I am a resident alien and I have a NRO certificate of deposit in India.
If I understand correctly I need to report interest income earned in India also.

30% tax is already being deducted at source by the Indian bank on the interest I earn in India.

Do I have to pay taxes in US too ? Or can I claim credit for tax paid in India.

Any help is grealy appreciated!

Yes, for the year Jan 07 to Dec 07, you must compute the total interest paid to you and the tax deducted.

You will report India interest on schedule B (Form 1040) along with your U.S. interest. You will also complete form 1116 to get foreign tax credit.

There is another important filing requirement. If you have foreign bank account or have invested in a foreign country, and the total amount at any time during the year exceeds $10,000, then you must complete Form TD F 90-22.1 with the Department of Treasury by June 30, 2008. If you are required to file and do not file it, the penalty may be up to $10,000 (or more in some cases). The Form TD F 90-22.1 can be download from: Internal Revenue Service (http://www.irs.gov/)

If you need professional help in your tax return or form TD F 90-22.1, you can contact AtlantaTaxExpert at [email protected]

Yes, for the year Jan 07 to Dec 07, you must compute the total interest paid to you and the tax deducted.

You will report India interest on schedule B (Form 1040) along with your U.S. interest. You will also complete form 1116 to get foreign tax credit.


I am in a similar situation like the original poster. I am a citizen of India living in USA on H1B visa - I am a resident of USA for tax purposes.

I have couple of CDs of various maturity dates in India in 2007 on which 30% tax was deducted at source and some on which no tax was deducted at source. However, the tax year in India runs from Apr 2007 - Mar 2008. So, I will be filing the tax return for India after Mar 2008. The final effective tax that I will end up paying to India on these CDs will be probably less than 30% due to standard deductions etc. that I can claim on the Indian tax return.

Considering the fact that the tax return will be from Mar07 to Apr08, how do I calculate the foreign tax on each one of these CDs?

On part II of form 1116, there is a column

Credit is claimed for taxes (you must check one)
(h)paid or
(I)accrued

And a row
(j) Date paid or accrued

Should I check paid or accrued? What date should I use in (j) above?

I am in a similar situation like the original poster. I am a citizen of India living in USA on H1B visa - I am a resident of USA for tax purposes.

Considering the fact that the tax return will be from Mar07 to Apr08, how do I calculate the foreign tax on each one of these CDs?

On part II of form 1116, there is a column
Credit is claimed for taxes (you must check one)
(h)paid or
(i)accrued

and a row
(j) Date paid or accrued
Should I check paid or accrued? What date should I use in (j) above?

For interest to be reported on the U.S. return, go through your bank statement. Report interest actually credited to your account during the tax period and TDS actually deducted from you account during the tax period.
Since on your U.S. tax return you use cash accounting, so you can't use accrued method.

Read more about foreign income: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

Thanks for your help, MukatA. I had some more doubts.


For interest to be reported on the U.S. return, go through your bank statement. Report interest actually credited to your account during the tax period and TDS actually deducted from you account during the tax period.

1) After I file my Indian tax return, I will end up paying less than 30% on these CDs. If I use the method you mentioned above, Wouldn't I be overestimating the tax in F-1116?
2) What about the CDs for which TDS was not deducted at source? If I use the method you mentioned, wouldn't I end up paying tax on it twice - once to US and to India as well.


Since on your U.S. tax return you use cash accounting, so you can't use accrued method.
Could you please explain this a bit. I read about these 2 methods on Cash vs. Accrual Accounting Methods - Yahoo! Small Business (http://smallbusiness.yahoo.com/r-article-a-1580-m-2-sc-53-cash_vs__accrual_accounting_methods-i). Could you please explain
1) How do I end up using 'cash accounting' on my US tax return
2) Why the method you mentioned ends up being 'accrued method'?



Read more about foreign income: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

I read this blog - it is useful. It does not go into detail regarding my question.

1. What do you mean by overestimating?
2. You will report tax that you actually paid in 2007. Also it may not make any difference. Your tax in India is 30%. Your tax rate in the U.S. will be much less. Then credit on 1116 will be equal to tax on interest income on your US tax return.
Yes, you will be paying state tax without getting any credit.

3. Individuals can use only cash accounting unless you keep inventory.