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What is the difference between filing taxes in India and filing taxes in the United States?

by Uneeb Khan
What is the difference between filing taxes in India and filing taxes in the United States?

Every country’s government is tasked with ensuring that its population has access to sufficient resources and facilities to thrive. In exchange, citizens must pay a portion of their annual income – taxes – to the government of the country to ensure that its operations function properly. However, because not all countries operate in the same way, no two tax systems are comparable.

Let’s take a deeper look at our tax system and compare it to that of another country, the United States of America, to see how tax systems differ from country to country. Here are some of the significant differences between India’s and the United States tax systems, tax filing, and tax savings.

Rates of Taxation – 

To comprehend the differences in tax savings between India and the US tax filing from India, we must first comprehend how their tax rates are decided. Both India and the United States have a progressive tax structure in this regard. Progressive tax systems are those in which an individual’s tax rate rises in proportion to their taxable income. As a result, lower-income persons pay a lower tax rate, while higher-income individuals pay a higher tax rate.


The types of standard forms necessary to submit taxes in India and the United States are strikingly similar. If you’re a salaried employee in India, Form 16 is the typical form you’ll need to complete your IT returns. The W-2 form performs asimilar function in the American tax system.The Indian tax system has formed such as ITR-2 and ITR-4 for additional sources of income. Meanwhile, the American tax system has several 1099 forms, including the 1099-R for annuities, the 1099-G for unemployment compensation, and the 1099-MISC for other types of income.


A yearly taxable income of less than Rs 2.5 lakhs is considered exempt from taxation in India. This means that any income between Rs 0 and Rs 2.5 lakhs will be taxed at 0%. Even if your income exceeds this limit, you can reduce your taxable income by making use of the basic deduction of Rs 50,000 for salaried individuals or other tax deductions such as Section 80C, 80CCD, and 80E.Alternatively, you can optout of the Standard Deduction and instead itemize your tax returns on your own. You can choose your precise deductions as they relate to you with this option. As you are opting for US tax filing in India, you have the option of selecting the option that results in the lowest taxable income.

How are Indians taxed on their stock market investments in the United States?

Investment gains taxes:In the United States, no taxes will be withheld. The amount of taxes you must pay in India is determined by the length of time you retain the investment. The long-term capital gain threshold is 24 months, at a rate of 20% with an indexation advantage.

Dividend taxes: Dividends, unlike investment gains, will be taxed at a flat rate of 25% in the United States. Fortunately, investing in US stocks and India have a Double Taxation Avoidance Agreement (DTAA) that permits taxpayers to deduct income tax paid in the United States. The 25% tax you already paid in the US is available as a Foreign Tax Credit, which can be utilized to reduce the amount of income tax you owe.

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