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Old 15th June 2019, 10:11   #1
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Default Saving on taxes when working abroad

I am travelling to the U.S. in July, which is sort of middle of the year for a 1 year assignment and I was informed that by travelling in July I stood to earn more by way of paying a lower amount of income tax.

I am little confused as to how someone who travels in Jan 2019 and works until Dec. 2019 stands to pay more in taxes than someone who travels for the same 1 year period but travels in July of 2019 and works until June of 2020.

Assume my salary is 6 figures though not quite high and I'm going to be staying in New Jersey which is a terrible place as far as taxes go.

Can someone please help me understand the math behind this ?
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Old 15th June 2019, 12:27   #2
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Default re: Saving on taxes when working abroad

Quote:
Originally Posted by Dhiwakar92 View Post
I am travelling to the U.S. in July, which is sort of middle of the year for a 1 year assignment and I was informed that by travelling in July I stood to earn more by way of paying a lower amount of income tax.

I am little confused as to how someone who travels in Jan 2019 and works until Dec. 2019 stands to pay more in taxes than someone who travels for the same 1 year period but travels in July of 2019 and works until June of 2020.

Can someone please help me understand the math behind this ?
To qualify for NRI status with regard to the IT department, a person has to spend 183 days outside the country in that financial year. Then he / she pays zero tax on income earned abroad.

Please Note:- 183 days does not include date of departure & arrival as stamped on the passport.

Residential income will be taxed as per corresponding slab.

A person leaves in Jan 2019 till December 2019.

For FY 2018-2019, he spends 92 days outside the country & that income is taxable as per slab along with income earned in India from April 2018 to December 2018.

For FY 2019 - 2020, he is abroad for 9 months which is greater than 183 days so his income from overseas is tax free.

In your case, you are going out in July 2019.
From July 2019 to 31 March 2020, time spent overseas is more than 183 days so this income is tax free.

However income earned from April 2020 to July 2020 - approx 122 days - will attract the corresponding tax slab.

I would suggest you work till Oct 2020 if possible to get tax free status for FY 2020 - 2021 too.

Please enquire with your bank if you need a NRE account to credit your income. I have no idea about this part.

Last edited by Ithaca : 15th June 2019 at 12:29.
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Old 15th June 2019, 14:39   #3
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Default re: Saving on taxes when working abroad

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Originally Posted by Ithaca View Post
To qualify for NRI status with regard to the IT department, a person has to spend 183 days outside the country in that financial year. Then he / she pays zero tax on income earned abroad.

Please Note:- 183 days does not include date of departure & arrival as stamped on the passport.

Residential income will be taxed as per corresponding slab.

A person leaves in Jan 2019 till December 2019.

For FY 2018-2019, he spends 92 days outside the country & that income is taxable as per slab along with income earned in India from April 2018 to December 2018.

For FY 2019 - 2020, he is abroad for 9 months which is greater than 183 days so his income from overseas is tax free.

In your case, you are going out in July 2019.
From July 2019 to 31 March 2020, time spent overseas is more than 183 days so this income is tax free.

However income earned from April 2020 to July 2020 - approx 122 days - will attract the corresponding tax slab.

I would suggest you work till Oct 2020 if possible to get tax free status for FY 2020 - 2021 too.

Please enquire with your bank if you need a NRE account to credit your income. I have no idea about this part.
I learn something new everyday .
My question has more to do with saving on tax in the U.S.

For example, take two persons A and B who will work for a period of 365 days in the U.S. Both A and B have the exact same salary.

The only difference is that
A left for U.S. on 1st January 2019 and will return on 31st December 2019
B left for U.S. on 1st June 2019 and will return on 31st May 2020.

The idea here is that B will earn more i.e. by paying less in income tax.
Is this true ? If yes, please help me understand how.
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Old 15th June 2019, 15:34   #4
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Default re: Saving on taxes when working abroad

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Originally Posted by Dhiwakar92 View Post
My question has more to do with saving on tax in the U.S.
Is this true ? If yes, please help me understand how.
Sorry, I read the original query wrong.
I have no clue about US taxation processes.

I hope someone can answer your query so I too can learn something new.
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Old 15th June 2019, 17:31   #5
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Default re: Saving on taxes when working abroad

Subscribing to this thread, since I am also moving overseas (but to Norway).
I believe that in the host country (in your case US), there is going to be a minimum number of days criteria as well to be considered 'tax resident'.
For Norway, that is 183 days.
If you are not 'tax resident' in that host country, then global income is not taxable. This means, your Indian income (from FD/ savings interest/ EPF/ capital gains etc.) are not taxable until you are tax resident in that country.

It is unclear to me how 'exempt income' such as the interest from PPF is considered from taxation perspective in foreign countries where India has a DTAA signed. Even my tax consultants are scratching their heads with this one at the moment.

Edit: Another aspect is that there would be some tax slab - so if financial year in US is aligned to calendar year - Jan to Dec, then you would have spent less months in each financial year - hence your total earning per financial year would be lower and you might fit into a lower bracket (I am just guessing since I do not know the brackets or taxation in US)

Last edited by S_U_N : 15th June 2019 at 17:33.
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Old 16th June 2019, 04:10   #6
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Default re: Saving on taxes when working abroad

Quote:
Originally Posted by Dhiwakar92 View Post
I am travelling to the U.S. in July, which is sort of middle of the year for a 1 year assignment and I was informed that by travelling in July I stood to earn more by way of paying a lower amount of income tax.

I am little confused as to how someone who travels in Jan 2019 and works until Dec. 2019 stands to pay more in taxes than someone who travels for the same 1 year period but travels in July of 2019 and works until June of 2020.

Can someone please help me understand the math behind this ?
USA's income taxes are similar to India's. That is, a person who earns a fixed income per month falls under a lower tax slab if they work only for a few months of the financial year (financial year = calendar year in the US).

For monthly income $10,000
  1. Jan-Dec: Yearly income = $120,000. Effective tax rate = 31% in NJ. So, tax paid = $37.5k, and monthly income = $6,870
  2. Jul-Dec: Yearly income = $60,000. Effective tax rate = 25% in NJ. So, tax paid = $15k, and monthly income = $7,490

So, you get more take-home in scenario #2.

Source: ADP

Last edited by vikred : 16th June 2019 at 04:18. Reason: Corrected numbers
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Old 16th June 2019, 13:49   #7
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Default re: Saving on taxes when working abroad

On a slightly darker side. When it comes to paying tax in the USA, the old “ you can check out, but you can never leave” applies.

Once you’re in their tax regime they will haunt you for years after you left the USA again.

We left in 2012 and till last year we still had to file a tax return every single year, even though we were not tax eligible in the US any more. Remarkably. about 18 months ago I got a call from a US colleague who is the sort of intermediary towards the IRS for all our expats. She had got a call and the IRS wanted to get in touch with me, so could I please give them a call.

Which I did, turned out I was getting a refund. This after having left the USA more than five years earlier. Problem was, they could only do it by means of a cheque in my name. So that was a bit of a practical problem.

It is worse for when you become a US Citizen. No matter where you live abroad for how long, you are still likely to have to pay the IRS. I know some Americans who changed their nationality for no other reason, that it was the only way to avoid having to pay US taxes as well as tax in their country they were living in.

Jeroen
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Old 16th June 2019, 17:30   #8
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Default re: Saving on taxes when working abroad

Quote:
Originally Posted by vikred View Post
USA's income taxes are similar to India's. That is, a person who earns a fixed income per month falls under a lower tax slab if they work only for a few months of the financial year (financial year = calendar year in the US).

For monthly income $10,000
  1. Jan-Dec: Yearly income = $120,000. Effective tax rate = 31% in NJ. So, tax paid = $37.5k, and monthly income = $6,870
  2. Jul-Dec: Yearly income = $60,000. Effective tax rate = 25% in NJ. So, tax paid = $15k, and monthly income = $7,490

So, you get more take-home in scenario #2.

Source: ADP
Yes, this is similar to what my colleague had explained though I wonder if I can hope to save on tax over the next 6 months as well, that is from January 2020 to Jun 2020 ?
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Old 22nd June 2019, 03:06   #9
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Default Re: Saving on taxes when working abroad

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Originally Posted by Dhiwakar92 View Post
Yes, this is similar to what my colleague had explained though I wonder if I can hope to save on tax over the next 6 months as well, that is from January 2020 to Jun 2020 ?
Yes! In your case (1-yr assignment), you'll earn more if your assignment straddles two financial/calendar years.
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