Help the NRI in the US for global income tax filing

The deadline for filing your taxes is approaching fast. For the current assessment year, the deadline is the 15th of April.The deadline of filing your taxes for 2018. The entire income tax filing and return process can be a bit overwhelming for some.

However, if you are aware of the different steps and take a more structured approach, it won’t seem as daunting as it does now. Here are some simple steps and tips to help you get through the tax season.

  • Global Income

Irrespective of whether you are a US resident or citizen (includes NRI, OCI or PIO), you are liable to pay taxes on your global income.

  • Salary

US Citizens who earn a part of their income in India are liable to pay the taxes in the USA. If you earn a salary in both the countries, you will have to pay taxes for the country where your current residence is at.

However, if you had earned your salary before moving to the USA and have paid the liable taxes, you can take tax credits and adjust the taxes with your US income. You can use the Form 1040 to declare your salary and Form 1116 for any tax credits.

  • Freelancing or contracts

For consultants who are working in the USA and earn money in India from their respective company, must pay taxes as well. It doesn’t matter if you have a bank account in India or the USA, you are liable to pay taxes. Such income must be reported in Schedule C of Form 1040.

  • Rent

For NRIs who have rental properties back home, the income generated from it will be taxed in the USA. But the question arises should you pay taxes in India as well? This is where the DTAA or the Double Taxation Avoidance Agreement comes into the picture. As per the agreement, you will have to pay taxes in India for the income generated in India by renting your house.

You must report the income from renting properties in your Form 1040 and claim for tax credits. The Schedule E of Form 1040 is where this declaration would go. For availing tax credit, you will have to fill up the Form 1116.

  • Capital gains

The capital gains are applicable to various assets such as shares, mutual funds, lands, selling of properties etc. Any gains that you make on these assets are under the purview of capital gain taxation. It usually is split into short-term capital gains and long-term capital gains.

When it comes to land, property or any other physical assets, if you hold them for three years and then decide to sell, long-term capital gains would be applicable. Should you decide to sell these assets within 3 years of buying them you will have to pay short-term capital gains.

 

For mutual funds and shares, the holding duration is lower at 1 year. If you plan to sell shares or redeem any mutual fund units post the completion of a year, you will have to pay long term capital gains on them, if the gains exceed INR 1 lac. For instruments sold before that, short-term capital is applicable.

 

All these incomes should be declared in Schedule D of your Form 1040. And if you have paid any taxes, you can claim for tax credits by filling up Form 1116.

These are some of the major income sources and their implications on your tax filing and returns. Being aware of them will ensure that you can make the most of tax returns.