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Business, Compliance

You draw a salary from your Indian company while living in the US. That salary can end up taxed twice

Section 192 TDS gets deducted as a matter of routine. US tax law can then treat the same income as its own, and the usual foreign tax credit doesn't always cover it.

You founded the Indian company and draw a genuine salary from it, but you're a US tax resident, physically doing the work from the US. Standard practice is to let the Indian company deduct TDS under Section 192 like it would for any employee, then claim a US foreign tax credit for what was withheld. That routine is exactly where this goes wrong: the TDS may not have been required in the first place, and once it's deducted, US tax law can refuse to credit it at all.
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Last reviewed: 5 September 20265 min readReviewed by Preetesh Maloo, CA

The short answer

If you're a US tax resident drawing salary from your own Indian company while physically working from the US, Section 192 TDS getting deducted by default is often the actual problem, not a safety net. Under Section 9(1)(ii), salary is only deemed to accrue in India for services actually rendered in India, and under Article 16 of the India-US DTAA, the country where the work is physically performed, the US here, holds the primary taxing right anyway. If TDS gets deducted regardless, US law can make it hard to recover: compensation for services performed within the US is US-source income under IRC Section 861, and the US foreign tax credit only covers US tax on foreign-source income. Tax paid to India on what the US treats as its own source income often isn't creditable, and the drag is avoidable with the right classification from the start.

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Related situations

The TDS might not even be required, before it becomes a credit problem

Section 9(1)(ii) only pulls salary into India's taxing net when the services are actually rendered in India. If your role is genuinely performed from the US, day to day, that salary sits outside this deeming provision on India's own domestic law. Layer the treaty on top and it gets clearer still: Article 16 of the India-US DTAA gives the country where the work is physically done, the US, the primary right to tax it, with only a narrow short-stay exception that doesn't fit a founder running the company full-time from abroad. TDS still gets deducted anyway because an Indian company paying "salary" defaults to Section 192 as a matter of habit, not because anyone actually checked whether it was owed.

Once it's deducted, US law can refuse to credit it

Assume the TDS happens anyway. The next assumption, that a US foreign tax credit absorbs it, is where the second failure sits. Under IRC Section 861, compensation for services performed physically within the US is US-source income, full stop, regardless of who paid it or from where. The US foreign tax credit under IRC Section 904 is limited to the US tax on foreign-source income. If the US treats your salary as its own US-source income, the Indian tax you already paid on it isn't foreign tax on foreign income from the US's point of view, and the credit formula can simply exclude it. You end up having paid India tax that wasn't clearly owed, on income the US won't let you offset either.

What goes wrong without a CA

The recurring pattern: the Indian company's payroll or accounts team treats the founder's salary exactly like any resident employee's, Section 192 TDS deducted by default, because that's the standard process and nobody flags the services-rendered-abroad question. The founder discovers the gap at US tax filing time, when their US preparer can't fully credit the Indian withholding against the US tax on the same salary. By then, fixing the classification doesn't recover tax already paid; the fix that actually works is getting the position right before the next payroll cycle, not after a year of returns are filed on the wrong assumption.

What's involved

What the CA actually does

  1. 1

    We confirm whether Indian TDS is actually required

    We review where your role is genuinely performed and whether Section 9(1)(ii) and Article 16 of the India-US DTAA actually bring your salary into India's taxing net, rather than assuming standard employee TDS applies.

  2. 2

    We get the company's payroll classification and paperwork right

    We document the actual work-location pattern and structure the salary treatment defensibly, so the position holds up if either tax authority asks, instead of a default that was never actually checked.

  3. 3

    We coordinate with your US preparer on the credit position

    We make sure the Indian-side facts and the US-side foreign tax credit claim are consistent with each other, so the two filings support the same story instead of working against each other.

What to have ready

Documents you'll typically need

  • Your actual work location and travel pattern (days physically in India versus the US)
  • The board resolution or employment agreement describing your role and where it's performed
  • Prior years' Form 16 or salary TDS certificates, if TDS has already been deducted
  • Your US tax residency status and any prior US returns claiming foreign tax credit on this salary

References on this page

  • Section 9(1)(ii), Income-tax Act 1961: salary is deemed to accrue in India only for services rendered in India; salary for services genuinely rendered entirely outside India falls outside this deeming provision
  • Article 16, India-US DTAA (Dependent Personal Services): taxing rights on employment income generally belong to the country where the services are physically performed, unless a short-stay exception applies (under 183 days in that country, a non-resident employer, and no local permanent establishment bearing the cost)
  • IRC Section 861(a)(3): compensation for personal services performed within the United States is US-source income, regardless of who pays it or where the payer is based
  • IRC Section 904: the US foreign tax credit is limited to US tax attributable to foreign-source income; tax paid to India on income the US treats as its own US-source income is generally not creditable under this formula
  • This mechanic is US-specific. A director working from a different country needs that country's own sourcing and foreign-tax-credit rules checked separately; they aren't the same everywhere

Frequently asked questions

Common questions

Not automatically. If you perform your role entirely from the US, that salary may not even be taxable in India under Section 9(1)(ii), and the India-US DTAA gives the US the primary taxing right anyway. TDS deducted regardless can be hard to recover through the US credit, since US law treats it as US-source income, not foreign-source.

Because the US foreign tax credit only covers US tax on foreign-source income. Compensation for services performed physically within the US is US-source under IRC Section 861, regardless of who paid it, so the credit formula may simply not recognise the Indian tax at all.

The India-taxable portion depends on your actual split. Days genuinely worked from India stay within Section 9(1)(ii)'s reach, so both the position and the paperwork need to reflect the real pattern, not an assumption in either direction.

Not automatically. Each country has its own sourcing rules and foreign-tax-credit mechanics; this page verifies the US position specifically. A different country needs its own check before assuming the same trap or the same fix applies.

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Drawing a salary from your Indian company while living and working in the US?

Tell us where you actually perform your role. A practising CA will confirm whether Indian TDS is genuinely owed, get the classification and paperwork right, and coordinate with your US preparer on the credit position, on a free call, no obligation.

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