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.
Edited by LEV on 11/2/2009 at 5:46 AM EST