USA Allows Credit of Tax Paid in India by its Citizen
I am a US citizen of 54 years. I will be accepting a job in India with an Indian pharmaceutical company. I will be relocating to India, but also keep my residence in California, USA. My cash compensation will be over $275,000 – includes base salary and bonus. Plus I will be paid $ 60, 000/year for housing and car and other. I will be paid in India.
Approximately what is my tax liability in India.?
Approximately what is my tax liability in USA ?
My goal is to know if for the above situation will I be paying overall more income tax – India plus USA versus if I was employed for the same compensation in USA and was paying only US taxes.
Since you will accepting the job of an Indian Pharmaceutical company and relocated in India, your salary will be taxable in India irrespective of the fact that you will be Non resident for some period and Not Ordinarily Resident for two years. Since under the Indian Income tax laws , all income received in India or receivable or accrued or arisen in India is taxable even in case of Non resident , your salary from Indian company shall be taxed in India.
There are some parts of salary which is given some exemption or part exmeption.It depends upon exact fact and nature of salary received from company.For example, there is exemption in case of receipt of house rent allowance and even car facility is exempt in specific situations. Your query had little details on those aspects.
Next question is :what will be the tax rate for Salary earned by a foreign citizen or Non resident. For salary, tax rate in India is same both for Resident and Non resident. Presently , tax rate in India for (FY 2006-07 )for individual is as follows
Upto total Income Rs 1,00,000 No Tax
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from Rs 1,00,000 to 1,50,000 10%
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From Rs 1,50,000 to Rs 2,50,000 Rs 5000 plus 20% of of the amount above Rs 1,50,000
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Above Rs 2,50,000 Rs 15,000 plus 30% of the amount above Rs 2,50,000
Apart from that, sur-charge of 10 % and education cess of 2 % shall also be charged in your case.
So, you can compute your tax liability yourself.
Now comes the question which is very specific to your citizenship of USA. I am not an expert on USA tax laws , so exact liability as per USA laws should be consulted with any tax practitioner there .However, You will be happy to know that there is Double Taxation Avoidance Agreement between India and USA. According to clause 25 of the DTAA , USA allows its citizen credit of tax paid in India. Sub -clause of 1 of Clause 25 of the DTAA is relevant for citizen of USA . The relevant portion is given as under for ready reference
“Article 25 –
1. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income
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(a) the income-tax paid to India by or on behalf of such citizen or resident ; and
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(b) in the case of a United States company owning at least 10 per cent of the voting stock of a company which is a resident of India and from which the United States company receives dividends, the income-tax paid to India by or on behalf of the distributing company with respect to the profits out of which the dividends are paid.
For the purposes of this paragraph, the taxes referred to in paragraphs 1(b) and 2 of Article 2 (Taxes Covered) shall be considered as income taxes…………….”
In case you want to read the whole DTAA , click here.
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