India-US Double Tax Avoidance Agreement

This is for you, if you are an Indian who lives in the United States. Moving from India, Owning property or operating a Business in India, while you live in the United States involves a host of financial decisions, awareness of Tax compliance requirements as well as knowledge of Tax breaks. It is a complex scenario where there are differences in both the Tax Laws as well as the tax years followed by both countries.

Whether you are a Non-Resident Indian (NRI), Person of Indian Origin (PIO) or Overseas Citizen of India (OCI), if you live in the United States, you should be paying taxes on your Global Income for the tax year in the United States (Calendar year). However, according to the Double Tax Avoidance Agreement between the Republic of India and the United States of America, certain types of Income are exempt from being taxed in both countries.

The Indian tax year is from April 1 to March 31^st. and any income earned in India is to be Taxed in India unless you claim a tax credit or be exempt from Tax Deducted at Source (TDS) by proving your residency in the United States.

However, when it comes to Rental Income from Property located in India, the DTAA provides that such income can be taxed in both countries. The Indian Income Tax Act allows a 30% deduction from the rental income. Any taxes paid in India can be claimed as a tax credit in the United States depending on the state of residence. Actual rental expenses is a deduction on the US Tax Return. Likewise, Capital assets could be a double-taxable asset for NRIs with the exception of Gains on sale of agricultural Land which is not taxed in India.

Interest income is taxable in India, if it is over a certain threshold but it is taxes at a reduced tax rate of 15% for Interest on Deposit Accounts held by NRIs due to the DTAA Provisions. Dividend income is not taxable in India, but it is taxable in the US.

As in any country, there are penalties and legal consequences for failure to file a return or report income. Therefore it is important to be aware of these details if you have any of the above sources of income.

Contact us for further information on how to avail the benefits of the DTAA between India and the US.

References

How NRIs Are Taxed in the US

https://www.dbs.com/in/treasures/articles/nri-hub/live-enriched/difference-between-nri-oci-and-pio

https://en.wikipedia.org/wiki/Tax_treaty#:~:text=A%20tax%20treaty%2C%20also%20called,added%20taxes%2C%20or%20other%20taxes.

https://www.livemint.com/money/personal-finance/how-nris-can-lower-tds-on-income-generated-from-india-11678014906047.html#tbl-em-lnuti0ctob18xdr44ya