I am an IT consultant working for an Indian company. I was deputed to USA during Sep-Dec 2011 for some project realted work. As my stay in USA was less than 183 days during the USA financial year 2011, I opted to submit W8 Ben to my employer. Due to which my employer did not deducted the STATE ans FEDERAL tax on my USA income for 4 months.
I was happy to decalre this as an additional income in India for FY 2011-12 as had sufficient investments in India to claim the tax benefits on this huge income ($ income convrted ton INR).
But while filing my returns in USA for FY 2011, the CA's there are asking me to pay 10% tax (applicable to my income slab in USA). Also after paying this 10% tax in USA, they say I will have to pay the difference in India i.e. 30%(Indian slab) - 10% (USA slab) while filing the returns in India for FY 2011-12. This is confusnig me.
If I have to pay double tax, then what is the use of USA-India treaty ? why the W8 Ben was introduced ? Can anyone of you explain what is right and what is wrong ? Why I can't I simply pay the whole tax in India ? What is I don't pay it in USA ?