DTAA between India and USA

One of the most common questions amongst NRI is that “Do I have to pay taxes in both the countries i.e. country of resident and India?”

Accordance to that DTAA comes into the picture for NRIs working in other countries.

Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries that aims to avoid double taxation of income earned by residents of India and the USA.

Essentially it will be taxed in both countries USA and India, but tax relief will be claimed in the country of their residence.

One of the key provisions of the India-USA DTAA is the provision of tax residency. An individual or entity will be considered a resident of the country where they are permanently residing or where they are liable to pay taxes. This provision is important as it determines which country has the right to tax the income earned by the individual or entity.

DTAA between India and USA – Taxes on Income

Under this agreement, the taxation of various types of income, such as income from dividends, interest, royalties, and capital gains, is provided for.

Income from Immovable Property: Under the DTAA between India and USA, income from immovable property, such as rental income, is taxed in the country where the property is situated. For example, if a USA resident owns a property in India and earns rental income from it, then it will be taxed in India.

Dividend: If a resident company pays a dividend to a resident of another country, the dividend income is taxable in the country in which it is received.

Let’s say, Mr. Patel, who is a resident of India, owns shares of a US-based company and receives dividends from the company. As the dividend is received from a US company it will be taxed there and as Mr. Patel is a resident of India it will be taxed in India as well. So, now, to avoid double taxation, Mr. Patel can claim a tax credit for the taxes paid in the USA against his tax liability in India.

Interest Income: If interest income is earned in India and the amount belongs to a US resident, the amount is taxable in the US. However, according to the Income Tax Act, such interest may be taxed in India as well.

So, now if it has to be taxed in India then the dividend cannot exceed the following:

  • 10% of the gross amount – If the interest is paid on a loan granted by a bank or a financial institution.
  • 15% of the gross amount – in any other case.

Income of professors, teachers, and research scholars: Income earned by a resident of one country who is temporarily present in the other country for the purpose of teaching, lecturing, or conducting research is exempt from tax in the other country for up to 2 years and subject to certain conditions.

For example, if an Indian professor visits a US university to teach for a period of six months, the income earned by the professor in the USA will be exempt from tax in the USA.

DTAA between India and USA – Reporting in ITR:

If an individual or entity is eligible for relief from double taxation under the DTAA between India and USA, they need to disclose the foreign income and taxes paid in the ITR and as well needs to report the foreign income and taxes paid in the schedule FSI of the ITR form.

To claim the foreign tax credit, the taxpayer should file Form 67 online on the income tax website and can also claim a tax credit u/s 90.

Overall, the DTAA between India and USA is an important agreement that provides clarity on the taxation of various types of income and helps in promoting cross-border trade and investment.

Read more about DTAA between India and USA - Learn by Quicko.

Hi, I am a resident Indian, and trading equities in US stock exchange. My question is related to tax liability on the interest earned in the US brokerage account. There is some interest accrued on the cash balance in the US brokerage account. I want to know the tax liability of this interest income both in US and in India. (I am familiar with tax implications for capital gains and dividend income, but just want to know regarding interest income) Can someone please advise. Thank you, Venkat

Hi @vrrv101

Interest earned from US stocks will be taxable in US as well as India.
While filing your return in India it will be included in your total income and be taxed at the normal slab rate.
However, due to the Double Tax Avoidance Agreement (DTAA) between US & India, you can claim a foreign tax credit and offset the tax withheld in the US against your tax liability in India.

Here’s a read about DTAA between India and USA - Learn by Quicko for your reference.

Hope this helps.

Hi, I have a question on how to enter a loss in the FSI Schedule.
I am a resident Indian and have a net loss from capital gains by selling of securities in the US.
When I fill the FSI schedule I cant enter any negative values , possibly because only positive gain (on which tax is applicable ) is to be reported there. Can you please confirm this understanding?
I have duly filled all information in the CG Schedule including the domestic and foreign capital gains. Just to be clear , I have a net loss in foreign CG in the US and some positive gain in domestic Debt market.

Hi @Vijay_Sharma

Yes, your understanding is correct.
You cannot enter a negative value in the FSI schedule. You can enter 0 (zero).

Thank you for your response. I want to seek some further clarification. There seems to be two types of interest arising in US brokerage account - 1) Interest on securities lending 2) Interest on cash balance in the brokerage account. As per my understanding (1) is taxable in the US and I see my broker has withheld tax for this. But I do not see any tax withheld for (2). I need clarification if (2) is taxable in the US or is it taxable only in India. Any thoughts? -Venkat.

Hi @vrrv101

For an Indian resident, his/her global income is taxable. So both the incomes you have earned will be taxed in India.

If any tax is withheld in the US, then according to the DTAA you can claim foreign tax credit and offset against your tax liability in India.

Hope this helps.

Thanks @Shrutika_Shah

I came to USA in Sep, 2022. But I had to go back to India in Feb 2023 for one month, which means that I have lived in India for more than 182 days in FY: 2022-2023. But now for filing the return:
a) Do I need to show my USA salary income?
b) If yes, which year do I need to follow: Apr-March (India) or Jan-Dec (USA) for filing the income tax? Given that I haven’t earned my salary income in India from Sep-March. During this period received my salary income in the US from US-based company.

Please let me know.

Hey @Aditi_Atal,

With regard to your queries,

a.) Yes, as you have lived for more than 182 days in a financial year which is from April-March in India, you will be considered a resident and hence, the income earned in the USA needs to be reported.

b.) You will have to follow the FY April-March for filing the ITR. Any income received in that period will be taxable in India as you were a resident in FY 22-23. However, you can claim the benefits of DTAA while filing the ITR to avoid double taxation of the Income.

It is also important to note that the due date for filing the belated ITR for FY 22-23 is 31st December 2023. We have a team of tax experts who can help you file the ITR. You can book a MEET using the below link:

Thank You @Surbhi_Pal for guiding me. For filing the tax, I’ll get back to you. Thanks a lot!