A person can be Tax resident of both the countries:-
- A person acquires Green Card of USA (A special status accorded by a country) and a “Tax Resident” in India.
- A person satisfies Substantial Presence Test of US Tax Law (Length of stay in a country) makes an individual Tax resident of US and he/she would be Tax “Resident” in India also.
Remedies:
- If an individual is an tax resident of more than one country, then TIE BREAKER RULE in the DTAA between both the countries will apply.
- The test specified in DTAA between US and India are as follows:
- Place of Permanent Home, if not determinable, then Center of Vital Interest.
- If Centre of Vital Interest cannot be determined, then Habitual Abode.
The test specified in DTAA between US and India are as follows:
If Habitual Abode is not possible, then the State of Nationality will be applicable.
If Nationality is not determinable, then competent authorities of the Contracting States shall settle the question by mutual agreement.
- As per the test mentioned in DTAA, a person will be treated as resident of one country and non resident of another country for Income tax purposes.
- When the person will be treated as resident of a country, then his global income is taxable in that country (Residence Rule).
- The person will be treated as non resident in a country for income tax purpose and only income earned in that country will be taxable (Source Rule).
- The taxes paid as source rule will be available as credit in Resident Rule country either by exemption method or Foreign Tax credit Method as per DTAA between both the countries.
- The residency status of an individual as per other regulations like Tax on gifts, Inheritance (Estate) Tax etc., will be applicable as usual since it is applicable to all U.S. Domiciled Individuals.
Exchange of information
- As per the article on ‘Exchange of Information’ in several DTAAs, the tax authorities of both jurisdictions shall exchange information relating to all taxes applicable to residents to avoid evasion of taxes or frauds.
- Such exchange can be on a routine basis or on request with reference to particular cases. Either jurisdiction shall provide the other with such information and documents as requested unless it involves certain confidential data.
