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I am an Indian citizen, currently living in US. I am on H1-B visa and employed in a company. I stay there pretty much all year long. This means I will be classified as an RA (Resident Alien).

Scenario 1:

I have a savings bank account in India. It has Rupees One Lac (Rs. 100000). The interest it earns per year is Rupees Four Thousand (Rs. 4000).

Now, in India up to Rupees Two Lacs, it attracts no tax. So, the aforementioned interest attracts a tax of Rupees Zero.

Question: Do I have to declare this interest in US as part of my tax filing?

Scenario 2:

I earn (through various interests out of Savings Bank account or Fixed Deposits) a total of Rupees Three Lac (Rs. 300000) per annum.

Now, in India I have to pay a tax of Rupees Ten Thousand (Rs. 10000). This is calculated @ 10% of the amount above the base amount of Rupees Two Lac. Now, do I have to declare the earning of Three Lac in US and pay tax for the same as well? Also, is it OK (per Double Taxation Avoidance Agreement) that I can deduct the amount of tax paid Rupees Ten Thousand (Rs. 10,000) converted into US dollars while showing the total income of Rupees Three Lac (Rs. 300000) earned in India?

Scenario 3

If I have a land, which is worth Rupees Ten Lacs (Approx $20,000 @ Rs.50/USD), do I have to file an FBAR? (Note: This land does not earn any income).

Please do clarify!

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Scenario 1:

I have a savings bank account in India. It has Rupees One Lac (Rs. 100000). The interest it earns per year is Rupees Four Thousand (Rs. 4000).

Now, in India up to Rupees Two Lacs, it attracts no tax. So, the aforementioned interest attracts a tax of Rupees Zero.

Question: Do I have to declare this interest in US as part of my tax filing?

YES.

Scenario 2:

I earn (through various interests out of Savings Bank account or Fixed Deposits) a total of Rupees Three Lac (Rs. 300000) per annum.

Now, in India I have to pay a tax of Rupees Ten Thousand (Rs. 10000). This is calculated @ 10% of the amount above the base amount of Rupees Two Lac. Now, do I have to declare the earning of Three Lac in US and pay tax for the same as well? Also, is it OK (per Double Taxation Avoidance Agreement) that I can deduct the amount of tax paid Rupees Ten Thousand (Rs. 10,000) converted into US dollars while showing the total income of Rupees Three Lac (Rs. 300000) earned in India?

You declare the whole income (including the part exempt from local taxes). You use form 1116 to calculate the portion of Indian taxes paid that you can credit (i.e.: deduct dollar to dollar from your tax liability) on your US tax return. US taxes interest at ordinary income rates, which is definitely higher than the 10% you paid in India, so you'll pay additional taxes (this is not double taxation, as your Indian taxes are credited to the liability calculated).

Scenario 3

If I have a land, which is worth Rupees Ten Lacs (Approx $20,000 @ Rs.50/USD), do I have to file an FBAR? (Note: This land does not earn any income).

No. FBAR is only for accounts. For 8938 might be relevant if you hold the land not in your personal name (through a trust/company/partnership etc). Additional forms might be required, talk to your tax adviser.

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Here is a helpful article that may answer your question about your tax liability for income earned in India.

http://www.hmalegal.com/2/post/2013/03/making-the-big-move-considering-the-tax-liability-of-moving-to-the-united-states-on-an-h-1b-visa.html.

How you are taxed all depends whether you are considered a resident or non-resident alien in the United States. The article explains how you know if you are one or the other. If you are considered a resident alien you will be subject to taxes like any US citizen would be...good luck!

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  • Welcome, thanks for stopping by. It is super easy to see you are posting a good answer from your own site, but we like to have an explicit mention. money.stackexchange.com/faq#promotion Good answer though to a tough question! – MrChrister Mar 9 '13 at 17:32
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As you are a Resident Alien, you will have to declare all your income and pay tax in US. Hence in both Scenario 1 and 2 you have to pay tax in US.

Edit: There is double tax avoidance treaty. Read the text at http://law.incometaxindia.gov.in/DIT/File_opener.aspx?fn=http://law.incometaxindia.gov.in/Directtaxlaws/cbdt/dta/A1_USA.htm

FBAR to my knowledge is for active accounts and not for Land / assets.

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  • Thanks! Just to be clear, for both scenario 1 and scenario 2, I will have to declare the Indian earnings in US and pay tax in US. Have I understood it correctly? – Kanini Dec 24 '12 at 15:01
  • Dheer: If it is not too much trouble, can you please point me to some reference websites where I can read more about these so that I can understand them better. Thanks! – Kanini Dec 24 '12 at 15:13
  • According to this, we do have DTAA between India and US even for individuals, so, it would be really helpful if you can provide me with your sources. articles.economictimes.indiatimes.com/2011-11-09/news/… – Kanini Dec 24 '12 at 15:46
  • Thanks! I did find those links. Now, since we have DTAA, how will it work out for my scenarios? – Kanini Dec 25 '12 at 9:11

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