US Tax Implications & Reporting for NRIs | Savlana Init

International Tax & Estate · India–US

US Tax Implications & Reporting — Citizenship Follows You.

The United States taxes its citizens and green card holders on worldwide income wherever they live. Indian accounts, mutual funds and property all create US reporting — and often US tax.

The United States is one of very few countries that taxes on the basis of citizenship rather than residence. A US citizen or lawful permanent resident living in Mumbai is required to file a US federal return reporting worldwide income, in exactly the same way as one living in Chicago, regardless of how long he has been abroad and regardless of Indian tax already paid. The reporting obligations sit on top of that: the Report of Foreign Bank and Financial Accounts, filed with the Financial Crimes Enforcement Network where aggregate foreign account balances exceed the threshold at any point in the year, and the FATCA statement of specified foreign financial assets filed with the return where its own separate thresholds are crossed.

The technical problems are specific and they surprise people. Indian mutual funds — including debt funds, equity funds and ULIPs in many cases — are generally treated as passive foreign investment companies under the US rules, and the default excess distribution regime that applies to them is punitive, with tax computed at the highest historical rates plus an interest charge. Provident fund and public provident fund balances have an uncertain US characterisation, and interest that is entirely exempt in India, such as on an NRE account, is fully taxable in the United States. There is no totalisation agreement between India and the United States, so social security contributions can arise in both systems on the same employment.

Relief exists but it must be claimed correctly. The foreign earned income exclusion shelters a limited, inflation-indexed amount of foreign salary for those meeting the bona fide residence or physical presence test. The foreign tax credit relieves double taxation on the balance, subject to basket limitations and to the timing mismatch created by India’s April-to-March year against the US calendar year. The India-US treaty allocates taxing rights and supplies a tie-breaker for dual residents. Where filings have been missed, the Streamlined Filing Compliance Procedures offer a route back for non-wilful taxpayers. We handle the Indian side and coordinate with your US preparer so both returns tell the same story.

Our India–US Tax Services

Dual Filing Position Review

Assessment of your combined India and United States position, identifying where the same income is taxed twice and where relief is actually available.

FBAR and FATCA Support

Identification of reportable Indian accounts and specified foreign financial assets, with the account data assembled for the FinCEN and Form 8938 filings.

PFIC Exposure Analysis

Review of Indian mutual funds, ULIPs and pooled holdings for passive foreign investment company treatment, and analysis of the election options available.

Foreign Tax Credit Coordination

Reconciliation of Indian tax paid across the April to March year to the US calendar year, so credit claims are supported by matching evidence.

India-US Treaty Application

Application of the treaty to salary, business income, dividends, interest, capital gains and pensions, including the residence tie-breaker for dual residents.

Provident Fund and Retirement Review

Analysis of EPF, PPF, NPS and Indian pension products, their US characterisation and the reporting they generate.

Indian Return Preparation

Preparation and filing of the Indian return on a basis consistent with the US filing, with documentation each preparer can rely on.

Delinquent Filing Remediation

Support on catch-up filings, including the Streamlined Filing Compliance Procedures, coordinated with your US-qualified adviser.

Our Process

Status and Exposure Mapping

We establish your residence position in both countries and identify every Indian account, investment and income stream that generates a US consequence.

Asset Characterisation

Indian holdings are reviewed for PFIC, trust and retirement-account characterisation, since the label a product carries in India rarely governs in the US.

Reporting Data Assembly

Account balances, income and tax data are assembled in the form and currency convention the US filings require, with maximum balances tracked.

Credit and Treaty Positioning

Indian tax is aligned to the US year, treaty articles are applied, and the credit position is agreed with your US preparer before either return is filed.

Coordinated Filing

The Indian return is filed and the supporting package is handed to your US preparer, so the two filings are consistent rather than merely simultaneous.

Why It Matters

✓One consistent story across both returns, agreed before filing

✓Reportable Indian accounts identified before a filing is missed

✓PFIC exposure in Indian mutual funds flagged, not discovered later

✓NRE interest treated correctly — exempt in India, taxable in the US

✓Indian tax reconciled across the fiscal-to-calendar year mismatch

✓Treaty tie-breaker applied where both countries claim residence

✓Provident fund and pension characterisation addressed explicitly

✓A structured route back where past filings have been missed

Frequently Asked Questions

Yes. The United States taxes citizens and lawful permanent residents on worldwide income irrespective of where they live, so a US federal return is required whenever the filing thresholds are met. Foreign residence changes the relief available — the foreign earned income exclusion and the foreign tax credit — but it does not remove the filing obligation, and information returns such as FBAR are due even where no tax is payable.

Where the aggregate value of your foreign financial accounts exceeds the threshold at any time during the calendar year, an FBAR is due. Separately, the FATCA statement of specified foreign financial assets is filed with the return once its own thresholds are crossed, and those thresholds differ depending on filing status and whether you live abroad. NRE, NRO, FCNR, demat and many Indian investment accounts are all capable of being reportable.

They are generally treated as passive foreign investment companies. Under the default regime, distributions and gains are allocated across the holding period and taxed at the highest rates applicable in each year with an interest charge added, which frequently produces a result far worse than ordinary treatment. Elections can improve the position but each has conditions and timing requirements, and Indian funds often do not provide the information one of them needs.

No. The exemption for NRE interest is a provision of Indian law under Section 10(4)(ii); it has no effect on US taxation. A US person must include that interest in worldwide income and pay US tax on it. Because no Indian tax was paid on it, there is no foreign tax credit to offset — which makes NRE deposits materially less attractive for US taxpayers than they appear.

It allocates taxing rights over each category of income, caps source-state rates on dividends, interest and royalties, supplies a tie-breaker where both countries treat you as resident, and provides for relief of double taxation by credit. It does not override the US citizenship basis of taxation for citizens, because of the saving clause, though certain articles are carved out from that clause and remain available.

There are formal remediation routes, of which the Streamlined Filing Compliance Procedures are the most commonly used for taxpayers whose failure was non-wilful. They require a defined set of back-year returns and information returns together with a certification. The route chosen matters a great deal, so it should be selected with a US-qualified adviser before any filing is submitted — we supply and reconcile the Indian side of that work.

Filing in both India and the United States?

Send us your Indian account and investment details. We will map the US consequences, prepare the Indian side, and coordinate directly with your US preparer so both returns agree.