Hi

I am is usa for coupls of months and my residency status is NRA . I am a indian citizen . There is a tax treaty exists between USA & India . I am based at CT

My question is that what will be the Rate of taxation in my case .
My gross salary is close to USD 12000 for this two months out of which aprox USD 3500 is indian salary (which is again included in USA gross salary because of the USA tax regulations) . Now I have to pay double tax for the indian salary & flat 30% for the gross usa income

Any suggestions??

Prasanna Panda

I assume that you are under a work visa (L-1 or H-1 or H-1B).

However, two months does NOT meet the Substantial Presence Test, so, unless you are married, you will file as a non-resident alien, filing Form 1040NR or 1040NR-EZ.

You may or may not be able to claim moving expenses; that depends on the expected duration of your stay.

You CAN claim the Foreign Tax Credit (Form 1116) for the income tax paid to India on the U.S.-sourced income (FYI: ANY income earned while inside the U.S. is considered to be U.S.-sourced, even if the pay originates in india).

With moving expenses and the Foreign Tax Credit, you may get ALL of your withheld taxes back. I cannot say for sure unless you provide more details via email to the address below.

On your India tax return, if you must report your foreign income, then you will claim credit for taxes paid to the U.S.

Note that if you claim a credit for U.S. taxes paid on your Indian return, you CANNOT claim a similar credit on yor U.S. tax return.

In other words, claim the credit on one tax return or the other, but NOT both.

ATE above you state:

You CAN claim the Foreign Tax Credit (Form 1116) for the income tax paid to India on the U.S.-sourced income (FYI: ANY income earned while inside the U.S. is considered to be U.S.-sourced, even if the pay originates in india).

You also state:

Note that if you claim a credit for U.S. taxes paid on your Indian return, you CANNOT claim a similar credit on yor U.S. tax return.

In other words, claim the credit on one tax return or the other, but NOT both.

I agree that the income from services performed in the U.S. is generally (not always) U.S. source income. A fundamental concept regarding the foreign tax credit is that no foreign tax credit is allowed on U.S. source income. See the foreign tax credit limitation in Code § 904. Although nonresident aliens are allowed to claim foreign tax credits for foreign source effectively connected income, this is not allowed with respect to U.S. source income. I reviewed that India-U.S. Income Tax Treaty and I see nothing in the treaty that would override the rule that the U.S. can tax the U.S. source effectively connected income. As a result, no foreign tax credit could be claimed in the U.S. for the Indian taxes paid.

I recognize that these rules are complex. I am the first to admit that I sometimes make mistakes and I am always learning in this area. You provide good, solid advice to many posters. However, in another posting the Texas Tax Expert had expressed some frustration with the number of inaccuracies in the posts on this forum. I too at times have this frustration. I do not have time to do the research to prove all of what I suspect to be inaccurate.

Frequently your use of capitals and bolding conveys a sense of supreme confidence (e.g. above "You CAN claim the Foreign Tax Credit . . . "), when at times the advice is inaccurate. If you are unsure of the answer to a question, it may be better not to respond at all.

IntlTax:

Like you, I occasionally make mistakes, and in this case, I made a mistake.

I do NOT have access to IRC Section 904, but, upon reviewing IRS Pub 514, I see that a non-resident alien cannot claim the Foreign Tax Credit for foreign taxes imposed on U.S.-sourced income.

Hence, my original post advocating the use of Form 1116 does NOT apply if, as I believe, his income is U.S.-sourced.

However, under the general principles of double taxation avoidance in international taxation, he probably CAN claim a credit on his Indian tax return. However, since I do not prepare Indian tax returns, I cannot say that for certain.

As for my use of bold letters and CAPITAL letters, it is done for purposes of emphasis, to ensure that the poster, who is often a foreign national for whom English as a second language, does not miss the central theme of my answer.