Like in India , there are taxes paid in States in USA and there are taxes paid to USA government under Federal Tax law i.e Code 26 . It is well known that under Income Tax Act , the taxes paid are not allowed as business expense. However Double Taxation Agreement does allow the scope of claiming tax credit for any tax paid in USA on an income which is included in India . However , the DTAA agreement applies on income tax in India and federal income tax in USA . Thus , if you pay any state tax on any income under the state tax laws, the issue is whether in India , if that income is being taxed , you can claim tax credit of state tax paid in USA onÂ such an income .