US tax filing assistance for Indian-residing US nationals and Green Card holders

 Introduction 

Navigating the intricacies of US tax filing can be challenging, especially for US citizens and Green Card Holder Tax residing in India. Understanding the tax obligations, filing requirements, and available relief options is crucial to ensure compliance and minimize tax liabilities. This guide aims to provide comprehensive help for US citizens and Green Card holders living in India, covering key aspects of tax filing.

Understanding Your Tax Obligations

  • Citizenship and Residency-Based Taxation

The United States follows a citizenship-based taxation system. All US citizens and Green Card holders must report their worldwide income to the IRS, regardless of where they reside. This includes income earned in India.

  • Filing Requirements

US citizens and Green Card holders must file an annual tax return if their income exceeds certain thresholds. The age and filing status (single, married filing jointly, head of household, etc.) determine the different thresholds. Even if no tax is owed, filing is mandatory to report foreign income and claim potential tax credits.

Reporting Foreign Income

  • Foreign Earned Income Exclusion (FEIE)

US taxpayers may deduct foreign-earned income from their taxable income up to a specific level under the FEIE. For the tax year 2023, the exclusion limit is $112,000. To qualify, one must meet the Bona Fide Residence Test or the Physical Presence Test.

  • Foreign Tax Credit (FTC)

The FTC provides a dollar-for-dollar reduction in US tax liability for taxes paid to a foreign country. This is particularly beneficial for US citizens and Green Card holders living in India, who may be subject to Indian income taxes.

Reporting Foreign Assets

  • FBAR (Foreign Bank Account Report)

An FBAR (FinCEN Form114) is to be filed if the total amount of foreign bank accounts over $10,000 at any point in the calendar year. This is separate from the tax return and is filed electronically with the Financial Crimes Enforcement Network.

  • FATCA (Foreign Account Tax Compliance Act)

Under FATCA, US taxpayers with specified foreign financial assets exceeding certain thresholds must file Form 8938 with their tax return. The thresholds vary based on filing status and residency.

Double Taxation Relief

  • US-India Tax Treaty

To avoid double taxation, the US and India have a tax treaty in place. The treaty provides guidelines on which country has the right to tax specific types of income. It also allows for the crediting of taxes paid in one country against the tax liability in the other.

  • Totalization Agreement

The US-India Totalization Agreement helps US citizens and Green Card holders avoid paying social security taxes in both countries. It ensures that contributions made to one country’s social security system are recognized by the other, preventing dual contributions.

Practical Steps for Compliance

  • Keeping Accurate Records

Maintain detailed records of all foreign income, taxes paid, and financial accounts. This will facilitate accurate reporting and help in claiming tax credits and exclusions.

  • Seeking Professional Help

Given the complexity of international tax laws, it is advisable to seek help from a tax professional specializing in US-India tax matters. They can guarantee adherence to both Indian and US tax regulations and offer customized advise. 

Conclusion

Filing US taxes as a Green Card holder or US citizen living in India requires careful attention to detail and a thorough understanding of both countries' tax laws. By leveraging available exclusions, credits, and treaty provisions, taxpayers can minimize their tax liabilities and ensure compliance. Seeking professional guidance can further simplify the process and provide peace of mind.

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