Indian Resident. USA LLC (with US bank account). Income Tax question.

Hi,

In the given facts, since the entire business is effectively operated and managed by you from India, the place of effective management ('POEM') of the business is in India. Thus, the profits of your business will also be taxed in India. It may also get taxed in USA because LLC is registered in USA. (PS - while poem guidlelines are applicable only when sales exceeds 50 cr.,but income tax department will certainly try to catchhold this under other provisions such as GAAR)

Yes, you will be able to get tax credit of the taxes paid in USA while filing Indian tax return.

however, you may undertake certain planning to come out of this situation and your profits will be taxed only in USA.

- A company is said to be resident in India if it is an Indian company or its place of effective management is in India.

- POEM is place where key management and commercial decisions for the conduct of the business are made.

- If the decisions and the operations are wholly controlled from India then POEM for your USA LLC is in India. In such case, income of LLC will be taxable twice and you can claim credit for taxes paid in USA while filing ITR in India.

- Amount transferred to your Individual saving account in India will not be taxable again.

I think you are basically running a dropshipping business because some of my clients are doing the same thing.

I cannot comment about the USA taxation but same would surely be taxable in India.

Yes it will depend on the agreement entered into between India and USA.

We can have a phone consultation on same and discuss this in further detail.

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

Thank you

Hello,

As per the information provided by you, this income would be taxable in India, because of the residency and the POEM rules.

The tax paid in the foreign country on this income would be available as a credit against the Indian income tax at the time of filing of your return in India.

I hope this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Hi,

I am afraid there cannot be a clear cut answer to this issue, since there are various permutations involved in your business structure.

Because of the check-the-box regime in US, LLCs have an option to either act as a corporation (separate legal entity) or as a pass-through entity (considered same as the shareholder). The option which is chosen in US would make a difference in the tax treatment. If it is chosen to be a corporation, then the tax implication would be more since the after-tax money which you would receive from the LLC will be considered as dividend and you would additionally have to pay tax on such dividend. Again, the impact of choosing any option would also have a consequence on the Indian tax liability as well.

Further, if your turnover exceeds certain thresholds, then the LLC's POEM (Place Of Effective Management) may be considered to be in India since the LLC is managed from India. 

A detailed study of facts of your case would be required to analyse the applicability of provisions of US & Indian tax laws and Double Taxation Avoidance Agreement (tax treaty) between India and US.

This is essential to correctly determine whether the income would be taxable in India or US or both and whether India will provide credit of US tax or US will provide credit of Indian tax. 

I know that this would not resolve your query but I don't want to give you a wrong advice.

Dear Sir,

Hope you are doing well !!

Yes, you can claim the taxes paid in USA while filing ITR in India.

It is advisable to take a phone consultation for detailed discussion.