Queries regarding DTAA between India and US

Hi,

I have few queries with regards to DTAA between India and USA and

corresponding tax implications for below scenario -

Scenario - A is a citizen of India who had been living in US for about 4

years since Nov, 2019, working for a US headquartered/ based employer.

Based on the Indian residency test, A became NRI starting

Indian FY 2020 Apr - 2021 Mar

Fast forward to 2024, A travels to India in Mid of Feb, 2024, so A is still

considered NRI for Indian FY 2023 Apr - 2024 Mar

A is retrenched/ laid off/ let go in Apr 2024 and A is unable to travel

back to US considering the visa situation.

So A becomes Resident of India for Indian FY Apr 2024 - Mar 2025.

At the same time, A is also a US Resident for Tax purposes for

US FY 2024 because of the substantial presence test.

A has following income for Indian FY Apr 2024 - Mar 2025 and

US FY 2024 -

a) Balance Leave Encashed ------ US Federal and State Tax deducted

at source/ withheld by US Employer

b) Severance Package ------ US Federal and State Tax deducted at source/ withheld by US Employer

c) A did a partial withdrawal of 401K ----- US Federal and State Tax deducted at source/ withheld by 401k broker

d) Interest from CD (FD's)

To claim DTAA benefit A has submitted Form 8802 with US IRS to get US

Tax Residency Certificate, it might take time to get the TRC.

A will also be filing taxes in US for FY 2024.

Queries -

1) If TRC doesn't arrive on time before the Indian filing season starts

for FY Apr 2024 - Mar 2025, then can A submit salary slips/ pay

stubs and bank statements showing the income and tax deducted

at source and tax deducted deposit in bank account by the employer?

2) Can A claim Foreign Tax Credit on the Tax deducted at source/

witheld by US Employer on the salary/ wages/ remuneration paid by

the US Employer by filing Form 67 and providing the above

mentioned documents?

3) Can A claim Leave Encashment Tax exemption Section 10(10AA) for

the leave encashed during retrenchment/ lay off by US employer?

4) Can A claim Section 10(10B) exemption of 5,00,000/- on Serverance

pay ?

5) Can A claim Foreign Tax Credit on the Tax deducted at source/

witheld by US 401K Broker on the partial withdrawal?

Please kindly provide your valuable inputs on above queries.

Thanking you.

Regards.

I'll address each query in detail:

Query 1: Alternative Documents for DTAA Benefit - Acceptable Documents: In the absence of a Tax Residency Certificate (TRC), India's tax authorities may accept alternative documents, such as salary slips, pay stubs, and bank statements, as proof of tax deduction at source in the US [1]. - Conditions: Ensure these documents clearly show the income earned, tax deducted, and deposited in a US bank account.

Query 2: Claiming Foreign Tax Credit - Form 67: To claim Foreign Tax Credit (FTC), file Form 67 with the Indian tax authorities, providing the necessary documents, including salary slips, pay stubs, and bank statements [2]. - Eligibility: Ensure you meet the eligibility criteria for FTC, including being a resident of India and having paid taxes in the US.

Query 3: Leave Encashment Tax Exemption - Section 10(10AA): Leave encashment during retrenchment may be exempt from tax under Section 10(10AA) of the Income-tax Act, 1961 [3]. - Conditions: Ensure you meet the conditions specified in Section 10(10AA), including being an employee of an Indian or foreign company.

Query 4: Severance Pay Exemption - Section 10(10B): Severance pay may be exempt from tax under Section 10(10B) of the Income-tax Act, 1961, up to a limit of ₹5,00,000 [4]. - Conditions: Ensure you meet the conditions specified in Section 10(10B), including receiving the severance pay at the time of retrenchment.

Query 5: Foreign Tax Credit on 401(k) Withdrawal - Eligibility: You may be eligible to claim FTC on the tax deducted at source on the 401(k) withdrawal, provided you meet the eligibility criteria [5]. - Documentation: Ensure you have the necessary documents, including the 401(k) withdrawal statement and proof of tax deduction.