Double Taxation Relief for OCI and Green Card Holders in the USA
Overview
Many Overseas Citizens of India (OCI) who are citizens or Green Card holders of the USA must file USA tax returns while living outside the USA, such as in India. This means their global income will be taxed in both India (as residents) and in the USA (as US citizens or Green Card holders). To prevent double taxation, two main reliefs are available in the USA:
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Foreign Earned Income Exclusion (FEIE)
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Foreign Tax Credit (FTC)
Foreign Earned Income Exclusion (FEIE)
The FEIE allows eligible US citizens or resident aliens (Green Card holders) to exclude a certain amount of foreign-earned income from their US taxable income if they meet the physical presence test or the bona fide residency test in a foreign country.
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Exclusion Amount: For 2020, the exclusion amount is $107,600.
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Foreign-Earned Income: Includes wages, salaries, professional fees, or other amounts paid for personal services rendered.
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Eligibility: Requires meeting the physical presence test (330 full days in a 12-month period outside the USA) or the bona fide residency test (establishing residence in a foreign country for an uninterrupted period).
For further details, refer to the .
Foreign Tax Credit (FTC)
The FTC allows taxpayers to claim a credit for foreign taxes paid or accrued to a foreign country or US possession if the same income is subject to US tax.
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Credit Calculation: Based on the income subject to US taxes, the tax payable, and the amount of tax paid or payable on the same income in the foreign country.
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Form 1116: Details of the foreign taxes paid are reported in this form.
For more details, refer to the .
Important Considerations
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Mutual Exclusion: The Foreign Earned Income Exclusion and the Foreign Tax Credit are mutually exclusive. The same income cannot be claimed for credit using both forms.
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Accuracy: Ensure accurate calculation and documentation of the tax credit as prescribed by the IRS.
This refined and updated summary provides a comprehensive overview of the available double taxation relief for OCI and Green Card holders in the USA
