18 July 2015
Hi, I have below few doubts with respect to the Indian ITR with USA income:
I stayed in USA from Apr14-Aug14 on H1B Visa and as per Indian Income tax act I am the resident of India for the financial year.
During my USA stay, below taxes were deducted from my income: 1. Federal Tax (got some refund after filing return) 2. State Tax (got some refund after filing return) 3. Social security tax 4. Medicare tax
Now while filing Indian ITR(after clubbing USA income) for AY 2015-16 I have come across below doubts:
1. Which all paid taxes above can be claimed back from Indian tax liability while filing Indian ITR 2. What should be the date of conversion for the USA income? Would it be converted for each month for that month’s conversion rate or there will be a fixed conversion rate for all income? 3. If not all taxes are deductible for point #1 then can that particular tax be deducted from gross income to net income computation? 4. How would the tax be calculated, using average tax rate, or after clubbing all USA income(post conversion) to Indian income? 5. Will there be an interest on the tax payable?
Can you please provide your valuation suggestions on above points
19 July 2015
Thanks for your response. If I go by your points above, this means that we need to give 45-50% tax on US earned income. Is this a justifiable percentage.
Also regarding the state tax exclusion, I came across below decision in case of TATA sons "http://itatonline.org/archives/dcit-vs-tata-sons-itat-mumbai-foreign-income-taxes-not-eligible-for-deduction-us-371-despite-bar-in-dtaa-credit-for-state-taxes-to-be-given-us-91-in-addition-to-federal-taxes/" highlights of which are as below:
"The income tax levied by different States in USA usually ranges from 3% to 11%, and the aggregate income tax paid by the assessee in USA will range from 38% to 46%.Therefore, on the facts of the present case and bearing in mind the fact that the Federal income tax in USA at the relevant point of time was lesser in rate at 35% vis-à-vis 38.5% income tax rate applicable in India, the admissible double taxation relief under section 91 will be higher than relief under the tax treaty. It will be so for the reason that State income tax will also be added to income tax abroad, and the aggregate of taxes so paid will be eligible for tax relief – of course subject to tax rate on which such income is actually taxed in India. The tax relief under section 91 thus works out to at least 38%, as against tax credit of only 35% admissible under the tax treaty. In such a situation, the assessee will be entitled to relief under section 91 in respect of federal as well as state taxes, and that relief being more beneficial to the assessee vis-à-vis tax credit under the applicable tax treaty, the provisions of section 91 will apply to state income taxes as well"
Please provide your suggestions in lime light of above
20 July 2015
if you read the judgment, the point was not contested by AO as it didn't affect the overall tax liability. So you dont know how it will pan out in your case.
I used this judgment last year...(https://www.caclubindia.com/experts/usa-tax-relief-hra-for-usa-house-rent-1822344.asp)...ended up litigating. Good chance that cost of litigation will exceed the tax payable!
CAclubindia
