“Mani, do I have to pay taxes twice? Once in the US and once in India?”
I get this question at least five times a week. Every single week. For the past seven years.
And I get it. The fear of double taxation kept me up at night too when I was planning my move back. I remember sitting in my Sunnyvale apartment, staring at spreadsheets, trying to figure out if the IRS and the Indian Income Tax Department would both come after my hard earned money.
Here is the short answer. No, you typically do not pay full taxes twice on the same income.
But the real answer is more nuanced. And that nuance can save you lakhs of rupees. Or cost you lakhs in penalties if you get it wrong.
In this guide, I will break down everything you need to know about US NRI tax filing and how double taxation between India and the USA actually works.
No jargon. No complicated tax speak. Just the practical stuff I wish someone had told me back in 2016.
First Things First: Are You an NRI or a Resident?
This is where most people mess up. They assume they know their tax status. But tax residency is not the same as citizenship or immigration status.
For Indian tax purposes, your residential status depends on how many days you spend in India during a financial year (April 1 to March 31).
Here is the basic rule. If you stay in India for 182 days or more during a financial year, you become a Resident for tax purposes. If you stay less than 182 days, you are a Non Resident Indian (NRI).
But wait. There is another condition. If you were in India for 60 days or more in the current year AND 365 days or more in the preceding four years, you could also become a Resident.
The 182 day rule has some exceptions for Indian citizens leaving India for employment abroad or NRIs visiting India. Make sure you understand which category you fall into.
For US tax purposes, it is different. The US taxes based on citizenship and Green Card status. If you are a US citizen or Green Card holder, you owe taxes to the IRS on your worldwide income. Period. Does not matter where you live.
This is crucial to understand before we go further.
The Double Taxation Fear: What Actually Happens
Let me share a real story from our community.
Rajesh (name changed) moved back to Bangalore in 2019. He had worked in Seattle for 12 years. He still had rental income from a property in Washington state. He also started earning a salary in India.
His fear? Paying 30% tax in the US on his rental income AND 30% tax in India on his Indian salary AND possibly more taxes somewhere.
Here is what actually happened. The Double Taxation Avoidance Agreement (DTAA) between India and the USA protected him. He did not pay double taxes. He paid taxes in each country on the income sourced from that country. And he got credit for taxes paid abroad.
The DTAA is your friend. More on this below.
Do NRIs Have to Pay Tax in India?
Yes. But only on certain types of income.
As an NRI, you pay tax in India only on:
- Income earned or received in India
- Income that accrues or arises in India
- Income deemed to accrue or arise in India
What does this mean practically?
| Income Type | Taxable in India for NRI? | Notes |
|---|---|---|
| Salary received in India for work done in India | Yes | Fully taxable |
| Interest from NRE account | No | Tax free |
| Interest from NRO account | Yes | TDS at 30% |
| Rental income from Indian property | Yes | Taxable at slab rates |
| Capital gains from Indian stocks | Yes | Short term and long term rates apply |
| Salary for work done outside India | No | Even if deposited in India |
The key point here. Your NRE account interest is completely tax free in India. This is why smart NRIs maintain their NRE accounts even after returning. At least until they become Resident.
If you are still figuring out the difference between account types, check out our guide on NRI accounts.
Do NRIs Have to Pay Tax in the USA?
This depends on your status.
If you are a US citizen or Green Card holder, you must file US taxes every year. Regardless of where you live. The US is one of only two countries in the world that taxes based on citizenship (the other is Eritrea).
If you are on an H1B, L1, or other work visa and you left the US, you generally do not have US tax obligations on income earned outside the US. But you may still need to file if you have US source income.
Here is a comparison:
| Your Status | US Tax Filing Required? | Taxed on Worldwide Income? |
|---|---|---|
| US Citizen living in India | Yes, always | Yes |
| Green Card holder in India | Yes, always | Yes |
| Former H1B now in India | Only if US source income | No |
| OCI holder never worked in US | No | No |
For those who moved back with their families, understanding how benefits for US born kids work from a tax perspective is also important.
The DTAA: Your Protection Against Double Taxation
The Double Taxation Avoidance Agreement between India and the USA is what prevents you from paying taxes twice on the same income.
Here is how it works in simple terms.
Say you earn rental income from a US property while living in India. The US will tax this income because it is US source income. India will also want to tax it because you are now a Resident of India and India taxes residents on worldwide income.
The DTAA says you can claim a Foreign Tax Credit. You pay tax in the US first (where the income originates). Then when you file in India, you claim credit for the US taxes already paid. You only pay the difference to India, if any.
The DTAA provisions can get complicated. But the principle is straightforward. You should not be taxed twice on the same rupee (or dollar).
Income Types and Where They Get Taxed
Let me break this down with specific scenarios I have seen in our community:
Scenario 1: NRI in USA with Indian rental income
You live in California. You own a flat in Mumbai that generates rent.
India taxes this rental income. TDS is deducted at source. USA also wants to tax it (worldwide income for citizens/GC holders). Solution: You report the Indian rental income on your US return and claim Foreign Tax Credit for taxes paid to India.
Scenario 2: Returned NRI with US rental income
You moved back to Hyderabad. You still own a condo in Austin.
USA taxes the rental income (US source). India also wants to tax it (you are now Resident, taxed on worldwide income). Solution: You report the US rental on your Indian ITR and claim credit for US taxes paid.
Scenario 3: Remote work from India for US company
This is increasingly common. You live in Bangalore but work remotely for a company in San Francisco.
If you are not a US citizen or Green Card holder, this salary is not US source income. It is Indian income. India taxes it fully. USA does not tax it (no US source, no US tax status).
For those considering this arrangement, our guide on remote work from India for US companies covers the practical aspects.
Filing Requirements: A Side by Side Comparison
| Requirement | India | USA |
|---|---|---|
| Financial Year | April 1 to March 31 | January 1 to December 31 |
| Filing Deadline | July 31 (usually) | April 15 (with extensions available) |
| Form for NRIs | ITR-2 or ITR-3 | Form 1040 with required schedules |
| Foreign Income Reporting | Schedule FA for foreign assets | FBAR and Form 8938 for foreign accounts |
| Penalty for Non Filing | Up to Rs 10,000 plus interest | Varies, can be severe for FBAR violations |
The ITR filing process for NRIs can be confusing. I highly recommend working with a CA who understands NRI taxation specifically.
Common Mistakes That Cost NRIs Money
I have seen these mistakes over and over in our community calls:
Mistake 1: Not updating bank accounts after status change
When you become Resident, your NRE account should convert to a regular savings account. The NRO account continues. Many people forget this and face issues later. Read about converting NRE to NRO accounts before your status changes.
Mistake 2: Ignoring FBAR requirements
If you have foreign accounts with aggregate value exceeding $10,000 at any point during the year, you must file FBAR (FinCEN Form 114). This is separate from your tax return. Penalties for non filing are brutal. Up to $10,000 per violation. The FBAR requirements are non negotiable.
Mistake 3: Not claiming Foreign Tax Credit
So many NRIs pay taxes twice simply because they do not claim the credit they are entitled to. Do not be one of them.
Mistake 4: Wrong residential status determination
Counting days incorrectly can change your entire tax liability. Keep a travel log. Know exactly when you entered and exited each country.
Mistake 5: Not reporting foreign assets in India
Residents and Resident but Not Ordinarily Resident (RNOR) individuals must report foreign assets in Schedule FA of their Indian ITR. Missing this can trigger penalties and scrutiny.
Step by Step: How to File Taxes as a US NRI
Here is a practical approach:
Step 1: Determine your residential status in both countries
Count your days. Check the rules. Know if you are NRI, Resident, or RNOR in India. Know if you have US filing obligations.
Step 2: Gather all income documents
India: Form 16, bank interest certificates, capital gains statements, rental agreements USA: W2, 1099s, K1s, brokerage statements
Step 3: File in the source country first
If you have US source income, file your US return first. This establishes how much Foreign Tax Credit you can claim in India.
Step 4: File in the residence country with credits
File your Indian return (if you are Resident) claiming credit for foreign taxes paid.
Step 5: Do not forget the extras
FBAR if applicable. Schedule FA in India if applicable. State tax returns if you have state level obligations.
Tax Planning Tips That Actually Work
Over the years, I have picked up a few strategies from our community members and the tax experts we consult:
Timing your return
If possible, time your move to India to optimize your residential status. Coming back in October means you likely will not hit 182 days that financial year.
RNOR status is golden
For the first two years after becoming Resident (in most cases), you may qualify as Resident but Not Ordinarily Resident. RNOR individuals are taxed like NRIs. Foreign income not brought into India is not taxable. Use this window wisely.
Keep your NRE account active
Interest on NRE fixed deposits remains tax free until you become Resident. Lock in good rates before your status changes.
Maximize US retirement accounts before leaving
If you are still in the US, max out your 401k and IRA contributions. These get complicated after you become Indian Resident but having the funds in tax advantaged accounts helps.
For broader financial planning, our investment options for returning NRIs guide covers what to do with your money.
What About Retirement Accounts?
This deserves special mention because it confuses everyone.
401k and IRA
When you withdraw from these accounts as an Indian Resident, the US will typically withhold 30% tax (reduced to 15% under DTAA for certain payments). India will also want to tax the withdrawal as part of your worldwide income. You claim Foreign Tax Credit in India for the US tax paid.
Indian PPF
NRIs cannot open new PPF accounts. If you had one before becoming NRI, you can continue it until maturity but cannot extend. Check the current rules on NRI and PPF investments.
When to Get Professional Help
I am not a tax professional. I am just someone who has been through this and learned from the community.
For simple situations, you might manage on your own. But get professional help if:
- You have income in both countries simultaneously
- You are selling property in either country
- You have stock options or RSUs
- You are unsure about your residential status
- You have significant retirement account balances
- You are starting a business in India
Our community has a list of financial advisors who understand NRI situations. A good CA in India and a CPA familiar with expat taxation in the US can save you much more than their fees.
Frequently Asked Questions
Q: I am an NRI. Do I need to file ITR in India if my only Indian income is NRE interest?
No. NRE interest is tax exempt for NRIs. If that is your only Indian income, you have no filing obligation in India.
Q: I returned to India mid year. Which country do I file as Resident?
Both, potentially. You could be Resident in India for part of the year (if you meet the day count) and may still have US filing obligations depending on your status. This is a split year scenario and gets complicated. Consult a professional.
Q: Can I claim Foreign Tax Credit for Indian taxes paid on my US return?
Yes, if you are a US citizen or Green Card holder and have paid Indian taxes on income that is also taxable in the US.
Q: What if I forgot to file FBAR for previous years?
There are streamlined filing procedures for non willful violations. Do not ignore this. The penalties are serious. Consult a tax professional immediately.
Q: How do I report Indian mutual fund gains in the US?
This is tricky. Indian mutual funds are considered Passive Foreign Investment Companies (PFICs) by the IRS. The tax treatment is punitive. Many US based NRIs avoid Indian mutual funds for this reason. Get professional advice before investing.
Q: Do I need to pay tax on money transferred from the US to India?
The transfer itself is not taxable. Money transfer is not income. But any income earned on that money (like interest) would be taxable based on your residential status.
For those sending money regularly, understanding TCS on remittances is also important now.
The Bottom Line
US NRI tax filing does not have to be terrifying. Here is what you need to remember:
- Know your residential status in both countries
- Tax residency is different from citizenship
- DTAA prevents true double taxation
- NRIs are taxed only on Indian income in India
- US citizens and Green Card holders are always taxed on worldwide income
- Claim Foreign Tax Credit to avoid paying twice
- File FBAR if your foreign accounts exceed $10,000
- When in doubt, consult a professional
I learned most of this the hard way. Through mistakes. Through late night research. Through expensive consultations.
You do not have to.
Our WhatsApp community has thousands of NRIs who have navigated these exact issues. Tax professionals answer questions there regularly. Real experiences. Real solutions.
If you are planning your move back, join our WhatsApp community at https://backtoindia.com/groups. Over 20,000 NRIs helping each other with real, lived experience. It is free and volunteer run.
Have a specific question about your situation? Drop it in the group. Chances are someone has been through exactly what you are facing.
Disclaimer: This article is for informational purposes only and should not be considered tax advice. Tax laws change frequently. Always consult qualified tax professionals in both India and the USA for advice specific to your situation.
Sources:
- Income Tax Department, India: https://www.incometax.gov.in
- IRS (Internal Revenue Service): https://www.irs.gov
- India USA DTAA Text: https://www.incometax.gov.in/iec/foportal/sites/default/files/2019-11/DTAA_united_states.pdf
- FBAR Filing Requirements: https://www.fincen.gov/report-foreign-bank-and-financial-accounts
- Form 8938 Requirements: https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers
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