Checklist for an NRI filing return in USA and India for the same year
It is quite a common scene. Indians travelling to the USA in the search for better opportunities and a better future. If you are one of them, there are quite a few things that you need to keep in mind for filing return in the USA. The first of them being, the liability of taxes. And things can get a bit more complicated if you leave India in the middle of the year.
Should you pay your taxes in India or in the United States of America. This is a confusion that most NRIs have. The simplest way to handle such queries is to find out the residential status of an individual. The residential status of an individual for India or USA defines the tax liability that he or she must adhere to.
In order to find out whether or not an individual is a US resident, they must take the Substantial Presence test. An individual must have either of the following criteria to meet the test.
- Physically present in the US for at least 31 days.
- Physically present in the US for at least 183 days in the previous three years.
If you want to check your residential status, you would need to count the number of days that you were physically present in the US. Should you qualify for either of these, you would be deemed as a US resident. If not, he/she would be a non-resident alien.
To find out if your status is an Indian resident or not, you must qualify for any one of the following two conditions.
- A person must have stayed in India for at least 182 days for a fiscal year.
- A person has stayed for at least 365 days together over a period of 4 years.
For being an Indian resident, an individual can use either of the following conditions as well.
- A person has been a resident of India for at least 2 years in the past 7 years.
- The person has stayed for at least 730 days or more than that during a period of 7 years.
Apart from identifying whether or not you are a resident of a country, there are some other conditions as well. Here is when you would need to file taxes return.
US Tax Filing
Individuals who are residents of the USA, green card holders or a lawful US resident need to file for their taxes. Also, if you are a non-resident alien and have a source of income in the USA, you need to file taxes. A non-resident alien is taxed only on the US income whereas a resident is taxed on the global income.
India Tax Filing
The Indian tax laws say that a ROR must pay taxes on their Indian as well as global income as per the applicable tax slabs. Should an individual qualify as a ROR or resident, they would have to pay taxes to the Indian government.
There are chances or instances where one might have to pay taxes in both the USA and India. However, you need not to worry about such situations. Both the countries have a DTAA or double taxation avoidance agreement. This ensures that individuals do not end up paying taxes in both countries. If at all you have already paid taxes in one country, you can claim for tax credits.
Another example would be if a person stays in India for 90 days and moves to the USA, he must pay taxes only on his Indian income to the Indian government and likewise applicable taxes in the USA.