As you are a green card holder - you are required to file your tax return based on income level - and are required to report all your income worldwide.

In additional - you might be eligible for a foreign earned income exclusion.

As an US person living abroad - you may claim a foreign earned income exclusion.

The person may qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year, or
-- Meet either the Bona Fide or Physical Presence tests.
If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).

To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.

Here are forms you likely need:

• 2007 Form 2555
• 2007 Instruction 2555

Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable. For instance dividends, investment income, etc - are not excludable.

Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.

If the same income is taxable in the US and in India - you may claim a credit for taxes paid in India on your US tax return.

To determine the amount of credit -the person should use the form 1116 and attach it to his/her tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf

Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf

Let me know if you need any help.

Hi Ravi,

1. This entire income is in response to my surrendering the stock options to the company. Company is paying the money as a perquisite. Is this income eligible for foreign tax credit?

Yes - if the same income is taxable in India - the purpose of a foreign tax credit - to avoid double taxation.

2. Can the company legally withhold income taxes for the same income in both US and India? What can I do to stop the company from withholding in US (As I am a tax resident in India, it is my understanding that India has the claim for this tax).

Yes - the company has to withhold taxes fro both based on your tax liability for both countries and because your company has business activities in both countries.

If withholding is more than your actual tax liability - you may file your tax return and claim a refund.

3. Shouldn't the company withhold taxes in US (for options vested in US) and taxes in India (for options vested in India)?. Or can they just withhold in India and when I file my taxes in January in US, I will show this income and take appropriate tax credit using the form 1116?

The company must comply with both countries laws.

In the US - you are treated as a resident (because you are a green card holder) - and payment to you is subject of mandatory withholding from all your income. In India - you are a resident - and all payments to you should be considered.

Because the company operates in both countries - it should comply with laws in both countries.

The reason of your situation is because you are tax resident of both countries.

Withholding - is not your actual tax liability - your tax liability will be determined at the tax mine when you file your tax return.

You need to file your US tax return and claim a refund if your actual tax liability is more than withholding.

4. WIll you be able to help me file taxes in January? What would be your fee?
According to Just Answer rules - I may not contact customers outside this site and may not establish a professional-client relationship.

You are welcome to ask any questions you will have on this site.

Let me know if you need any help.

You need to file your US tax return and claim a refund if your actual tax liability is more than withholding.), is the 'actual tax liability' includes the tax I paid both in India and US?

The reason I am very concerned is that between US and India, they will be withholding about 70% as tax. If it is not handled well, it may be a long time before I see some of that money again.! .

Your actual US tax liability is determined when you file your tax return. It is based on your total income, deductions and credits. Your US tax liability generally doesn't depend on your India tax libility.

If withholding will be more than your total tax liability - you will claim a credit.

2. Is it reasonable to assume that I can get refund in US (for the taxes I paid in India)?

Your foreign income tax credit may not be more that your UD tax liability on the same income - so if your tax in India on the same income is more than your US tax on that income - you will not have US tax liability on that income.

But you may not expect the IRS to pay you back taxes paid to India - that should be an issue with India tax authorities.

3. Can you help prepare my taxes in January 2010?

Unfortunately - I may not prepare your tax return - according to Just Answer rules - I may not contact customers outside this site and may not establish a professional-client relationship.

You are welcome to ask any questions you will have on this site and I will help you to verify your calculations if needed - but avoid to post any personal information.

Let me know if you need any help.