Every January, the same message pops up in our WhatsApp groups.
“Hey Mani, do I need to file taxes in both the US and India?”
The short answer? Probably yes.
The longer answer is what this guide is about. Because US tax filing as an NRI is one of those things that seems straightforward until you actually sit down to do it. Then you discover terms like PFIC, FBAR, FATCA, Form 1116 – and suddenly your head is spinning.
I went through this myself when I was in the US. And since 2017, I’ve seen hundreds of community members get tripped up by the same mistakes. Missed forms. Unreported accounts. Penalties that could have been avoided.
So let me walk you through everything. Step by step.
Step 1: Determine Your US Tax Residency Status
Before anything else, you need to know how the IRS sees you. This determines what you file and what you report.
You are a US tax resident if any of these apply:
Green Card Test: You hold a valid US green card. Period. It doesn’t matter where you actually live. Green card = US tax resident.
Substantial Presence Test: You were physically present in the US for at least 31 days in the current year AND a total of 183 days during the 3-year period using this formula:
- All days present in the current year
- Plus 1/3 of days present in the previous year
- Plus 1/6 of days present in the year before that
If the total is 183 or more, you’re a US tax resident.
US Citizen: If you’re a US citizen, you file US taxes regardless of where you live in the world. Even if you’ve moved back to India.
Visa exceptions: F1 students are exempt from the Substantial Presence Test for the first 5 calendar years. J1 research scholars are exempt for the first 2 years.
Why this matters:
| Status | What You File | What You Report |
|---|---|---|
| US Tax Resident | Form 1040 | Worldwide income |
| Non-Resident Alien | Form 1040-NR | US-source income only |
Most NRIs on H1B, L1, H4 (with EAD), or green cards are US tax residents and must report worldwide income – including everything earned in India.
Step 2: Gather Your Documents
Tax season for the 2025 tax year (filed in 2026) has specific dates. Here’s what you need to collect.
From the US:
- Form W-2 from your employer (wages and salary)
- Form 1099 variants – 1099-INT (interest), 1099-DIV (dividends), 1099-B (brokerage), 1099-NEC (freelance income)
- 1095-A/B/C (health insurance)
- 401(k) and IRA contribution statements
- 1098 (mortgage interest, if applicable)
From India:
- NRO/NRE account interest statements
- Form 26AS (Indian TDS summary) – download from the Indian income tax portal
- Rental income records and TDS certificates
- Capital gains statements (from stock sales, property sales, mutual fund redemptions)
- Mutual fund statements (critical for PFIC reporting)
- FCNR deposit interest statements
Other documents:
- Passport with travel dates (for Substantial Presence Test)
- Foreign bank account balances (highest balance during the year, for FBAR)
- Year-end values of foreign financial assets (for Form 8938)
Pro tip from our community: Create a shared Google Drive folder with your spouse. Upload everything as it comes in. By mid-March, you should have every document ready.
Step 3: Understand What Income Gets Taxed
As a US tax resident, your worldwide income is taxable. Here’s where most NRIs have Indian income.
NRO Account Interest
Report on Schedule B. India deducts TDS at 30%. You claim this as a Foreign Tax Credit.
Important: NRE account interest is tax-free in India but fully taxable in the US. This catches almost everyone off guard.
Rental Income from Indian Property
Report on Schedule E. Include gross rent, deduct expenses (repairs, property tax, insurance, management fees). Use US depreciation rules (27.5 years for residential). For details on the Indian side, see our rental income tax guide.
Capital Gains from Indian Property
Report on Schedule D and Form 8949. Calculate cost basis and proceeds in USD using exchange rates on purchase and sale dates. India deducts TDS on property sales by NRIs. See our capital gains guide for the Indian side.
Indian Stock Dividends and Capital Gains
Dividends go on Schedule B. Capital gains go on Schedule D. Direct stocks are straightforward. Claim Indian TDS as Foreign Tax Credit.
Indian Mutual Funds (PFIC)
This is the most complicated and expensive reporting requirement for US NRIs. Almost all Indian mutual funds are classified as PFICs by the IRS. Each fund requires a separate Form 8621. The default taxation method taxes gains at 37% plus interest charges – regardless of your actual bracket.
If you haven’t made a Mark-to-Market election, gains on Indian mutual funds can be taxed at effective rates exceeding 50%.
I’ve written about this in detail in our guide on how to report Indian income on IRS returns. It’s one of the most important reads for any US NRI.
Step 4: Maximize Deductions and Credits
Standard Deduction vs. Itemized
For tax year 2025 (filed in 2026), the standard deductions are:
| Filing Status | Standard Deduction |
|---|---|
| Single | $15,750 |
| Married Filing Jointly | $31,500 |
| Head of Household | $23,625 |
For tax year 2026 (filed in 2027), these increase to $16,100 (single), $32,200 (MFJ), and $24,150 (HoH).
Most NRIs take the standard deduction. Itemizing only makes sense if your total deductible expenses (mortgage interest, state taxes up to $10,000, charitable donations) exceed the standard deduction.
Retirement Account Contributions
Maximizing retirement contributions is one of the best tax-saving strategies for NRIs.
2026 limits:
- 401(k): $24,500 (plus $8,000 catch-up if age 50+, or $11,250 if age 60-63)
- Traditional IRA: $7,500 (plus $1,100 catch-up if age 50+)
- Roth IRA: Same limits, but income phase-outs apply ($153,000-$168,000 for single filers)
- HSA: $4,400 (self-only) or $8,750 (family)
If your employer offers a 401(k) match, contribute at least enough to get the full match. That’s free money.
Foreign Tax Credit (Form 1116)
This is how you avoid double taxation. For every dollar of Indian tax you’ve paid (TDS on NRO interest, rent, capital gains, dividends), you can claim a credit that directly reduces your US tax bill.
The credit is limited to the US tax on that same income. If Indian tax exceeds US tax on the same income, the excess carries forward for 10 years.
For small amounts (under $300 single / $600 joint) of foreign tax on passive income only, you can claim the credit directly on Form 1040 without filing Form 1116.
The India-US DTAA is what makes this possible. It’s worth understanding how it works.
Other Credits and Deductions
- Child Tax Credit: $2,000 per qualifying child under 17 (for 2025/2026)
- Education credits: American Opportunity Credit (up to $2,500) or Lifetime Learning Credit (up to $2,000)
- Student loan interest: Up to $2,500 deduction
- State and local taxes (SALT): Capped at $10,000 deduction if itemizing
Step 5: File the Required Foreign Reporting Forms
This is where NRIs most commonly get into trouble. Not because of the tax itself, but because of forms they didn’t know they needed to file.
FBAR (FinCEN Form 114)
Who must file: If the total of all your foreign financial accounts exceeded $10,000 at any point during the year.
This includes NRE, NRO, FCNR, savings accounts, demat accounts, PPF, EPF – everything held outside the US.
How to file: Electronically through FinCEN’s BSA E-Filing system. Not with your tax return.
Deadline: April 15, with automatic extension to October 15.
Penalty for not filing: Up to $16,536 per non-willful violation (2025/2026). Willful violations can be 50% of account balance.
A community member from New Jersey didn’t file FBAR for 5 years. He had about $60,000 across NRE and NRO accounts. When he came into compliance, it was stressful and expensive. Don’t let this happen to you.
Form 8938 (FATCA)
Who must file: US tax residents with foreign financial assets above these thresholds:
| Filing Status | Year-End Value | Any Time During Year |
|---|---|---|
| Single | Over $50,000 | Over $75,000 |
| Married Filing Jointly | Over $100,000 | Over $150,000 |
What to report: Foreign bank accounts, investment accounts, mutual funds, insurance policies with cash value, pension interests, and more.
Filed with: Your Form 1040.
Yes, there’s overlap with FBAR. You may need to file both. They serve different purposes and go to different agencies.
Form 8621 (PFIC Reporting)
Who must file: Anyone holding Indian mutual funds, ETFs, or ULIPs valued above $25,000 (single) or $50,000 (joint). Also required regardless of value if you sold any fund or received distributions.
One form per fund. If you hold 10 mutual funds, that’s 10 forms.
Why it matters: Missing Form 8621 keeps the statute of limitations on your entire tax return open indefinitely. The IRS could audit your 2024 return in 2035 because of one missing mutual fund form.
This is the single biggest compliance risk for US NRIs with Indian investments. Consider restructuring out of Indian mutual funds into direct stocks or US-listed India ETFs to avoid this headache entirely.
Form 3520 / 3520-A
Who must file: If you received gifts or inheritances from non-US persons exceeding $100,000 in a year. Also applies to certain foreign trusts.
This comes up when NRI parents receive large gifts or inheritances from family in India.
Penalty for not filing: 5% of the amount per month, up to 25%.
Form 5471
Who must file: US persons with ownership in certain foreign corporations. If you own more than 10% of an Indian company, this may apply.
This is relevant for NRIs who have started or co-own businesses in India.
If you’re also sending large amounts to India, make sure you understand the purpose codes and documentation requirements for cross-border transfers.
Step 6: File on Time
| What | Deadline | Extension |
|---|---|---|
| Form 1040 | April 15 | October 15 (Form 4868) |
| FBAR (FinCEN 114) | April 15 | Auto to October 15 |
| Form 8938 | With 1040 | Same as 1040 |
| Form 8621 | With 1040 | Same as 1040 |
If you’re living outside the US on April 15, you get an automatic 2-month extension to June 15. But interest on unpaid tax still starts from April 15.
Extension to file is NOT an extension to pay. If you owe tax, pay as much as you can by April 15 to minimize interest and penalties.
E-file whenever possible. It’s faster, more accurate, and you get refunds quicker. The IRS has been strongly encouraging electronic filing and direct deposit for refunds.
Step 7: Handle the India Side Too
As a US-based NRI, you may also need to file an ITR in India if your Indian income exceeds the basic exemption limit (Rs 2.5 lakh under old regime, Rs 4 lakh under new regime for FY 2025-26).
Even if your income is below the limit, filing in India lets you claim TDS refunds. If India deducted 30% TDS on your NRO interest but your actual liability is lower, you get the difference back.
India filing deadline: July 31 (sometimes extended).
You’ll need: PAN card, Aadhaar (linked to PAN), access to the income tax e-filing portal. See our PAN card guide if you need one.
Make sure you also go through our financial checklist for returning NRIs if you’re planning a move back – it covers account conversions, RNOR optimization, and more.
Tax-Saving Strategies Specific to NRIs
1. Max Out Retirement Accounts
401(k), IRA, HSA – these reduce your taxable income directly. A married NRI couple both maxing 401(k)s saves $49,000 from taxation in 2026. That’s significant.
2. Use the Foreign Tax Credit, Not the Deduction
Always claim the credit (Form 1116), not the deduction (Schedule A). The credit reduces your tax dollar-for-dollar. The deduction only reduces taxable income.
3. Time Your Return to India Strategically
If you’re planning to return to India, the timing affects your tax obligations in both countries. Return toward the end of the Indian financial year (January-March) to potentially maximize your RNOR window. See our return to India checklist for the full planning guide.
4. Restructure Indian Investments
Move away from Indian mutual funds (PFIC nightmare) toward direct Indian stocks (no PFIC reporting) or US-listed India ETFs. The compliance simplification alone saves thousands in CPA fees.
5. Claim Treaty Benefits in India
File Form 10F and provide a Tax Residency Certificate (Form 6166 from IRS, obtained by filing Form 8802) to claim reduced TDS rates in India under the DTAA. For example, interest TDS can be reduced from 30% to 15% under the treaty.
6. Consider Your Filing Status Carefully
If your spouse lives in India and has no US income, you have options. Filing Jointly gives you the higher standard deduction but means reporting your spouse’s worldwide income too. Filing Separately may sometimes work better. Run the numbers both ways.
DIY vs. Professional Help: When Do You Need a CPA?
You can probably DIY if:
- Your only Indian income is NRO interest under a few thousand dollars
- You have no Indian mutual funds
- Your foreign accounts are straightforward
- You’re comfortable with TurboTax or similar software
You definitely need a CPA if:
- You hold Indian mutual funds (PFIC reporting)
- You sold Indian property
- You have rental income from India
- You have complex stock option/RSU situations
- You haven’t filed FBAR for prior years
- You’re planning to move back to India
What to look for: A CPA or Enrolled Agent who specializes in NRI/expat/international taxation. Not a general tax preparer. The complexity of cross-border taxation requires specific expertise.
Typical costs: $300-$500 for a straightforward return. $1,000-$3,000+ if PFIC forms, FBAR catch-up, or complex foreign income is involved.
A community member from our Seattle group said, “I tried doing my taxes with Indian mutual funds on TurboTax. Three hours in, I gave up and called a CPA. Best $1,200 I ever spent.”
Common Mistakes to Avoid
1. Not reporting NRE account interest. Tax-free in India does not mean tax-free in the US.
2. Skipping FBAR. The $10,000 threshold is aggregate across ALL foreign accounts. Your NRE + NRO + demat + PPF can easily cross it.
3. Holding Indian mutual funds without Form 8621. The statute of limitations stays open forever. The default tax method is punitive.
4. Using wrong exchange rates. Use IRS yearly average rates for recurring income. Spot rates for one-time transactions. IRS publishes these on their website.
5. Not filing Indian ITR. If India deducted excess TDS, you’re leaving money on the table.
6. Missing the FBAR deadline. It’s separate from your tax return. Different system. Different deadline (auto-extends to October 15).
7. Not keeping records. The IRS can ask for documentation years later. Keep bank statements, TDS certificates, Form 26AS, and travel records for at least 7 years.
If You’re Behind on Filing
It happens. People don’t know about FBAR. They didn’t realize Indian mutual funds needed Form 8621. They missed a few years.
Don’t panic. But do act.
The IRS has Streamlined Filing Compliance Procedures for taxpayers whose non-compliance was non-willful (you genuinely didn’t know). You file 3 years of amended tax returns and 6 years of FBARs, certify that the failure was non-willful, and come into compliance.
This avoids the harshest penalties. But it must be done correctly. Work with a professional who has experience with these procedures.
Don’t try to just start filing correctly going forward without addressing prior years. This is called a “quiet disclosure” and the IRS specifically discourages it.
Frequently Asked Questions
Q: I’m on H1B. Do I file as resident or non-resident?
Most H1B holders are US tax residents after their first full calendar year in the US (they meet the Substantial Presence Test). File Form 1040, not 1040-NR.
Q: My spouse is in India with no US income. Do I report her income?
Only if you file Married Filing Jointly and elect to treat your spouse as a US resident. If you file Married Filing Separately, you only report your own income.
Q: Do I report my Indian PPF on FBAR?
Yes. PPF is a foreign financial account. If your aggregate foreign account balances exceed $10,000, PPF goes on the FBAR. The growth in PPF may also be taxable in the US (the treaty treatment is debated – consult a professional).
Q: What happens to my 401(k) if I move back to India?
You can leave it in the US. When you withdraw after moving, the US withholds 30% for non-residents. Under the DTAA, you can claim credit in India. See our guide on income tax on retirement benefits.
Q: Can I claim Section 80D or Section 54 benefits on my US return?
No. Indian tax deductions (80C, 80D, Section 54) only apply to your Indian ITR. They have no relevance to your US return.
Q: Is there a tax treaty benefit for NRO interest?
Yes. Under the India-US DTAA, withholding on interest is capped at 15%. But India often deducts 30%. You can file Form 10F with a Tax Residency Certificate in India to claim the reduced rate. The excess TDS gets refunded when you file your Indian ITR.
Q: I sold property in India. Do I report it in both countries?
Yes. Report on Indian ITR (India taxes capital gains at source). Report on US Form 1040 Schedule D. Claim Indian tax paid as Foreign Tax Credit on Form 1116.
One Final Thought
Tax filing as a US NRI is not simple. There’s no way around that.
But it’s manageable. Thousands of NRIs in our community do it every year. The ones who do it well share a few things: they start early, they keep organized records, and they don’t try to figure out PFIC and FBAR rules on their own.
Get a good CPA. File everything. Claim every credit you’re entitled to. And remember – the goal isn’t just compliance. It’s making sure you don’t pay a rupee or dollar more than you legally owe.
If you’re also thinking about your financial future in India, see our guides on best investment options and tax-saving schemes.
Disclaimer: This guide is for informational purposes only and does not constitute tax advice. US and Indian tax laws are complex and change frequently. Always consult a qualified US tax professional (CPA or Enrolled Agent) who specializes in international taxation for advice specific to your situation.
Sources: IRS.gov (Forms 1040, 1116, 8938, 8621, FinCEN 114), IRS Revenue Procedures, India-US DTAA, India Income Tax Act, and practical experiences shared by BacktoIndia community members.
If you’re planning your move back, join our WhatsApp community at https://backtoindia.com/groups – 20,000+ NRIs helping each other with real, lived experience. It’s free and volunteer-run.
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