Many Indians make money from the US by investments, remote employment, or freelancing. Under these circumstances, people sometimes wonder what taxes IRS mean and how they would affect them. Here is a basic overview for Indian taxpayers.
The IRS: What is it?
The Internal Revenue Service (IRS) is the United States’ tax department. It manages US tax rules, income tax, and returns. Should you make money from a US source, you could have to deal with IRS policies.
When Should Indians Handle IRS Taxes?
- Should you freelance for a US client, you could have to abide by IRS guidelines.
- You are employed remotely for a US company.
- You profit from US stock markets.
- US-based platforms pay you interests or dividends.
In all these scenarios, the US first could tax your income.
Regarding Double Tax:
Under their Double Taxation Avoidance Agreement (DTAA), India and the US avoid double taxes. You will thus not pay full tax in both countries.
- In India, you can claim credit for US tax paid.
- This spares the same income from double tax.
- You can thus change it while submitting your Indian ITR even if you pay taxes to the IRS.
Documents You Could Get:
These are some relevant forms:
- FORM 1042-S: Shows your payment’s US tax deduction level.
- Form W-8BEN: You fill this declaring you are not a US citizen.
- Form 1099: For US client freelancers and contractors.
These forms help you report your foreign income.
File Indian Taxes: If You Paid IRS
- Gathering documentation of the income and tax deducted.
- Convert taxes and income to INR.
- Track the foreign income in your ITR.
- Ask for tax relief under Section 90 or Section 91.
- File before the approaching due date.
Although you paid taxes to the IRS, you still have to report your US income in India.
Advice for Indian Readers
- Save all records, including IRS forms, payment slips, and invoices.
- If you’re unsure about DTAA rules or currency conversion, use a CA.
- Declare foreign income always to prevent notices.
- Keep your foreign asset disclosure as asked.
Although managing taxes with the IRS can seem difficult, with the correct actions, you can stay completely compliant in India and handle them without any problems.
