27 May 2009
hi friends, one of my friend is working in indian software company. he was sent to USA in 2005 by his company. he came back to india in Jan 2009. so he was NRI till PY 2007-08. since he was not confirmed whether he would come back to india in PY 2008-09, he paid the tax in USA. when he came back to india, his company again deducted the tax on his total income. Now the query is, whether credt will be available for tax paid in USA under DTAA with USA and india. if yes, what is the procedure to claim the credit of tax paid in USA.
27 May 2009
Yes the benefit can be availed for taxes paid in USA. You need to procure a certificate of tax deduction and paid in USA parallel to that of form 16 in India and claim the benefit in ITR filed here in India. The claim of refund may be entertained by the AO based upon the various factual evidences that may be asked for by AO during the process of processing the return of Income.
Thanks for valuable advise. but still have some confusion. Under which section of I.T. Act, This benefit is available. Whether Provisions of DTAA are also applicable in this case.
03 August 2024
Certainly! Here’s a detailed explanation of how tax credits for taxes paid abroad can be claimed, specifically in the context of an NRI (Non-Resident Indian) who has returned to India and faced tax implications in both India and the USA:
- **Purpose:** The DTAA between India and the USA is designed to avoid double taxation of income that might be taxable in both countries. This means you can claim a credit for taxes paid in one country against the tax liability in another country.
**b. **Credit for Taxes Paid:**
- **Available Credit:** Under the DTAA, if your friend has paid taxes in the USA on income that is also taxable in India, he can claim a credit for the taxes paid in the USA against his Indian tax liability on that income.
### **2. Procedure to Claim Tax Credit**
**a. **Section 91 of the Income Tax Act, 1961:**
- **Credit Under Section 91:** If a taxpayer has paid tax in a foreign country and is also liable to pay tax in India on the same income, Section 91 allows for a credit of taxes paid abroad. This is available when there is no DTAA, but in the case where there is a DTAA, it will be the primary provision to apply.
**b. **Section 90 and 90A of the Income Tax Act, 1961:**
- **Credit Under Section 90:** When there is a DTAA between India and another country (like the USA), Section 90 of the Income Tax Act provides for the benefit of tax relief under the DTAA. Section 90A extends this benefit to income earned by a resident of India from another country with which India has a tax treaty. - **Application:** Your friend would claim the credit based on the provisions of the DTAA between India and the USA.
**c. **Procedure:**
1. **Determine Eligible Income:** Identify the income earned in the USA and the taxes paid thereon. 2. **Collect Documentation:** Obtain a certificate of tax paid in the USA from the IRS or relevant US tax authority. 3. **Fill in ITR Form:** During the filing of the Indian income tax return (ITR), provide details of the foreign income, tax paid abroad, and claim the credit. This can be done in the ITR form where you report foreign income and claim a credit for taxes paid abroad. 4. **Attach Documents:** Attach the necessary documents, such as the tax payment certificate from the USA, to your Indian income tax return as proof of tax paid abroad. 5. **Claim Tax Credit:** Ensure you correctly fill out the details for claiming credit under Section 90 or Section 91 (if DTAA does not apply) of the Income Tax Act.
### **3. Practical Considerations**
- **Documentation:** Ensure all documents related to foreign income and taxes paid are accurately prepared and submitted. - **Consultation:** It is advisable to consult with a tax professional to ensure compliance with both Indian and foreign tax laws and to effectively apply the provisions of the DTAA.
### **4. Summary**
- **Claiming Credit:** Under Section 90 and the relevant DTAA provisions, your friend can claim a credit for taxes paid in the USA against his Indian tax liability. - **Sections Involved:** Sections 90 and 91 of the Income Tax Act, 1961 deal with the credit of foreign taxes paid. - **Procedure:** Collect documentation of taxes paid abroad, file the Indian tax return accurately, and claim the credit accordingly.
Understanding these provisions will help ensure that your friend can effectively manage his tax liabilities and avoid double taxation on his income.
CAclubindia
