Tax DTAA Mechanism

Am I correct on my assumptions:

If a US partnership (1065) received divided from US Corp ( in which partnership has more then 50% holding).
It need to withhold to withhold 21% from Partner (an Indian Company) and Second Partner 37% from Indian partnership.

Indian Company can file 11020F and get 65% deduction (for Dividend Income from more 20% owned us domestics Corp). then get 65% tax refund .

Partner Indian partnership has to file own tax return 1065 but then the individual partners has to file own 1040 NR returns.

@Divya_Singhvi @Laxmi_Navlani @Kaushal_Soni can you?

Hey @SanDiego01 ,

Generally, taxability of income is determined by the residence rule. A Resident refers to a person who as per the relevant laws of the Contracting States, i.e. India and the US are liable to pay tax by reason of domicile, residence, citizenship, place of management, place of incorporation, etc.

As per Article 10 of India - USA Double Taxation Avoidance Agreement, Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

Eg: If a US Company pays a dividend to an Indian Resident shareholder, then the dividend income will be liable to tax in India. Further, USA (Company paying the dividend) also has a right to tax the said dividend in their state.

However, if the beneficial shareholder is a resident of India i.e. a resident of the other contracting state, then the tax so charged shall not exceed:

(a) 15 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 per cent of the voting stock of the company paying the dividends.
(b) 25 per cent of the gross amount of the dividends in all other cases.

You can additionally refer below article for more insights about DTAA:

Further, you can also file your tax returns and claim the foreign tax credit as well.

I hope, it helps! :slightly_smiling_face:

I shifted to US in Dec 2020. In filing FY2020-21 tax return as Indian resident,

  • US tax year is Jan-Dec2020. What period of my US salary do I have to include as foreign income, Dec 2020 alone or Dec2020-Mar2021? Since only US-2020 return has been finalized in US, Jan-onwards tax return will only be final next year. So how do I report jan-mar2021 taxes, pro-rated or per actual deducted taxes?
  • To fill in ITR2, do I have to file Form 67 separately first and then fill Form FSI?
  • Also, US-India DTAA treaty says US Federal taxes have to be claimed? Does this mean Social Security tax and California state income tax cannot be claimed?

Manish.

@Kaushal_Soni @Divya_Singhvi @Laxmi_Navlani @Saad_C can you help with this?

Hey @magnishe

While filing your income tax return for FY 2020-21 as indian resident, you should report US salary income according to US tax year i.e. Jan - Dec 2020 and no need to proportionate the income.

As per India-US DTAA, taxes mainly covered federal income taxes excluding social security tax, personal holding company tax and accumulated earning taxes.

Further, while filing ITR-2, Form 67 has to be filled on or before the due date of filing return.

You can read below article of Form 67 for more clarity:

Hope, it helps!

Hi Kaushal,

Thanks for the quick reply. This is helpful. Will show Dec2020 income in this year’s ITR. Thanks for pointing out Form67 requirement also.

So any Jan-Mar2021 US income will be shown in next year’s FY2021-22 return later?

Manish.