Income Tax Appellate Tribunal reaffirms availability of tax credit of State taxes paid in USA

An individual, qualifying as ordinary tax resident in India under the Income-tax Act, 1961 (the Act), is eligible to claim credit in India on taxes paid in foreign country with respect to doubly taxed income. As per India-USA Double Taxation Avoidance Agreement (India-US tax treaty), federal income taxes paid are allowed as tax credits in India. In this regard, in an earlier ruling in the case of Tata Sons Ltd, the Mumbai bench of Income Tax Appellate Tribunal (the Tribunal) had held that credit of State taxes paid in USA shall also be available in India.

The Ahmedabad bench of the Tribunal in a recent ruling in the case of Dr. Rajiv Modi has reaffirmed that a taxpayer is entitled to claim credit of State taxes paid in USA against Indian Income tax liability under the provisions of the Act irrespective of the fact that the case pertained to a country which had tax treaty with India