Man declares income of Rs 9.6k, pays tax on Rs 43.5L after US earnings added

Mumbai, Oct 9, 2024

Applying the tiebreaker test, ITAT, in the case of a person who is a tax resident of both India and the US, has held that income earned in the US was taxable in India.

Tax experts said the tiebreaker test is applied in cases of dual residency. Parizad Sirwalla, partner and head (global mobility services tax) at KPMG India, said a returning Indian, for instance, could be a tax resident of both India (based on the number of days in the country) and the US (based on citizenship).

“In determining basic residency under domestic tax laws of each country, the fact that US tax residency (among other conditions) is based on US citizenship/green card status does have its own nuances as such individuals are always taxed in the US on their global income.”

In this particular case, the individual was a tax resident of India, having spent more than 183 days in the country in 2012-13. He was also a US citizen, one of the criteria for tax residency in America.“The tie-breaker test is sequential, meaning if the tie is broken at one stage, subsequent criteria do not need to be applied. But, these criteria are highly subjective and vary with each individual’s circumstances,” Sirwalla said.

The individual argued that his family (wife and three children) were a ll US citizens and one of his daughters was studying in the US. While he earned income from investments in both India and the US, he held larger investments in the US, and hence claimed he was a US resident.

Accordingly, he said, his US income should not be taxed in India.

The I-T department said the man had spent more than 183 days in India, and his wife and two of his children lived in Mumbai, while only one daughter resided in the US.

ITAT noted that determining the ‘centre of vital interest’ requires analysing both personal and economic rela tionships. It observed that while the man had family ties to the US, his immediate family and business activities were centred in India.

His siblings and parents residing in the US were deemed less relevant than his stay in India with his wife and children. ITAT gave more weight to his active business involvement in India over his passive investments in the US. The man had returned to India to run a film distribution company, co-founded with his wife in 2009, and was actively involved in its operations. Thus, ITAT ruled that he was a resident of India, making his US income taxable here.

[The Times of India]