For individuals returning to India after working in the United States, understanding the tax implications on their US employment income is crucial. Tax residency status in India is determined by the number of days spent in the country during the financial year.
An individual is considered a tax resident in India if they have been in the country for more than 182 days during the financial year. For example, someone present in India for over 182 days during FY25–26 would qualify as a tax resident.
However, even with tax resident status, there are further classifications. A short stay in the US might not meet the criteria for being treated as a resident but not ordinarily resident. This distinction impacts the scope of taxable income in India.
The taxation of US employment income for returning residents is also governed by the India-US tax treaty, which aims to prevent double taxation. Understanding the provisions of this treaty is essential for correctly reporting income and claiming applicable tax credits or exemptions.
Navigating these rules requires careful consideration of individual circumstances, including the duration of stay in both countries and the specific terms of the India-US tax treaty. Consulting with a tax advisor is advisable to ensure compliance and optimize tax liabilities.