US Taxation Interview Questions & Answers

Question 1. What Is Residential Status?

Answer :

Residential status refers to the status of a person vis a vis a particular country ie., whether he is a resident or non-resident for that particular country.

Question 2. What Is The Importance Of Residential Status?

Answer :

Residential status determines the taxability of various incomes in a particular country. The income that is taxable for a resident may not be taxable for a non resident. Thus it is important to first determine the residential status.

Question 3. What Are The Different Residential Statuses Applicable In India?

Answer :

The different residential statuses applicable in India are as follows:

• ROR — Resident Ordinary Resident
• RNOR — Resident Not Ordinary Resident
• NR-Non Resident

Question 4. What Are The Different Residential Statuses Applicable In The Usa?

Answer :

The following are the residential status applicable in US:

• US citizen — including holders of dual citizenship
• Resident alien
• Non resident alien

Question 5. How Is The Residential Status In India Determined?

Answer :

The residential status in India is determined broadly on the following basis:

• The number of days of stay in India in the specified period.
• Whether the person is an Indian citizen, person of Indian origin, crew member of ship etc.
• Additional conditions to determine whether ‘ordinary’ or ‘not ordinary’ resident.

Question 6. What Is The Relation Between Residential Status And Taxability Of Income In India?

Answer :

The relation between the taxability of income and residential status in India:

Status----taxable Income

• ROR ---All Income
• RNOR—All Income except income accruing or arising outside India.
• Note: Income from a business controlled from India etc is taxable.
• NR----Only income received/deemed to be received/accrued/deemed to be accrued in India is taxable

Question 7. How Is The Residential Status In The Usa Determined?

Answer :

The residential status in the USA is determined by a series of tests:

• US Residence Status Test
• The substantial presence Test
• Exemption from Substantial Presence Test

Question 8. What Is The Relation Between The Taxability Of Income And Residential Status In The Us?

Answer :

The relation between the taxability of income and residential status in US:

Status--- taxable Income

• Citizen---All Income
• Resident Alien---A resident alien’s is generally subject to tax in the same manner as a US citizen
• Non resident Alien----A non resident alien is usually subject to tax only on US source income.

Question 9. What Is A Double Taxation Avoidance Agreement (dtaa)?

Answer :

DTAA stands for Double Taxation Avoidance Agreement. It is an agreement entered into by two countries so that income earned and taxed in one country is not taxed again in the second country and thus double taxation is avoided.

The Provisions of DTAA override the general provisions of taxing statute of a particular country. A DTAA exists between India and USA which seeks to provide relief against double taxation.

Question 10. How Can Relief Against Double Taxation Provisions Be Claimed?

Answer :

As a DTAA exists between USA and India, relief can be claimed in India for the taxes paid in USA

In the USA, relief can be claimed by either of the following two ways:

• Filing Form 2555
• Filing Form 1116

Note: The above can be claimed only if the taxpayer is a citizen or a resident alien.

Question 11. What Are Some Of The Important Incomes Covered Under The Indo-us Dtaa Agreement?

Answer :

Some of the relevant incomes covered under the Indo-US DTAA agreement are:

• Dividends
• Interest
• Royalties and fees for Included Services
• Gains
• Independent personal services Ex: Independent activities of physicians, surgeons, lawyers, engineers, accountants etc
• Dependent personal services Ex: Salaries, wages and other similar remuneration in respect of employment.

Question 12. Is There Any Requirement With Respect To The Bank Accounts In India For A Non-resident?

Answer :

The banker should be informed in case of change of residential status. The bank will immediately designate resident bank account as “Non-resident ordinary” (NRO) account. The account could be in any form Saving, Current, Fixed Deposit or Recurring Deposit.

A returning NRI can open a Resident Foreign Currency (RFC) account. Funds in this account are free from all restrictions regarding utilization in India! abroad including investment (e.g. immoveable property, shares) in any form outside India.

However it may be noted that the funds held in the RFC account offer a low return compared to other investment avenues in India.

Question 13. What Are The Responsibilities Vis A Vis Investments In Shares, Debentures Etc For A Non Resident Indian?

Answer :

Companies wherein the non- resident is holding investments in shares, debenture bonds or other securities must be informed about the change of residential status and new overseas address. Income on such investments can be freely repatriated outside India net of Indian taxes.

Question 14. What Are The Filing Requirements In India For A Non Resident Indian?

Answer :

A nonresident assessee is liable to file Return of Income only if the taxable income in India in the relevant Financial Year (April —March) exceeds the basic exemption limit

However, a Non Resident Indian (NRI) earning below mentioned income shall be liable to file returns in India, irrespective of their Total Income being less than the Basic Exemption limit.

• Income from Short Term Capital Gains on equity shares or units of equity oriented mutual fund.
• Income from Long Term Capital Gains, which are chargeable to tax.

Question 15. What Are The Various Income Heads Under The Indian Taxation Laws?

Answer :

The following are a list of the various income heads under the taxation laws in India:

• Income from salary
• Income from house property
• Income from business or profession
• Income from capital gains
• Income from other sources.

It may be thus be noted that the assessee has to track all the above types of income apart from the regular salary received.

Question 16. What Is The General Information Required For An Individual Tax Filing?

Answer :

General Information required for individual tax payer includes but not limited to-

• A copy of latest / preceding year tax return
• Bank Statement
• TDS certificates
• Savings certificates / Deductions to be claimed u/s 80C etc.
• Interest statement showing interest paid to the individual throughout the year

Question 17. What Is E-filing Of Returns?

Answer :

E-filing as the name connotes refers to the electronic paperless filing of the return through the Income Tax web portal.

Question 18. What Are The General Methods Of Filing Returns Electronically?

Answer :

• There are generally two ways to file returns electronically
• Option 1: Use digital signature in which case no paper return is required to be submitted
• Option 2: File without digital signature in which case ITR-V form is to be filed with the department. This is a single page receipt cum verification form.

Question 19. Which Method Would Be Followed At Gkm And What Would Be The Procedure?

Answer :

• GKM would be following the second option as a common practice as the digital signature would not be available with most of the assessees under consideration.
• GKM would be uploading the e-return and generating the acknowledgment forms to be filed.
• These would be then sent to the assessees at their mailing addresses.
• The assessee has to sign and file this Form ITR-V with the Income Tax department within 15 days of thee-filing.

Question 20. What Is The Due Date For The Filing Of Tax Returns In India?

Answer :

The due date of filing the returns in India is July 31st of the relevant assessment year.

Question 21. What Is The Due Date For The Filing Of Tax Returns In Usa?

Answer :

The last date of the filing of the tax return for individuals is April 15 of the relevant year.

Question 22. What Are The Provisions Regarding The Taxability Of Per Diem Allowances Received During The Stay In The Usa?

Answer :

Per Diem allowance granted while on deputation is not taxable in the taxpayer’s hands as long as the allowance was actually spent by him on deputation and of course satisfies the condition of ‘reasonableness’.

Question 23. What Are The Provisions Regarding The Applicability Of Social Security And Medicare Taxes For Those Who Go Abroad On Temporary Visas?

Answer :

Compensation for services performed in the U.S. by a nonresident alien individual temporarily in the U.S. in F-i, J-i, M-1, or Q-i status is only exempt from FICA and Medicare taxes so long as the services performed are in connection with the purpose for which the individual entered the country.

Before leaving the United States, aliens generally must obtain a certificate of compliance. This document, also popularly known as the sailing permit or the departure permit, is part of the income tax form to be filed before leaving.

Question 24. What Are The Form W-4 And The Important Provisions Regarding The Same?

Answer :

The W4 — This is a form that indicates various taxpayer details such as:

• Name and address
• Sex, Age
• Names of dependents

The US tax laws allow for exemptions based on the number of dependents a taxpayer has. It is therefore important to provide the correct details with respect to the W4 information in order to enable the tax preparation process.

Question 25. What Are The Return Filing Procedures In The Usa?

Answer :

• In the USA also, the return may be filed electronically or the physical copy mailed to the IRS. As a uniform practice, 6KM would prepare the return and the PDF copy of the US tax return would be mailed to the taxpayer along with filing instructions.
• The taxpayer would then take a printout of the tax return, verify and sign the same and mail it to the IRS.
• The refund if any would be usually transmitted to the specified bank account directly or to mailing address depending on detail provided.
• The taxpayer has to track the status of the refund in case the same is not received within a reasonable period of time.

Question 26. How Do We Send The Source Documents & Information To Ckm?

Answer :

All you need to do is to scan the requisite documents, save it and then send it to us through e-mail or put it up on our server. The process is simple and does not require employing technical staff.

Question 27. What Is The Response Time Per Return?

Answer :

GKM’s average turn around time is two to three business days.

Question 28. How Is My Client’s Personal Data Secured?

Answer :

• GKM values and respects the privacy and confidentiality of all information transmitted.
• The information transmitted is always encrypted and then sent through secure channels on the internet.

Question 29. What Is The Training Mechanism In Place?

Answer :

GKM has CPA5, Chartered Accountants and MBA5 who are trained in depth in US tax laws. GKM has continuous learning and upgrading programs and CPA5 from the US are assigned to regularly train our preparers located offshore, using case studies and other developmental tools.

Question 30. How Do I Keep Track Of Information Sent And Ensure The Quality Of The Return?

Answer :

• The information we receive from you is sent electronically and the hard copy of files stays in your office.
• Once we complete the returns and transmit it to you, we will not retain any information sent unless specifically told by you to do so.
• You will review and approve the returns prior to e-filing / sending the prepared returns to your client.

Question 31. What Is The Final Product That Gkm Will Transmit Back To Us?

Answer :

• GKM will use the source documents sent by you to prepare a federal and state tax return.
• Once the return is completed, we will send you an e-mail and you may download the files and the returns after decrypting the same. More information on the security protocol is available on request.
• In the case of tax returns, we would be sending you Form 1040 and State return with the relevant schedules and work papers showing our calculation.
• In case of bookkeeping all the information that comes to us is posted to the general ledger and matched against the number of entries sent by you.

Question 32. How Do I Deal With Any Changes Required Without Losing Time?

Answer :

We can implement any changes that you require of us without losing much time. We are in the process of setting up a system to ensure that you will be able to monitor the process.

Question 33. Would I Need Technical Staff To Carry Out This Process?

Answer :

The whole purpose of outsourcing is to save cost. All that is required is to use an administrative person to scan documents, save it and then send the saved file to us in an e mail or put it up on our server. We process the information for you and send it across to you. We will provide requisite technical assistance to help facilitate the process.

Question 34. What Are The Benefits Of Outsourcing Certain Finance Functions Of Your Clients?

Answer :

Outsourcing will assist you in

• Obtaining timely and accurate information
• Getting the best of the latest technology
• Reducing costs
• Focusing on your core competencies and freeing resources to concentrate investment in core areas.
• Obtaining access to a larger number of skilled personnel at reduced cost

Question 35. What Are The Key Benefits Of Associating With Gkm?

Answer :

• We offer you Cost Savings with the same level of quality. Your costs will reduce by 40% to 60%. It allows you to reduce seasonal hiring and training of personnel.
• We offer a fast turnaround time due to time zone differences.
• We ensure security of data and offer you the advantages of the latest simplified web based technology.
• Our services allow you to process a larger number of returns in lesser time.
• Our services ensure that your professionals are freed up to devote their time and creative energy to other strategic areas of your business.
• Our public accounting experience coupled with our BPO unit provides us the right background to acquire/tap the pool of resources abundantly available here.
• Our services help you set up a system of checks and balances, which might not have been possible in-house.