Foreign tax credit and inclusion

Foreign tax credit and inclusion

My Facts:
1. I qualify as a normal resident for tax purposes in India for the last FY.
2. I have income from the USA for the duration of the time Apr - Nov' 2018.
3. I paid federal taxes, state taxes, social security and medicare tax in the US for my earnings there. All of which was deducted at source.

I have the following inquiries:

1. As per the judgment here (http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-Sunil-Shinde-2.pdf), any amount deducted at source in the US shouldn't constitute my taxable income. This means my effective taxable income in India should be only what I received in hand (i.e. income - taxes withheld). Is that the correct assumption?

2. After taking into consideration the previous point for calculating taxable income, I can claim FTC on the federal and state taxes paid (relative to my taxable income), based on section 91 of DTAA (http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-Dr.-Rajiv-I.-Modi-2.pdf). Is that a correct assumption?

Based on the links, it seems this is do-able. However, the reason I am a little surprised is that with both the above two points considered, the tax liability in India becomes significantly low and high probability that I don't need to pay any extra tax in India after proper calculation.

Asked 6 years ago in Income Tax

Dear Sir,

Hope you are doing well !!

1. If you are a resident Indian as per the income tax rules, the income earned anywhere in the world is taxable in India for you. However, if TDS has been deducted on your income you are allowed to take credit of such taxes. For this purpose, reference has to be made to the relevant Double Tax Avoidance Agreement (DTAA) of the country where such income has been earned. India has entered into DTAAs with several countries. DTAA makes sure that a taxpayer is not doubly taxed for the income earned outside the country of residence. Since income may be taxed at source i.e. from the place it originated and is also usually taxable in the country of residence, the DTAA makes sure that the taxpayer is not adversely impacted. The taxpayer is also allowed to take credit of TDS deducted.

2. Yes, it is correct.

In accordance with Rule 128, in order to claim FTC, the taxpayer is required to file following documents on or before due date of filing of return:

1. A statement of :

foreign income offered to tax

foreign tax deducted or paid on such income in Form No. 67

2. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the taxpayer :

From the tax authority of the foreign country

from the person responsible for the deduction of such tax

signed by the taxpayer

3. Proof of payment of taxes outside India.

Payal Chhajed

CA, Mumbai

5189 Answers

303 Consultations

Talk to Payal Chhajed

For the income earned in USA you may claim credit of tax deducted in USA while filing tax in India.

I don't thinks that's a correct assumption because if you do that and again claim FTC then you are claiming double benefit of TDS deducted which is not correct what AO was doing is again adding the TDS deducted to total salary which was incorrect.

Also the salary earned in India for services provided in India must be first taxed in India and then for that tax you can claim credit in USA.

Yes you can take credit for services provided in USA from April to September.

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

4303 Answers

101 Consultations

Talk to Naman Maloo

This could be a litigative case .

It is advisable to include the gross income and take the Foreign tax credit.

If taxes as per Indian tax laws are lower, no payment or refund shall be made in respect of such foreign income. However, if taxes as per Indian tax laws are higher on such income, additional taxes have to be paid.

We may assist you with the filling.

Lakshita Bhandari

CA, Mumbai

5687 Answers

943 Consultations

Talk to Lakshita Bhandari

- It would be subject to litigation and the probability of attracting scrutiny will be high.

- It is better to include it in taxable income and then claim FTC proportionality.

Vivek Kumar Arora

CA, Delhi

5018 Answers

1143 Consultations

Talk to Vivek Kumar Arora

Hello,

It would be advisable to declare the gross amount of income and then claim the credit of foreign tax paid. The credit of only federal and state tax paid will be allowed u/s. 91.

For return filing, you can contact us directly or take a phone consultation.

I hope this answer satisfies your requirement.

Regards,

CA Hunny Badlani