Form W8BEN - Reducing your excess US Tax Liability

W8BEN Form is used to provide tax information by a non US individual, who may want to take the benefit of lower withholding tax under the tax Treaty of USA, with their country of residence, in respect of income earned from US. The advantage of providing a correct Form W8BEN is as under : -

• The individual does not pay excess tax in the US ;
• If tax is paid in the US, and the credit cannot be cleaned in India, the tax paid in US becomes a sunk cost. This can be avoided by filing correct Form W8BEN.

Introduction to Form W 8BEN : -?

I. Introduction

A. Overview of Form W-8BEN and its significance for Indian taxpayers

Form W8BEN is required by a person making payment from United States to foreign individual recipient (including Indian individuals) . The payor is required to obtain this Form before making payment? to individual .

W8BEN Form is? used for the following purpose : -

(a) Determine? an individual's foreign tax status

(b) Request a lower rate of US tax

(c) Waiver from deduction of tax in the US .

B. Importance of Form W-8BEN - Understanding instructions for compliance

Generally income paid from USA, is liable to withholding tax as per the local tax laws of USA. However the Tax Treaty, between USA and India, may provide for reduced rate of taxation on certain income / exempt certain income from taxation in the USA. In order to obtain such a benefit, the Indian tax payer is required to provide a declaration in Form W-8BEN

In this Article we would cover the following aspects : -?

II. What is W8BEN Form ??

W 8BEN , is a form in which, a person who is an individual and a non resident? for USA tax purpose, needs to provide tax information? regarding their foreign tax status, and claim a lower witholding tax or exemption from the withholding tax? in the United States . Further, the full title of the Form is “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).”?

If you need assistance with filing Form W-8BEN COMPLETE THIS FORM

III. Significance of W-8BEN Form?

The primary significance of the W8BEN form are as follows:?

1. Reduced Withholding Tax : The person submitting? W-8BEN form? can minimise US witholding tax, if applicable under the India USA Tax Treaty .?
2. Avoiding Double Taxation : An individual can claim USA Tax Treaty benefit by providing information in this form and avoid double taxation of same income . The Individual can claim credit for taxes withheld in their country of residence.?

IV. Who can benefit from W8BEN Form??

The target audience for the W8BEN tax information form primarily comprises of Indian residents who earn income from the United States. Some of the beneficiaries could be as under : -

1. ?Indian Freelancers and Service Providers - This category includes freelancers and self-employed individuals from India that provide assistance to US clients or are paid by US firms for their work.
2. Indian Investors in U.S. Securities - W-8BEN documents must be submitted by Indian citizens who invest in U.S. stocks, bonds, or other assets in order to receive tax treaty advantages or lower withheld rates on capital gains, dividends and interest earnings.?
3. International Students and Scholars - Additionally, Indian students and scholars studying or conducting research in the U.S. may receive scholarships, fellowships, or stipends. Such category of taxpayers, also they need to complete? W8BEN form to certify their foreign status? .?

If you need assistance with filing Form W-8BEN COMPLETE THIS FORM

V. Key Information to be included in the W8BEN?

W-8BEN form has following 3 parts, that are required to be filled by the individual : -?

1. Identification Details - Part I?
2. Claim for Tax Treaty Benefits - Part II?
3. Certification - Part III?

The beneficial owner of the income has to fill these details so that they can get benefit under the relevant Tax Treaty.?

VI. Claiming Treaty Benefit under W8BEN?

Additionally, for claiming Tax Treaty benefit through W8BEN Form, Part II of the form is required to be filled by the beneficial owner.? Filling Part II is a complicated process and requires knowledge of the US Tax Treaty with the applicable country.?

• Relevant Article of the Treaty for claiming the benefit?
• Relevant Paragraph of the Treaty for claiming the benefit?
• The applicable withholding rate to be clearly filled out?
• Explanation on eligibility for the rate of withholding?

It is therefore essential to fill out these information accurately and correctly to avoid rejection or penalties.?

How do I fill out a W-8BEN form as an Indian taxpayer ??

To fill out W 8BEN form for an Indian resident, earning income from US is essential to avail lower or nil withholding tax benefits. To fill out a W 8BEN Form as an Indian, these things need to be kept in mind:?

• Nature of the income earned;?
• Understanding the relevant Article under which the taxability of such income falls as per the Tax Treaty and/ or Income Tax Act, 1961;?
• Filling out correct paragraphs, Article in the form to claim the benefit;?
• Filing correct tax rate under Part II of W8BEN Form;?
• Filling out the explanation on eligibility by Indian under W8BEN Form;?

After completing the essential details, the form is to be submitted to get the benefit under the India-US Tax Treaty.?

Types of Income Subject to Withholding Tax as per W8BEN Form?

W8BEN is generally required when a foreign individual receives certain types of income from U.S. sources, including:?

1. Interest Income: Interest earned on U.S. bank accounts, bonds, or other interest-bearing instruments, taxable under Article 11?
2. Dividend Income: Dividends received from U.S. corporations, taxable under Article 10
3. Royalty Income: Royalties from U.S. customers, for the use of intellectual property, patents, copyrights, etc.?taxable under Article 12
4. Rental Income: Rental income from U.S. real property taxable under Article 6.?
5. Pension or Annuity Payments: Payments from U.S. pension or annuity plans.?
6. Payments for Services: Payments for personal services performed in the United States (e.g., as an independent contractor).?
7. Other Fixed or Determinable Income: Additionally, various other types of fixed or determinable income sourced in the U.S.?

If you need assistance with filing Form W-8BEN COMPLETE THIS FORM

Common Mistakes to Avoid?

1. Providing Incomplete or Incorrect Information ?
2. Using the Wrong Form: One should use? W-8BEN tax information form for individuals? and W-8BEN-E form for entities like companies .?
3. Incorrectly Claiming Treaty Benefits:? The individual should? also specify the correct tax treaty and relevant treaty article .?
4. Not Updating Information: If? circumstances change, W-8BEN has to be updated accordingly.?

Difference between W8BEN and W-8BEN-E?

While Form W-8BEN-E is made for foreign corporations, partnerships, and other business structures, Form W-8BEN is made for foreign individuals who are residents of other countries. Further, with the help of this form, they can request treaty benefits and? reduce or eliminate withholding tax on income like interest, dividends, and royalties .?

Practical Case Study for W8BEN?

• An Indian freelancer, Mr. Subhash earns $5,000 from a U.S. client for their services.?
• Additionally, without a W 8BEN India form, the U.S. client may withhold 30% in taxes, i.e $ 1,500.?
• Also, this would result in a cash of $3,500 ($5,000-$ 1,500) with Mr Subhash, if he does not provide W 8BEN India.?
• But by submitting a W 8BEN India , Subhash can claim the benefit of a reduced Treaty rate of 15% (can be reduced further, depending on nature of services and other factors) , the withholding tax decreases to $750.?
• ?Hence by submitting W 8BEN form, Mr. Subhash saves $750 in withholding tax.?

If you need assistance with filing Form W-8BEN COMPLETE THIS FORM

Conclusion?

In summary, understanding the W-8BEN form is crucial for? individuals are not tax resident of USA. Further, this form plays a significant role in reducing withholding taxes, ensuring compliance with U.S. tax laws, and avoiding double taxation. Further, W 8BEN for India is essential to claim treaty benefit.?

If you need assistance with filing Form W-8BEN COMPLETE THIS FORM

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