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FTC paid vs accrual

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  • FTC paid vs accrual

    Hello Everyone,

    I have a query with respect to Foreign tax credit. I was a resident alien for 2016 and was deployed in US from my organization. US FY 2016 covers parts of FY15-16 and FY16-7 in India. I already filed income tax returns in India for FY15-16 and paid tax on passive income in Jan/Feb/Mar 2016 in India. Later pat of 2016 i.e. April to December, I further had passive income for which I paid advance tax in India before December 31 2016. The advance tax paid in India for April-Dec 2016 is far more than the actual tax paid in India on income generated between Jan-March 2016.

    Q1) Can I claim FTC for tax paid as part of IT return of FY15-16 in India and as well as advance tax paid for April-Dec 2016 income?
    Q2) Tax advisors are suggesting I can claim either one, as I can get tax credit either on paid or on accrual basis. Is this true ?


    This way I will end up paying double taxes (in India and in US) for the income I generated in Jan-Mar 2016 in India. Please suggest alternatives ?
    I understand there will be FTC carried forward for next year, but then I returned on Dec 31 to India so I cannot file resident tax returns in US for 2017.

  • #2
    As an individual, you are by default a cash basis tax payer. You can make an irrevocable IRC905(a) election to claim foreign taxes as a credit in the year in which the taxes accrue, rather than in the year in which such taxes are paid. (if elected, credits for all subsequent years must be taken on the accrual basis, and there is no going back to cash basis)

    If I understand correctly, your US tax liability is lower if you claim foreign taxes as a credit in which the taxes were actually paid. If that is the case, you're all good

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