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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
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Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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DEAR BILL,I HAD LENT $00,000 TO MY SISTER IN INDIA

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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

Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.
Dear Dinesh,

It seems the expert you requested is not available at this moment. Let me try and help you instead.

If the Govt. Of India, cancels the TDS, as you say, it will have no bearing on your tax accrual with the IRS.

Let me explain.

If your sister was to pay you $100 as interest, earlier, she would have deducted $30 as TDS. In such a case, your $100 would still be shown to IRS as interest income and you would have claimed the credit of the TDS amount that is deducted while computing your tax liability.

In the present scenario, your sister would pay $100 and you would still declare $100 to the IRS as your interest income and compute your tax liability on the entire $100 interest income.

So, if you get accrued interest income, you would certainly pay tax on that interest income as per current % bracket applicable to you in the US.

I am sure this would help.

You 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
Customer: replied 1 year ago.

MA'AM,

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,

 

DINESH xxxx

Expert:  Rakhi Vasavada replied 1 year ago.

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.php


According 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.html

You 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

Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3891
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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