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DEAR BILL, I HAD LENT $00,000 TO MY SISTER IN INDIA INTEREST FREE IN TIMES OF HER NEED. AT THE END OF THE 1ST YEAR SHE COULD RETURN THE PRINCIPAL BUT AGRRED TO PAY 12% INTERST. AT THAT TIME I MADE HER AWRE THAT I HAVE TO PAY INCOME TAX HERE ON THAT INTEREST. BUT BEFORE SHE COULD PAY ME IINTEREST GOVT OF INDIA COLLECTED 30% INCOME TAX, WHICH IS CALLED DEDUCTION AT SOURCE OVER THRE. NOW IT IS 7 YEARS. IF AND WHEN I GET MY MONEY AND ACCRUED INTEREST BACK WOULD I HAVE TO PAY TAX AGAIN TO OUR IRS ? THANKING YOU, DINESH xxxx
I THANK YOU FOR ANSWERING MY QUESTION INN ABSENCE OF BILL. I WOULD LIKE TO KNOW WHAT IS TDS ? IF IT MEANS TAX DEDUCTION AT SOURCE THEN IT IS COMPULSORY AS PER THE
LAWS OF INDIA. THERE IS NO ESCAPING IT. I CAN APPLY FOR REFUND OR SHE COULD DO IT IF THE TAX BRACETS , IF THE RE-
CEPIENT IS IN LOWER TAX BRACKET. SO WHAT DOES IT MEAN WHEN WE SAY "IF GOVT OF INDIA CANCELS THE TDS ?"
MY UNDERSTANDING IS THAT I HAVE IN EFFECT INVESTED THE
MONEY IN INDIA & I AM GETTING 12% RETURNS ON THAT INVES-MENT. THEN I PAY MY SISTER PAYS 30% INCOME TAX, SO I GET ABOUT 8% RETURNS WHICH IS REINVESTED BY HER AS PER MY INSRUCTIONS. THIS CYCLE OF INCOME AND TAX DEDUCTION WILL CONTINUE UNTILL SHE PAYS ME BACK MY PR
-INCIPLE AND ACCRUED INTERST BACK.
THUS 30% INCOME TAX IS ALREADY PAID TO INDIAN GOVT.
NOW WHILE I CAN SHOW TO OUR IRS PROOF OF INCOTAX PAID IN INDIA. WHAT INCOME SHOULD I SHOW HERE, 12% AND CLAIM CREDIT FOR INCOME TAX PAID TO FOREIGN GOVT. ALSO THRE IS A DOUBLE TAX AVOIDANCE TREATY BETWEEN
INDIA AND USA. WITH THIS FACTS PLEASE TELL ME WHETHER I WOULD STILL OWE TAXES TO IRS ? MY TAX BRACKET IS LESS THAN 30%.
THANKING YOU AGAIN & WITH REGARDS,
Dear Dinesh,Welcome again and thanks for your follow up question. Let me answer you point by point so that it remains simple and clear to understand.First of all, YES -- TDS is Tax Deducted at Source. It is still in force and NOT abolished by India. Your sister is obligated to deduct 30% TDS while she pays. She must have TAN Tax Account Number to be eligible to deduct tax and after deducting, she is obligated to pay this deducted amount to Indian Income Tax department under your PAN.Secondly, GOVT OF INDIA CANNOT CANCEL TDS.. On the contrary, it is widening the TDS net. The tax thus deducted and if deposited by your sister stands Credit in your PAN -- Permanent Account Number and you CAN CLAIM REFUND if you have no tax liability in India.YES, this income tax deducted at source and being deposited with Govt. Of India, stands credit. Your Sister should send Form 16 as a proof of deposit and this you can show IRS as a proof of tax paid.YES, there is a treaty to avoid double taxation of income between India and the US vide Notification No. G. S. R. 990(E), dtd. 20.12.1990..http://www.advocatekhoj.com/library/agreements/doubletaxation/75.phpAccording to Article 25 of the DTAA, the US shall allow its residents or citizens to claim a tax credit in the US on income tax paid to India. In such a case, you will owe taxes of 12% interest income out of which you will show the amount deducted as source at CREDIT and you will only owe the difference.
Your other question stands answered at http://www.justanswer.com/finance/7r2na-dear-bill-finance-given-100-000-years.htmlYou may please leave a positive rating if this helps. Alternatively, please feel absolutely free to revert with further queries and I shall be more than happy to keep assisting you.Warm Regards