Introduction
A US taxpayer living in India may find the task of filing US taxes quite daunting, particularly when the main aim is to steer clear of double taxation. The good news, however, is that the Foreign Tax Credit (FTC) provision enables you to deduct the taxes paid in India from your US tax liability. Nevertheless, the filing ordeal can be difficult because both the Indian and US tax authorities have their own strict compliance regulations. This is where professional assistance, such as the Accelero Corporation, comes in handy.
This blog will explain the step-by-step procedure on how a US taxpayer can file a Foreign Tax Credit (FTC) in India. Besides, we will also touch on the reasons that make the decision to seek help from an Expat Tax Service in Hyderabad the right one.
What is Foreign Tax Credit (FTC)?
The Foreign Tax Credit is a provision that helps prevent double taxation through the Double Tax Avoidance Agreement (DTAA) between India and the USA. Basically, it guarantees that the taxpayers do not end up paying the same income tax in both countries. Just suppose that you are a US taxpayer and have India-sourced income (for instance, salary, investment, or business profits), and you have already paid taxes in India, then you are eligible to get a credit for those taxes when submitting your US return.
Such a system evens out the tax obligations that citizens have with the authorities and is a way to observe the law without causing the problem of being taxed twice.
Who Can Claim FTC in India?
If you are a US taxpayer, you can avail the Foreign Tax Credit (FTC) in the following cases:
You are a US citizen or a holder of a Green Card residing in India.
You have paid tax on your income sourced from India.
You are filing your tax returns in India and the US.
One should note that the foreign tax credit (FTC) can only be used for income taxes and not for any kind of charges, interest, or other taxes.
Steps to File Foreign Tax Credit (FTC)
Filing for FTC in India is a multi-step process that requires that all documentation be properly done and that submissions be made on time. The process is explained below:
1. Understand the Reporting Requirement in the US
You are obliged to declare to the US tax authorities the total income from all over the world, including the income that you made in India. Double tax relief can be availed only if you submit Form 1116 to the IRS for the foreign tax credit (FTC) to be claimed.
2. Documentation Needed
To claim a Foreign Tax Credit (FTC) in India, you need to provide:
Evidence of the taxes paid in India (Form 16, Form 26AS, or tax payment challans, etc.).
A Tax Residency Certificate (TRC) issued by Indian authorities.
A statement of accounts indicating the calculation of the FTC.
An accountant's certificate, if mandated by Indian regulations.
3. Filing FTC in India
According to the Indian regulations (Rule 128 of the Income Tax Rules, 1962), the electronic submission of Form 67 must precede the filing of your income tax return. The Form 67 must be filed online via the Income Tax Department's e-filing portal. The form elaborates on the taxpayer's foreign source income as well as the foreign taxes paid (here, the USA).
4. Coordination Between US and Indian Tax Returns
When you file reports in two countries, it is very important that everything is done on time and that the information provided is accurate. The amount of credits that have been claimed should be equal to the taxes that were actually paid, and even small differences can be the cause of investigations. It is the role of professionals from the accounting and tax advisory services to guarantee that your declarations are well coordinated in the two departments.
Common Challenges in FTC Filing
Exchange Rate Fluctuations 每 The tax that is paid in INR has to be converted into USD (for US returns) or vice versa, whereby there can be small differences in the calculation of the amount.
Documentation Gaps 每 Lack of TRC or unmatched tax credits can lead to rejection of the claim.
Complex Income Structures 每 Having several types of income (salary, capital gains, dividends) makes the process of claiming FTC more complicated.
Punctual Deadlines 每 If you miss the filing time for Form 67 in India, you will not be allowed to make an FTC claim.
Why Choose Accelero Corporation for FTC Filing?
Handling international tax laws is quite complicated, particularly when you have to manage your affairs in the US and India. This is the reason why a lot of US taxpayers and Green Card holders count on Accelero Corporation. Through our expertise in cross-border taxation and compliance for several years, we not only make the filing process easier for you but also assist you in claiming the maximum of your credits.
At Accelero Corporation, we deliver:
Knowledgeable guidance on Double Taxation Avoidance Agreement (DTAA) clauses.
Support in submitting Form 67 in India.
The handling of your Indian and U.S. tax returns.
Guidance on tax residence and long-term tax planning.
Our personalized services are perfect for an individual professional, a business owner, or an NRI coming back to India. They help you to be in accordance with the rules and feel at ease.
Final Thoughts
Filing the Foreign Tax Credit (FTC) as a US taxpayer in India is definitely not just about completing forms. It is more about the synchronization of Indian and US returns, both being complete and compliant. Even a small error can cause you to pay your taxes twice or to get into trouble with the authorities.
You will be totally at ease moving around this complex terrain if you team up with the right advisory partner like Accelero Corporation. We have the skill set required for Expat Tax Services in Hyderabad, which allows us to take care of the whole process just the way you want it - hassle-free, and with utmost precision.
