You can claim Foreign Tax Credit on interest income in India on US tax return using Form 1116. To read more about claiming FTC, read here
Foreign Tax Credit (FTC) Form 1116 helps you to take a credit for the taxes paid in a foreign country on your US tax in order to ensure that you are not taxed twice on the same income.
For 1116 is a little complicated to fill out. But let me give you a small example of how FTC works:
Example:
Say for e.g. You earned interest income of Rs. 50,000 (approx $ 746) in India on which you paid a tax of Rs. 10,000 (approx $ 150) in India. Now you can avail a tax credit of $150 on your US tax return, which will ensure that you are not taxed twice on the same income.
Who can avail the Foreign Tax Credit?
You need to fulfil the following two conditions in order to claim the tax credit:
- Your income should be earned in a foreign country
- You should have paid taxes on this income in the foreign country.
Also, remember that in case you do not owe any taxes in the US, you cannot claim a refund of the taxes paid in the foreign country. However, you can carry forward these taxes to the next year.
