What is GILTI?
Global Intangible Low-Taxed Income — created by 2017 TCJA. Imposes current US tax on certain CFC earnings, even without distribution.
Why was it created?
Pre-TCJA: US persons could defer US tax on foreign corporation earnings until distribution. This allowed indefinite deferral.
Post-TCJA: GILTI eliminates deferral for foreign corp income above a 10% return on tangible assets.
Who is subject?
US shareholders (each owning 10%+) of a CFC. Most NRI founders, co-founders, and key employees with 10%+ stake in Indian Pvt Ltd.
GILTI formula
Step 1: Calculate company's net CFC tested income (regular operating income minus certain exceptions).
Step 2: Calculate QBAI (Qualified Business Asset Investment) — adjusted basis of tangible depreciable assets.
Step 3: GILTI = Tested Income - (10% × QBAI) - certain interest expense
Step 4: US shareholder's pro-rata GILTI share is taxed in US.
Effective rates
For individual US shareholders (default treatment):
- GILTI fully taxable at ordinary rates (up to 37%)
- No FTC for Indian corporate tax (without §962 election)
- Effective rate: brutal
For corporate US shareholders (or §962 election):
- §250 deduction allows 50% reduction → effective 10.5%
- 80% FTC for foreign corporate tax
- Often net zero US tax
§962 election explained
Section 962 lets an individual elect to be taxed on GILTI at corporate rates with the §250 deduction and FTC. Election made annually on Form 8993.
Pros:
- Reduces effective GILTI rate from 37% to potentially 0%
- FTC available
Cons:
- Distributions from PTEP (already-taxed earnings) become taxable when distributed to individual (one-time additional tax)
- Loses qualified-dividend treatment on later distributions
For Indian Pvt Ltd with high Indian corporate tax (25-30%), §962 election almost always wins.
Worked example
Priya owns 60% of Indian Pvt Ltd. Company net income FY 2024: ₹1 crore (~$120K). QBAI: ₹50 lakh (~$60K).
GILTI calculation:
- Tested income: $120K
- 10% × QBAI: $6K
- GILTI: $114K
- Priya's share (60%): $68,400
Tax options:
Default (individual rates 24%): $68,400 × 24% = $16,416 US tax. Indian corporate tax (25%) paid on Indian side: $30K. No FTC. Total: ~$16K US + $30K India = $46K.
§962 election (corporate rate 21%):
- §250 deduction: $68,400 × 50% = $34,200
- Taxable: $34,200 × 21% = $7,182 US tax
- FTC for Indian corporate tax (80%): $30K × 60% × 80% = $14,400
- Net US tax: max(0, $7,182 - $14,400) = $0
- Total: $30K India + $0 US = $30K
Savings from §962: $16K/year.
Form 8992 (calculating GILTI)
Form 8992 calculates GILTI inclusion for each US shareholder. Required annually with Form 1040 (or 1040-NR).
Form 8993 (§250 deduction)
Claim §250 deduction with Form 8993. Required if making §962 election.
High-Tax Exception (HTE)
If foreign tax rate on tested income > 18.9% (90% of US 21%), you can elect to exclude that income from GILTI. Indian Pvt Ltd pays 25-30% Indian corporate tax — qualifies.
HTE elected annually. Can result in zero GILTI inclusion. Excellent for high-tax-paying Indian companies.
Common GILTI mistakes
- Not knowing GILTI exists
- Missing §962 election
- Missing high-tax exception
- Wrong QBAI calculation
- Not coordinating with Indian audited financials
Practical advice
- Know if your Indian Pvt Ltd is CFC
- Get audited financials annually for accurate GILTI calc
- Choose: §962 election vs HTE — model both
- Track PTEP for future dividends
- Coordinate with Form 5471 schedules
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.