in both of these forms to get most relief ?

3. If overall I have negative capital gain (aka loss) in foreign transactions, is it possible to use it as carry forward loss or use as credit against taxes owed ?

Thanks for the help.

Asked 5 years ago in Income Tax

Hi,

- Under the India-US treaty, only federal taxes are allowed but India Income tax does not bifurcate between state and federal taxes. You can claim the credit of the state taxes based on the decided case laws.

- Only income from April 18 to March 19 will be considered and not of previous months. Tax credit will be calculated proportionately to the common income taxed in India.

- Conversion rate will also be applicable.

- In ITR, we need to fill details in Schedule FSI, Schedule TR. In schedule FSI, you need to add the column which will be reflected in the Schedule TR and then you can select the option section 91.

- Capital loss can not be adjusted against salary. It will be carried forward and can be set off against only capital gain.

Thanks

Vivek Kumar Arora

CA, Delhi

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1. You need to calculate the average rate of tax paid by you and then apply that rate on income which is going to be taxed in India.

2. You need to compare that amount with Tax on such income in India and then you would get credit of the amount which is less.

3. As per case law discussed by you if a person is getting more benefit by not using DTAA he can reject DTAA and use section 91 and therefore since you are getting more benefit without DTAA you must use section 91.

4. Yes you can set off such capital loss and carry forward it but only against capital gain income.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo

CA, Jaipur

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Hi,

Hope you are doing well !!

1.You can claim the tax credit on the income earned for the period April 18 to March 19 proportionately.

2. You should select the option section 91 which is more beneficial to you.

3. Yes, you can set off and carry forward the capital gain losses.

However,the Income Tax does not allow loss under the head capital gains to be set off against any income from other heads – this can be only set off within the ‘Capital Gains’ head. Long Term Capital Loss can be set off only against Long Term Capital Gains. Short Term Capital Losses are allowed to be set off against both Long Term Gains and Short Term Gains.

Fortunately, if you are not able to set off your entire capital loss in the same year, both Short Term and Long Term loss can be carried forward for 8 Assessment Years immediately following the Assessment Year in which the loss was first computed

Payal Chhajed

CA, Mumbai

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