The treaty ensures that taxpayers are not subject to double taxation. This refers to the income tax payable on the same income or capital gains in both countries. Thus, there is a framework to determine the jurisdiction to tax different types of income. It also allows credits against tax paid in one country against the tax liability in the other.

The treaty reduces the withholding tax rate on certain types of income. They include dividends, interest, and royalties. Thus, the tax liabilities for taxpayers reduce, encouraging cross-border investment.

The treaty clarifies the income tax rules for cross-border transactions. Thus, taxpayers can easily understand their tax obligations in each country. Moreover, it can reduce the potential for tax-related disputes. As a result, it provides greater certainty for businesses operating in both countries.

The treaty defines the concept of a “permanent establishment” in both countries. This determines the jurisdiction to tax business profits a foreign company earns in the other country. Thus, it is important.

The treaty provides specific rules for taxing dividends, interest, and royalties. Specifically, the ones that companies pay in one country to another country’s residents. These rules include reduced withholding tax rates and exemptions under certain circumstances.

The treaty defines the rules for the taxation of capital gains. These arise from the sale of shares or other assets. The gains from the sale are taxable in the seller’s residing country. (subject to certain exceptions.)

The US-India Tax Treaty includes a “saving clause.” It allows the United States to tax its citizens and residents as if the treaty didn’t exist. If you are a US citizen or resident, you may still be subject to income tax in the United States. Even if the treaty provides an exemption or a reduced tax rate.

The US-India Tax Treaty seeks to avoid double taxation on US-India taxpayers’ income. You will have to pay income tax only in one country. You can claim a foreign tax credit on your US tax return for taxes paid to India on your Indian income.

Do you earn rental income from real property located in India? You may be subject to income tax in India as well as income tax in States. But the treaty relieves double taxation on this income. The rental income from real property is taxed in the country of the property’s location.

Private pensions and annuities US-India taxpayers earnings are generally taxable in their residing country. But the treaty exempts US citizens and residents who get private pension income from India. This income is taxed in India.

Are you an employee of the US or Indian government? Your salary is generally taxable only in your residing country. But this rule does not apply to government contractors or consultants. Their income may be subject to tax in both countries.

If you are a US citizen or resident working in India, you may be eligible for Social Security benefits/Pensions. But the treaty does not relieve double taxation on Social Security benefits. So your Social Security benefits may be subject to tax in both countries.

The treaty provides for exchanging information between the tax authorities of both countries. The IRS and the Indian tax authorities can share information about US-India taxpayers. This would ensure compliance with the tax laws of both countries.

As a taxpayer, it is vital to ensure that you report your income accurately. Also, you must pay the appropriate amount of taxes to both countries.