Guide To India Expat Tax Advice
The Tax Samaritan country guide to India Expat Tax advice is intended to provide a general review of the tax environment of India and how that will impact your India Expat Tax return as a US taxpayer.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from India and the U.S. For example, certain benefits may be tax free or excluded from taxable income in India, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to India expat tax and this brief article will address a few of those considerations.
US Expat Living In India
India offers Americans a very exotic and diverse place. As one of the most populous countries in the world it can be very crowded and busy, but at the same time it is very vibrant and alive. The majority of cities in India offer expats a good standard of living and at very low cost. Expat life in India has much to offer and provides a great intercultural experience!!!
Below is a list of our top 10 popular India cities for foreigners to reside in (in no particular order):
- Chennai, Tamil nadu
- Mumbai, Maharashtra
- New Delhi
- Bangalore, Karnataka
- Hyderabad, Andhra Pradesh
- Surat, Gujarat
- Pune, Maharashtra
- Ahmedabad, Gujarat
- Kolkata, West Bengal
- Jaipur, Rajasthan
India Expat Income Taxes
Who Is Liable For Income Taxes In India
In India, residents are subject to tax on their worldwide income. n general, all income received or accrued in India is subject to tax. Persons who are resident but not ordinarily resident are taxed only on Indian-source income, income deemed to accrue or arise in India, income received in India or income received outside India arising from either a business controlled, or a profession established, in India. Nonresidents are taxed only on Indian-source income and on income received, accruing or arising in India. Nonresidents may also be taxed on income deemed to accrue or arise in India through a business connection, through or from any asset or source of income in India, or through the transfer of a capital asset situated in India (including a share in a company incorporated in India).
Who Is A India Tax Resident
Individuals are considered an India tax resident if they meet either of the following criteria:
- They are present in India for 182 days or more during the tax year (that is, the year in which income is earned; in India the tax year runs from April 1 to March 31).
- They are present in India for 60 days or more during the tax year and present in India for at least 365 days in aggregate during the preceding four tax years (the 60 days’ condition is increased to 182 days in the case of a citizen of India who leaves India in any tax year as a member of the crew of an Indian ship or for the purposes of employment outside India or in the case of a citizen of India or a person of Indian origin who comes for a visit to India in a tax year).
India Tax Filing
All income is taxed using a fiscal tax year from April 1 to March 31. Income tax returns must be filed by July 31.
India Expat Tax Advice For Your US Expat Tax Return
When dealing with your India Expat Tax return, there a number of preferential expat tax treatments that may benefit your India expat tax return. In fact, for many U.S. expats it could reduce your U.S. taxes to zero.
Below is our India expat tax advice for your US expat tax return:
- If you are a U.S. citizen or a resident alien of the United States and you live in India, your India Expat Tax return is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in India. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
- When it comes to your India expat tax return, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and India. A U.S. taxpayer working overseas in India may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a US tax return while living in India does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability and tax return until they are claimed on a filed tax return. So, be sure to file your US expat tax return!!!
When it comes to India expat tax advice there are many tax items to consider, but the above are by far the most common tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
U.S.- India Tax Treaty And Tax Relief For An India Expat Tax Return
The U.S. does have a tax treaty with India.
Please click on the link to the U.S. – India Tax Treaty.
India Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to India expat tax is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at State Bank of India (SBI), ICICI Bank Limited, Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India or at another bank in India or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Qualified Dividends In India For Your Foreign Corporation or Investment
Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. India foreign corporations are eligible for this lower “qualified” dividend rate and can be a significant benefit for your India expat tax return.
U.S. – India Social Security Totalization Agreement
Social security in India is governed by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act). Covered employers must make a contribution towards the Provident Fund and Pension Scheme for their employees who are International Workers.
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.
As of this time, India has not entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for an India expat tax return.
Testimonial Of Clients Residing In India
We have many India expat tax preparation clients. Below are a few tax preparation testimonials of clients in India for your review, however we encourage you to view recommendations left for us on our LinkedIn page. These are independent tax preparation testimonials from real customers, with tax situations just like “yours”. If you are unable to view our testimonials, please “connect” with us on LinkedIn for access. Otherwise, please view our Tax Testimonial snapshot.
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Read our tax preparation testimonials and BBB Rating and Reviews to see what our clients have to say about working with Tax Samaritan for their income tax preparation and tax problem resolution needs.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our India expat tax. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in India. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in India and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about India expat tax. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with India expat tax. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional India expat tax advice based on your individual needs.