One of the questions that was hounding me during my move back was how it would affect my taxes? Having income generated in the US (from my consulting business) and from India (from my Machine Vision solutions business) caused room for worry about double taxation, etc.
From the perspective of the U.S. tax system there are two scenarios
- Investments or business undertaking of foreign persons present in the United States – known as taxation of foreign persons
- Investments or business undertakings of U.S. persons abroad which are known as taxation of foreign income.
So I was moving from the first to the 2nd.
The US taxes income of its citizens from all sources worldwide, whether they reside in United
States or abroad. Individual residents of the United States, regardless of nationality are exposed to U.S.
tax on their worldwide income. (There are some exceptions for which you will need to consult a CPA). As a consequence I report all my income (including capital gains/loss from stock transactions in the Indian market) on my US tax returns.
But there's some good news. As a US resident you may qualify to exclude up to an amount of your foreign earnings ($92,900 for 2011, $95,100 for 2012). This is per the Foreign Earned Income Exclusion clause of the IRS. Keep in mind that this pertains to salaries and wage earnings and not capital gains (from sales of stock in the Indian market).
This blog only provides a brief overview of the residence aspect of international tax – there are many
exceptions, rules and regulations associated with the tax law – so please consult with a professional tax
expert before you act on any information. It saves you a tone of worry and headache which you don't want to deal with.
I've been working with Raj Prabhu in Bellevue, WA and will be happy to make an introduction.
From the Indian tax laws - the rules are more favorable for an NRI. You don't have to pay taxes on your foreign income in India. However all your income earned in India is of course taxable in India. Due to a lot of tax evasion, the monetary system is remarkably tight. Any substantial transaction in India needs to be tied to your PAN (permanent account number), which is like a SSN in the US. More about my experiences with the Indian business regulations in an upcoming blog.