Question

As resident, taxes are paid in India for Interest income. Gross interest income (inclusive of TDS) is declared while filing US tax. Where is Tax Credit to avoid double?

Forum|Forum|1 year ago
February 24, 2025
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Turbo Tax talks abut Tax Deduction or Credit using Kay example. Let's assume for India Income you already paid $3000 tax in India in I.Rs. If this India Income is removed in Turbo, you owe no US tax$, because US standard deduction takes care while adding US Income. Now If you add India Income, you end up paying close to $3000 US Tax...Where and how Tax Credit applicable? Where is Double Taxation Avoidance. Should India Tax is deducted (while declaring income) and you still pay USA Tax for the net amount? Turbo Tax's KAY example, doesn't seem to help....

AmyC

The form 1116 is to report tax already paid on the same income. See Claiming the Foreign Tax Credit with Form 1116 - TurboTax.

Tip: Most people claim the credit. You can try it as a deduction and a credit to see which choice is better for you.

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T

tarakayanAuthor

We have been doing this for several years in turbo tax and end up with the same answer. So the best answer to my own simple question (As you already paid taxes on foreign passive income in that country as a Resident, should you again have to pay tax on the same income in the USA because you declare global income?) : Yes you are paying tax twice, FIRST IN THE COUNTRY OF RESIDENCE AND YES AGAIN IN THE USA IF YOUR ITEMIZED DEDUCTION IS NOT GOING TO EXCEEED THAT SPECIFIED AMOUNT ($30K).....in other words, in that case, DEDUCTION OR TAX CREDIT WILL HAVE NO EFFECT. Added to this, TurboTax has a complicated 1116 data entry, which one to enter first (wages or interest income, or whichever is the higher amount etc.