US Income Taxation-
"Go wherever, do whatever, you can't escape death and US tax"


Anshul Arora
PGP Finance (2007-2009)
Alliance Business School

US taxation which indubitably is one of the most sophisticated yet highly structured systems has been the centre of attention for academicians for decades. A keener look at US taxation not only guides as to how a system should be designed and maintained but sometimes also gives a chance to lose breathe and chuckle. If becoming USA citizen is your dream, a meeting with IRS (Internal Revenue Service) might compel you to give a second thought towards realizing your dream. Some of the amazing facts of US taxation are as follows:

* The citizens and resident of USA are taxed on their worldwide income: No matter which corner you go on earth, if you have earned a penny, you can't dodge IRS from its share.

* You have to pay tax not only at federal level but state level and city level as well. For example, if you have earned any income in New York, you will pay taxes nor only to IRS but also to New York State and City authorities as well

* In USA, the basis of differentiation between taxpayer is marital status. If you are married and file your Income Tax with your spouse you will be subjected to minimum tax rates. However, married people filing separately have to pay tax at higher rates. The logic is to encourage people for staying together.

* In New York gum is taxed but milk is not taxed

* In NJ food is taxed and clothes are not taxed

* US tax army is bigger than US army in Iraq: Income taxes are so complex that there are up to 1.2 million paid tax preparers in the country which is six times more than the number of troops in Iraq

IRS has more than 500 forms designed for various taxation purposes and its taxation law extends to more than 54000 pages. Some of the tax forms are "8845-Indian Employment Credit", "6197-Gas Guzzler Tax" and "6478-Credit for Alcohol Used as Fuel" etc

Let's see the difference between Indian Taxation and US Taxation:

Basis of Differentiation

Indian Taxation

US Taxation

1. Name of the taxpayer



2. Assessment year

1st April to 31st March

1st Jan to 31 Dec

3. Type of Income

Income in India is divided into Five heads- Salary, Business Income, Capital Gains, Income from Housing Property and Other Sources

Major two heads- Active Income and Passive income

4. Level of Taxation

Taxed only on central level

Not only on federal level but also on state and sometimes at the city level as well

5. Treatment of Agriculture income

Tax exempted in India

Taxable in USA

6. Basis for differentiating  between Taxpayers

Gender of the Taxpayer

Marital status of Taxpayer

7. e-Filing

Less than 5% tax returns

More than 75% tax returns

8. Basis of Taxation


Not only residency but primarily it is citizenship

9. Distribution of taxation

In India, Tax is progressive but still unable to capture the big fishes in a desirable manner

IRS data indicate that the wealthiest 5% of taxpayers (ranked by Adjusted Gross Income (AGI), counting only returns with positive AGI) paid roughly 60% of all income taxes; the bottom 50% of taxpayers account for just 3% of income taxes paid.

10. Attitude of  People

Income Taxation is Considered a burden and people tried to escape and evade taxation in every possible manner

People understand the importance of taxation and comply with the extent possible. They try to save tax rather than evading it


Anshul Arora
PGP Finance (2007-2009)
Alliance Business School

Source: E-mail September 29, 2008




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