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By Rajkamal Rao
Go back to Taxes
Let us consider a simple example of a US family of four that has returned to India but still has residual income in the US. It wishes to report an Indian income of Rs. 30 Lakhs: Rs. 24 Lakhs in salaried earnings and Rs. 6 Lakhs in interest income for the tax year. And an income of $21,000 from the US broken up as follows: $14,400 in rental income (after all rental expenses and depreciation); $3,000 in interest earnings and $3,600 in dividend income.
Assume an exchange rate of INR 55/USD. Here is how the family would be filing its returns in India and the US:
India Filing:
Total India income before tax: INR 30,000,00.
Total India taxes owed (DTTA flat, 15%): INR 4,500,00.
Net after tax income: INR 25,500,00.
US Filing:
The family can claim a foreign earned income exclusion when filing with the IRS. For 2012, this is rather generous at $95,100. Plus you can claim an exclusion or a deduction from gross income for your India housing amount. This can amount to another 30% of your foreign income exclusion - about $28,530. Essentially, the first $123,630 of your foreign income is exempt from being taxed in the US.
Also, the US does not have a Totalization Agreement with India, so you are not required to pay US social security taxes (unless you are employed by an American company).
India salaried income of 24 lakhs in USD: $43,000
(Since the salaried income is less than $123,630 this family need pay no US taxes on foreign earned income).
India interest income of 6 lakhs, in USD: $10,909
US income before tax: $21,000
Total US income: $31,909
Credit for Indian taxes paid: - $8,182
Total US income after foreign tax credit: $31,909 - $8,182 = $23,727
Standard deduction in the US (assuming that the family doesn't itemize deductions): $11,600
Exemptions for 4 people: $14,800
Total of Standard deductions and exemptions: $26,400
Net US income: - $2,673
Income is negative, this family pays no US income taxes (although it still has to file with the IRS).
In effect, this family pays only a 15% tax on the Indian salary and interest earnings.
Go back to Taxes
Let us consider a simple example of a US family of four that has returned to India but still has residual income in the US. It wishes to report an Indian income of Rs. 30 Lakhs: Rs. 24 Lakhs in salaried earnings and Rs. 6 Lakhs in interest income for the tax year. And an income of $21,000 from the US broken up as follows: $14,400 in rental income (after all rental expenses and depreciation); $3,000 in interest earnings and $3,600 in dividend income.
Assume an exchange rate of INR 55/USD. Here is how the family would be filing its returns in India and the US:
India Filing:
Total India income before tax: INR 30,000,00.
Total India taxes owed (DTTA flat, 15%): INR 4,500,00.
Net after tax income: INR 25,500,00.
US Filing:
The family can claim a foreign earned income exclusion when filing with the IRS. For 2012, this is rather generous at $95,100. Plus you can claim an exclusion or a deduction from gross income for your India housing amount. This can amount to another 30% of your foreign income exclusion - about $28,530. Essentially, the first $123,630 of your foreign income is exempt from being taxed in the US.
Also, the US does not have a Totalization Agreement with India, so you are not required to pay US social security taxes (unless you are employed by an American company).
India salaried income of 24 lakhs in USD: $43,000
(Since the salaried income is less than $123,630 this family need pay no US taxes on foreign earned income).
India interest income of 6 lakhs, in USD: $10,909
US income before tax: $21,000
Total US income: $31,909
Credit for Indian taxes paid: - $8,182
Total US income after foreign tax credit: $31,909 - $8,182 = $23,727
Standard deduction in the US (assuming that the family doesn't itemize deductions): $11,600
Exemptions for 4 people: $14,800
Total of Standard deductions and exemptions: $26,400
Net US income: - $2,673
Income is negative, this family pays no US income taxes (although it still has to file with the IRS).
In effect, this family pays only a 15% tax on the Indian salary and interest earnings.
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