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I was a student in one of the universities in Texas before I graduated in Aug 2010 and moved back home to India. However since June 2010 till date, I have been working with a US based company.

Indian financial year runs from April - March. According to the timing of move back home, I qualify as an Indian resident to pay taxes in India on my year-round global income. I have paid that income tax in India in March 2011.

I was told that I would be able to claim foreign tax credit when I file return in US, since same income from my US based company is taxable in two countries. BUT today I was talking to a tax consultant in US who told me it is not possible to claim that foreign tax credit for year 2010 since I paid that in March 2011, whereas the US financial ends in Dec (2010). He said I can claim that for year 2011.

I would like to get his opinion confirmed from someone out here. Any ideas?

Thanks.

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First: See an accountant (another one).

Second: Read what the IRS says, and dig a little deeper into the forms yourself.

Third: My understanding of:

Four tests must be met to qualify for the credit:

  1. The tax must be imposed on you

  2. You must have paid or accrued the tax

  3. The tax must be a legal and actual foreign tax liability, and

  4. The tax must be an income tax

is that you have accrued income tax liability from June 2010 until December 2010. As such, you qualify for the deduction --- but only on the portion of your Indian taxes paid during the 2010 calendar (US tax) year.

Did your employer issue you with a 1099-MSC for the 2010 US tax year? That would remove all doubt.

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  • My US employer issued me a 1099-MISC for 2010 US tax year. But all my Indian taxes were paid in March 2011; nothing in 2010.
    – Mandar
    Commented May 30, 2011 at 7:48
  • -1 You're incorrect. The taxes accrued when the liability arose, which is March 2011. 1099 is irrelevant and has no bearing on Indian taxes.
    – littleadv
    Commented Apr 4, 2013 at 19:03
  • Also, keep in mind that once chosen, the method cannot be changed. We don't know that it is the first time the OP files taxes with form 1116, and even if we do - we don't know its beneficial for the OP to claim the credit for prior year.
    – littleadv
    Commented Apr 4, 2013 at 19:09
  • @peterk you can try to learn things instead of getting angry. You're just wrong. Happens.
    – littleadv
    Commented Apr 4, 2013 at 19:16

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