• Seeking Guidance on Claiming Foreign Tax Credit in India with US FEIE

I worked in the US for 3 years and returned to India last year. For the FY 22-23, I qualify as a Resident and Ordinary Resident (ROR) in India. In the tax year 2022, I have salary income from both the US and India.
I am planning to file a resident tax return (1040) in the US through a CPA, utilizing the Foreign Earned Income Exclusion (FEIE) to exclude the salary income earned in India and reduce my US tax liability.

Since I am an ROR in India, my salary income from the US will be taxable in India.
My question is:

Can an Indian CA claim Foreign Tax Credit (FTC) in India for the taxes paid in the US if the FEIE is claimed in the US? Are there any reasons why the FTC in India would not be applicable in my case?

I want to ensure that I receive the maximum tax relief and avoid any potential partial tax benefits. As I am still finalizing my tax filing approach, I would greatly appreciate clarification on how to optimize my tax returns.
Asked 1 year ago in Income Tax

You cannot normally declare yourself as a dual resident. What is the reason behind filing resident return in USA?

Due date for USA return has already passed for 2022. Have you filed the return?

Our team can assist you with USA tax filing also.

As far as my knowledge you can claim FTC in resident country and hence you need to first select for which country are you resident.

You should first consult and finalize your residential status in both the country.

 

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

Thank you.

Naman Maloo
CA, Jaipur
4280 Answers
98 Consultations

5.0 on 5.0

Hello Sir,

 

Normally an individual cannot declare themselves as a dual resident. It is essential to determine your residential status in both India and the United States. Since due date for the US return for the tax year 2022 has already passed, it is crucial that you consult with a qualified CPA to address your specific situation and determine the appropriate course of action.

In India, the concept of FTC allows taxpayers to claim a credit for taxes paid in a foreign country on income that is also taxable in India. This provision prevents double taxation on the same income.

When you claim the Foreign Earned Income Exclusion (FEIE) in the United States, you are excluding a certain amount of your income earned abroad from US taxation. The FEIE is designed to reduce your US tax liability.

  1. FEIE may impact FTC in India, potentially resulting in a partial benefit or limitation.
  2. Proper documentation and compliance with Indian tax requirements are crucial.

 

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal
CA, Delhi
238 Answers
4 Consultations

5.0 on 5.0

If you are claiming FEIE, I assume you are US Citizen or a resident as well as only US Citizen or resident can claim that. 

 

Since you are resident of both the countries, the FTC is only granted for the taxes paid in the country where the source of income is i.e. the other country should not be a resident country. So to the extent US taxes your salary in US as it would have taxed NR, you can claim the FTC only to that extent. 

 

Also, first you may check for tie-breaker rules if that results in non-residency in India. We can help you with determining the residency as well as filing the tax return in India and US. 

Prerna Peshori
CA, Pune
194 Answers
11 Consultations

5.0 on 5.0

Tax incidence depends on the residential status of a person. If you are a resident of both the countries then determine residential status as per the tie-breaker rule and file ITR accordingly

 

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora
CA, Delhi
4863 Answers
1052 Consultations

5.0 on 5.0

Hi please find below answers

 

1. FTC will be allowed irrespective of fact whether you are claiming FEIE or not since tax credit you are claiming on USA income which is double taxed in india as well as USA and therefore treaty benefit will be available for you

 

2. Based on facts and figures can work out best possible optimal tax structure like 

   - In which state of USA you are filing your return

   - Are filing return individually or filing with any family member

   - Amount of income in USA

   - Amount of income in India

   Above information will help in better optimise this working in USA as well as India

Vishrut Rajesh Shah
CA, Ahmedabad
928 Answers
39 Consultations

5.0 on 5.0

Sir no matter whether you showed or excluded the Indian income in your tax return of US, 

DEFINITELY you can clain the tax credit of the tax paid in the us on your us salary when you will show it in your Indian itr.

Vishal Khandelwal
CA, JAIPUR
31 Answers

Not rated

In US, you have to file return of income as non-resident

 

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora
CA, Delhi
4863 Answers
1052 Consultations

5.0 on 5.0

If the green card application is pending, have you stayed in US for 31 days in current year and 183 days in past 3 years. If not then you would be non-resident in US. You would not be able to claim FIEE in US. 

Prerna Peshori
CA, Pune
194 Answers
11 Consultations

5.0 on 5.0

Which visa are you on? Provisional green card visa?

Prima facie as per DTAA between India USA a resident can claim FTC of income earned in other country so as per tie breaker you can claim credit in India but if the AO sees that you are a resident in USA also then that could create an issue in FTC and you can claim FTC only on doubly taxed income.

Naman Maloo
CA, Jaipur
4280 Answers
98 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA