After working in the US for about 1.5 years, I returned to India in July 2025 and have taken up employment here since then. How will my US salary for April to June 2025 be taxed in India? There are various tax components in my pay slip, including federal income tax, New York income tax, medicare tax, county tax, and social security tax. Would I get a deduction for all these amounts?
– Name withheld on request
Assuming you were in India for more than 182 days during FY25–26, you would qualify as a tax resident in India. Given your relatively short stay in the US, it is unlikely that you would satisfy the additional conditions to be treated as a resident but not ordinarily resident (RNOR). Accordingly, you would most likely be regarded as a resident and ordinarily resident (ROR) for that year.
From a treaty perspective, the tie-breaker test is also unlikely to operate in favour of the US. Even if a permanent home and centre of vital interests could be demonstrated in both jurisdictions, a 1.5-year assignment would generally be insufficient to shift your habitual abode away from India. As a result, treaty relief may not be available for the overlapping period (April to June 2025) during which you earned a salary in the US.
As an ROR, your global income is taxable in India. This includes not only income earned in India but also your US employment income for the April–June 2025 period.
Such foreign salary must be computed in accordance with Indian tax provisions, irrespective of how it is treated under US tax law. Deductions allowed in the US will not automatically be available in India. Rather, the deductions available under Indian income-tax law will depend on the tax regime you opt for. For example, under the new tax regime, only the standard deduction of ₹75,000 is generally permitted, with most other deductions being disallowed.
While certain judicial precedents have permitted the deduction of mandatory foreign social security contributions, treating them as a diversion of income by overriding title, voluntary contributions such as 401(k) would typically not qualify.
Federal income tax withheld in the US can be claimed as a foreign tax credit (FTC) against your Indian tax liability by filing Form 67 before submitting your return. Although certain judicial precedents have allowed credit of US state taxes, the technical explanation of the India–US tax treaty expressly clarifies that only federal income taxes are covered. Accordingly, credit for other taxes, such as state taxes or payroll taxes, may not be available.
As an ROR, you will also be required to disclose details of your foreign assets, if any, in the Foreign Assets (FA) Schedule of your Indian income-tax return.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs