OK.. Here is the deal :

I moved to US on a L1 visa from India to US in Dec 2007. I am planning to stay here for more than 6 months(180 days). As per the Indian Laws, I have to file the tax returns for the financial year 2007-08 ending in March 2008. In the current financial year I earned Indian Salary from April 07 - Nov 07. From Dec 07 - March 08 I will earn salary in US. Taxes(TDS) will be deducted at the both the places. Now here is my question :

How does double tax treaty works in my case? Do I have to show my US income while filing returns in India next year?

Yes you will file 2007 (for period in the U.S. up to Dec 31) and 2008 U.S. returns and must pay taxes in the U.S. on the income in the U.S. The due dates are April 15, 2008 and April 15, 2009.

On your India tax return for April 1, 2007 to March 31, 2008 you will report your U.S. income (up to March 31, 2008) also. On your India return, you will claim credit for the taxes paid in the U.S.
Then on India tax return for the next year, you will report the U.S. income after April 1, 2008.
For India tax read
income tax investment FEMA bank accounts property gift inheritance faq in india for non resident indians

Noted and praise to MukatA for his exceptional research.

Thanks for your time MukatA. Just few more clarifications required :

Does it mean that I pay taxes in US( app. 35%) till March 2008 and then I declare my US salary in India for this financial year(2007-08) and pay tax again which is app. 30% again.
So I loose 65 % salary as of now and then claim it back(what I paid in US) on my return back to India as per the tax treaty between US and India?

Quote:

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Originally Posted by MukatA

Yes you will file 2007 (for period in the U.S. up to Dec 31) and 2008 U.S. returns and must pay taxes in the U.S. on the income in the U.S. The due dates are April 15, 2008 and April 15, 2009.

On your India tax return for April 1, 2007 to March 31, 2008 you will report your U.S. income (up to March 31, 2008) also. On your India return, you will claim credit for the taxes paid in the U.S.
Then on India tax return for the next year, you will report the U.S. income after April 1, 2008.
For India tax read
income tax investment FEMA bank accounts property gift inheritance faq in india for non resident indians

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By claiming a credit for the taxes paid to U.S. on your India return, you should avoid the double taxation trap.

In India at a maximum you will pay the difference only if the U.S. tax is less than the tax in India. Then there may be some expense deductions. Only a CA or tax consultant in India can provide you proper info.
Also your U.S. tax is not going to be that much. For 2007, you will get $3,400 exemption even on the non-resident return. Then you may claim some itemized deductions. Then on taxable income of around $7,000, the federal income tax is 10%. In short for 2007, your federal tax rate on entire income will be much less than 10%. Then you have 7.65% social security and medicare tax.

Noted and agreed.