Cross Border Taxation | How to File US and Indian Tax Returns from Abroad

1. Understanding Cross Border Taxation: How to File US and Indian Tax Returns from Abroad In today’s globalized world, it’s common for professionals, entrepreneurs, and remote workers to earn income from multiple countries. However, this global income often comes with complex tax obligations in more than one country. Cross border taxation refers to the rules and procedures that determine how income earned across different countries is taxed. For Indian residents earning income in the U.S. or U.S. citizens living in India, understanding how to file US tax returns from India and file Indian income tax from the USA is crucial for compliance and avoiding double taxation. In this guide, we’ll break down everything you need to know about cross-border taxation between India and the U.S., the tax treaties in place, and how to handle your filing obligations efficiently.

2. What Is Cross Border Taxation? Cross border taxation applies when an individual or a business earns income from multiple countries. The primary goal of international tax laws is to ensure fair taxation while avoiding “double taxation” — paying taxes on the same income in two countries. Both India and the United States tax residents on their worldwide income. However, non-residents are typically taxed only on the income they earn within that specific country. To prevent double taxation, India and the U.S. have established a Double Tax Avoidance Agreement (DTAA), which allows taxpayers to claim tax credits or exemptions for taxes paid in one country against their liability in the other. Filing a US Tax Return from India If you are a U.S. citizen or Green Card holder living in India, you are still required to file a U.S. tax return, regardless of where you reside or where your income is earned. The U.S. has a unique tax system that taxes its citizens on worldwide income. Here’s what you need to know about filing your US tax return from India: 1. Who Needs to File ● U.S. citizens living in India ● U.S. Green Card holders ● Indian residents who have income sourced in the U.S. (such as salary, investments, or rental income) If your total income exceeds the IRS filing threshold, you must file a U.S. tax return even if you have already paid taxes in India. 2. Important IRS Forms ● Form 1040: The main individual income tax return form. ● Form 2555: To claim the Foreign Earned Income Exclusion (FEIE) — allowing exclusion of up to $120,000 (approx.) of foreign income. ● Form 1116: To claim the Foreign Tax Credit for taxes paid to India. ● FBAR (FinCEN Form 114): Required if your total foreign bank account balance exceeds $10,000 at any point in the year.

3. ● FATCA (Form 8938): Report foreign assets if they exceed the reporting threshold. 3. Deadlines U.S. expats living in India get an automatic extension to June 15 to file, although taxes are still due by April 15. Further extensions can be requested until October 15. 4. Avoiding Double Taxation The India-U.S. DTAA ensures that you don’t pay taxes twice on the same income. You can either claim the Foreign Earned Income Exclusion or the Foreign Tax Credit, but not both on the same income. Filing Indian Income Tax from the USA If you are an Indian citizen living in the U.S., you might still have to file Indian income tax returns depending on your residential status and the nature of your income. 1. Determine Your Residential Status Under Indian tax law, your residential status determines your tax liability: ● Resident and Ordinarily Resident (ROR): Taxed on global income. ● Resident but Not Ordinarily Resident (RNOR): Taxed only on income earned or received in India. ● Non-Resident (NR): Taxed only on income earned or received in India. If you’ve lived outside India for more than 182 days in a financial year, you’ll typically qualify as a Non-Resident and only need to pay taxes on Indian-sourced income (e.g., rent from Indian property, dividends, or capital gains from Indian investments). 2. Income Types Taxable in India ● Salary for services rendered in India ● Rental income from property in India ● Capital gains from sale of Indian assets ● Interest earned on Indian bank accounts or fixed deposits

4. 3. Filing Process To file Indian income tax from the USA, you can: ● Register and log in to the Income Tax e-Filing Portal ● Choose the correct ITR form (usually ITR-2 for Non-Residents) ● Report global and Indian income (if applicable) ● Claim tax relief under Section 90 or 91 for taxes paid in the U.S. under DTAA ● E-verify your return using Aadhaar OTP, bank account, or net banking 4. Deadlines The due date for individual tax returns in India is July 31 of the assessment year (unless extended by the government). How the India-U.S. Double Tax Avoidance Agreement (DTAA) Helps The DTAA between India and the U.S. is designed to eliminate double taxation and promote cross-border economic activity. It allows taxpayers to: ● Claim credit for taxes paid in one country against the liability in the other. ● Avoid double taxation on the same income. ● Ensure transparency in tax treatment for individuals working across borders. For example, if an Indian resident earns U.S. income and pays taxes in the U.S., they can claim a foreign tax credit in India under the DTAA. Professional Assistance for Cross Border Taxation Filing taxes across two countries can be confusing, especially with ever-changing international tax laws. Hiring a cross border taxation expert or international tax consultant can help you: ● Identify your correct tax residency status. ● File U.S. and Indian returns correctly. ● Claim the right tax credits and deductions.

5. ● Stay compliant with FATCA, FBAR, and DTAA requirements. Professionals use advanced tax software and have in-depth knowledge of both countries’ tax systems, ensuring accuracy and peace of mind. Final Thoughts Navigating cross border taxation between India and the U.S. doesn’t have to be overwhelming. Whether you need to file a U.S. tax return from India or handle filing Indian income tax from the USA, understanding your obligations under both countries’ tax laws is essential. By leveraging the India-U.S. DTAA, staying organized with your financial documents, and consulting experienced tax professionals, you can simplify the process, avoid penalties, and ensure compliance in both jurisdictions.