DUAL RESIDENCY: GREEN CARD HOLDERS CAN CLAIM NON- RESIDENT STATUS IN THE USA UNDER DTAA TREATY TO AVOID US TAX ON INDIAN INCOME

USA TAX COMPLIANCES:

• UNDERSTANDING U.S. TAX RESIDENCY

Non-U.S. citizens are considered U.S. tax residents if they meet either:

• Green Card Test: Green card holders are automatically U.S. tax residents, unless they surrender residency or claim treaty benefits.
• Substantial Presence Test (SPT): You’re a U.S. tax resident if present in the U.S. for at least 31 days in the current year and 183 days over the past three years (weighted formula).

• CLAIMING NON-RESIDENT STATUS UNDER DTAA:

1. Tie-Breaker Rule: The India-U.S. Double Taxation Avoidance Agreement (DTAA) helps resolve dual residency by providing “tie-breaker” rules to determine tax residency in case of dual residency.

• Green Card holders residing in India can elect to be treated as non-residents for U.S. tax purposes under DTAA by filing IRS Form 8833 (Treaty-Based Return Position Disclosure).

• Key criteria for tie-breaker rules:
• Permanent Home: Country where the individual has a permanent residence.
• Centre of Vital Interests: Location of strongest personal and economic ties.
• Habitual Abode: Where the individual spends more time.
• Nationality: If none of the above is conclusive, nationality determines residency

• TAX IMPLICATIONS OF DTAA CLAIM

If eligible under DTAA tie-breaker rules, Green Card holders can:

• Avoid U.S. Tax on Global Income: Green card holders meeting DTAA tie-breaker rules aren’t taxed on Indian earnings in the U.S.
• File Form 1040-NR: Instead of a regular U.S. tax return, file Form 1040-NR to report only U.S. sourced income.
• Prevent Double Taxation: DTAA ensures you comply with U.S. tax laws while avoiding double taxation on Indian income.

• COMPLIANCE & REPORTING CONSIDERATIONS

1. EIRS Form 8833:

Green card holders must file Form 8833to claim treaty benefits and justify non-resident status. Penalty of $1,000 in case of failure.

• Informational Returns are still mandatory to file:

FBAR- Foreign bank accounts and assets must still be reported underFBAR and FATCA rules, even if claiming DTAA. FinCEN 114, FATCA Form 8938, Form 5471, Form 8865, 8621 etc.

• Immigration & Exit Tax Considerations (Risks):
• DTAA claim may impact Green Card status if disclosed to immigration authorities.
• Long-term Green Card holders may trigger expatriation tax (Exit Tax) under U.S. tax laws.

For expert guidance on cross-border taxation, visit www.rtulsian.com  or reach out to us on ishan@rtulsian.com or WhatsApp us on +916289107303  for a personalised consultation and seamless tax compliance solutions .