If you are an Indian living in the USA, you generally file in both countries: India taxes your Indian income (rent, interest, capital gains), and the US taxes your worldwide income — including that Indian income — with a foreign tax credit under the India-US DTAA so you are not taxed twice. Watch the US-specific traps: you must report Indian accounts under FATCA (Form 8938) and FBAR, Indian mutual funds are PFICs with punitive US tax, and NRE interest that is tax-free in India is taxable in the US.
Living in the United States as an Indian — whether on an H-1B, a green card, or as a US citizen — puts you in the most demanding cross-border tax position of any NRI, because the US taxes differently from almost everywhere else. Two principles drive everything. First, India taxes your Indian income (rent from your Delhi flat, interest on your NRO deposits, gains on Indian shares) because it arises in India. Second, the US taxes your worldwide income — its residents, green-card holders and citizens are taxed on income from every country, so your Indian income is taxable in the US too. The India-US Double Taxation Avoidance Agreement stops you paying full tax twice by giving you a credit in the US for the Indian tax you pay. But the US adds obligations no other country imposes so heavily: FATCA and FBAR reporting of your Indian accounts, the punitive PFIC regime on Indian mutual funds, and its refusal to honour India's exemption on NRE interest. Handled well, a US-based NRI pays the right tax once and reports cleanly; handled carelessly, the penalties — especially for non-reporting — dwarf the tax itself.
This guide is for Indians who are tax residents of the USA — which includes those who meet the substantial-presence test on a work visa, green-card holders, and US citizens of Indian origin. For Indian tax, what matters is whether you are a non-resident of India under the day-count rules; most Indians settled in the US are Indian non-residents and are therefore taxed in India only on their Indian income. For US tax, your status as a US resident/citizen means you are taxed on worldwide income. So the typical US-based NRI is simultaneously an Indian non-resident (India taxes only Indian income) and a US resident/citizen (US taxes everything) — and the whole exercise is making those two systems line up through the treaty.
On the Indian side, as a non-resident you are taxed only on Indian-source income: rent from Indian property, interest on NRO accounts and bonds, dividends from Indian companies, and capital gains on Indian shares, mutual funds and property. You file an Indian return — usually ITR-2 — reporting this income, claiming the deductions available (like the 30% on rent), and claiming credit for the TDS deducted at source. Much of your Indian income suffers TDS under Section 393 (the old Section 195) at rates that are often higher than your real liability, so you either apply a lower-TDS certificate in advance or reclaim the excess as a refund. Crucially, by giving your US Tax Residency Certificate (IRS Form 6166) and filing Form 10F, you can have Indian TDS applied at the concessional treaty rate — commonly 15% on interest and dividends rather than the higher domestic rate. See our guides on DTAA relief and residential status.
On the US side, you report your worldwide income on your US return (Form 1040), and that includes your Indian rent, interest, dividends and capital gains — even the Indian income you already reported in India. To prevent double taxation, the US gives you a Foreign Tax Credit (claimed on Form 1116) for the Indian tax you paid on that income. So the Indian tax is not lost; it offsets your US tax on the same income, and you effectively pay the higher of the two countries' rates rather than the sum. Where Indian tax was higher than the US tax on an item, the excess credit can often be carried over; where US tax was higher, you top up the difference to the IRS. Getting the foreign-tax-credit calculation right — matching the Indian tax to the correct income category and timing — is central to a US-based NRI paying no more than necessary.
The India-US treaty is the rulebook that makes the two systems fit. It generally works on the credit method: both countries may tax the income, and the residence country (the US) gives credit for the source-country (India) tax. Specific articles govern each income type — interest and dividends may be taxed in India at capped treaty rates with US credit; capital gains on Indian assets are largely taxable in India; rent from Indian property is taxable in India; and there are special articles for pensions, social security, students and teachers that can change the outcome for those specific incomes. The treaty also contains tie-breaker rules for anyone who is resident in both countries in a transition year. The practical value of the treaty is that, used with the right documents, it caps your Indian withholding and guarantees your US credit — so neither country over-taxes you.
Here the US diverges sharply from other countries. Under FATCA, US residents and citizens must report their foreign financial assets — including Indian bank accounts (NRE, NRO, FCNR), Indian mutual funds, shares, and certain other financial interests — to the IRS on Form 8938, filed with the tax return, once the value crosses the applicable thresholds. India and the US exchange this information automatically, so your Indian accounts are already visible to the IRS. FATCA is a reporting obligation, not necessarily a tax one, but the penalties for failing to report are severe and separate from any tax due. Every US-based NRI with Indian accounts should check whether they cross the Form 8938 thresholds and report accordingly — this is one of the most commonly missed obligations and one of the most heavily penalised.
Separately from FATCA, US persons must file an FBAR (FinCEN Form 114) if the aggregate value of their foreign financial accounts exceeds USD 10,000 at any point in the year. For an NRI, this easily includes your Indian savings, NRE/NRO/FCNR accounts, and even accounts you hold jointly or have signature authority over. The USD 10,000 threshold is an aggregate across all foreign accounts, so it is crossed far more often than people expect. The FBAR is filed with the US Treasury, not the IRS, and — like FATCA — carries heavy penalties for non-filing, including much larger penalties for wilful failures. Because the threshold is low and the penalties are large, the safe default for a US-based NRI with any meaningful Indian banking is to assume the FBAR applies and file it.
This is the single most damaging trap for US-based NRIs, and most are unaware of it until it costs them. Indian mutual funds — and many pooled Indian investments — are treated by the US as Passive Foreign Investment Companies (PFICs), and the US taxes PFICs under a punitive regime (reported on Form 8621) with high tax rates, interest charges on deferred gains, and burdensome annual reporting. The result is that an Indian mutual fund that looks like a sensible investment in India can be a tax and compliance nightmare in the US, often taxed far more harshly than the same money in a US fund. The practical lesson for a US-resident NRI is to be very cautious about holding Indian mutual funds, ULIPs and similar pooled products, and to take advice before buying them — because unwinding a PFIC position later is expensive. Direct Indian shares are generally not PFICs, but funds and many insurance-linked investments are, and this shapes how a US-based NRI should invest in India.
Another surprise: the interest on your NRE account, which is exempt from tax in India as long as you are a non-resident, is fully taxable in the US. The US does not recognise India's domestic exemption — it taxes its residents' worldwide income, including foreign interest that a foreign country chooses to exempt. So a US-based NRI who assumes their NRE interest is tax-free everywhere is mistaken: it is tax-free in India but must be reported and taxed on the US return. Because no Indian tax was paid on it, there is usually no foreign tax credit to offset the US tax on NRE interest — you simply pay US tax on it. This catches many people, and it is a reason some US-based NRIs prefer FCNR or other structures, or simply budget for the US tax on their Indian interest income.
The US treatment of Indian tax-advantaged accounts is murky and often unfavourable. The PPF, which is entirely tax-free in India, is not clearly recognised as a qualified retirement plan by the US, so its annual interest may be currently taxable in the US and the account may need FATCA/FBAR reporting. The EPF position is similarly uncertain, with the employer and employee contributions and the interest potentially treated differently under US rules than under Indian rules. There is no simple, universally-agreed answer, and the treaty does not fully resolve retirement-account mismatches. The safe approach for a US-based NRI is to report these accounts for FATCA/FBAR, and to take specific US-side advice on how to treat the income, rather than assuming the Indian tax-free status carries over — because it generally does not.
Consider an Indian software engineer on a green card in California, who earns ₹6 lakh of rent from a Pune flat and ₹3 lakh of NRO interest in the year, and also holds an NRE account earning ₹1 lakh of interest. On the India side, the rent is taxed after the 30% deduction and any loan interest, the NRO interest is taxed (ideally at the 15% treaty rate with a TRC and Form 10F), and she files ITR-2, reclaiming any over-deducted TDS. On the US side, she reports the rent, the NRO interest and the NRE interest (which India exempted but the US taxes), claims a foreign tax credit for the Indian tax paid on the rent and NRO interest, and pays US tax on the NRE interest (no Indian tax to credit). She files Form 8938 and an FBAR for her Indian accounts. If she also holds Indian mutual funds, she faces PFIC reporting and tax. The coordinated result: the rent and NRO interest are taxed once (at the higher of the two rates via the credit), the NRE interest bears US tax, and all her Indian accounts are reported — no double taxation, and no missed disclosures.
Now take a US citizen of Indian origin who inherits and then sells a family flat in Chennai. On the India side, the sale triggers capital-gains tax, the buyer deducts TDS under Section 393 (ideally reduced by a lower-TDS certificate), she settles the Indian tax and repatriates the proceeds with a 15CA/15CB certificate. On the US side, she reports the capital gain on her US return, claims a foreign tax credit for the Indian capital-gains tax, and pays any US tax above that; she also reports the inherited account and the sale for FATCA/FBAR. Inheritance itself is not taxed in India, and the US does not tax the receipt of a foreign inheritance as income (though large foreign gifts/inheritances may need an information return, Form 3520). The two systems, coordinated, tax the gain once and keep the reporting clean — but the sequence (lower-TDS certificate, Indian filing, repatriation, US reporting) has to be run in the right order. See our NRI property-sale guide and repatriation guide.
A practical challenge is that India and the US have different tax years and deadlines — India runs April to March with filing due mid-year, while the US runs the calendar year with an April deadline (extendable). This mismatch matters for the foreign tax credit: to claim credit in the US for Indian tax, you need to know the Indian tax paid, which may be finalised on a different timeline. Good coordination means filing the Indian return first where possible so the Indian tax figure is settled, then claiming the US credit, and using extensions where the timing doesn't line up. A US-based NRI who treats the two returns as one joined-up exercise — same underlying income, two reporting systems, one credit linking them — avoids both the double-tax risk and the mismatch problems that arise when the two are prepared in isolation by people who don't talk to each other.
US-based NRIs often think only of federal (IRS) tax and overlook that most US states levy their own income tax, and many states tax their residents' worldwide income just as the federal system does. So if you live in California, New York or another high-tax state, your Indian rent, interest and gains may be taxable at the state level too, on top of federal tax. The complication is that states generally do not give a foreign tax credit for Indian tax the way the federal return does — the DTAA is a treaty between national governments and does not bind US states — so state tax on your Indian income can effectively be an extra layer that the treaty does not relieve. This is a genuine and under-appreciated cost of being a US-resident NRI in a high-tax state, and it means the total US burden on your Indian income can be higher than the federal position alone suggests. Some NRIs factor this into where they choose to be resident within the US; all of them should at least be aware that the state return is a separate calculation the federal foreign tax credit does not fix.
Many Indians in the US discover the FBAR and FATCA rules only after several years of not filing them — often because no one told them their ordinary Indian savings accounts had to be reported. The good news is that the US has amnesty-style programmes, most notably the Streamlined Filing Compliance Procedures, designed for taxpayers whose failure to report foreign accounts was non-wilful — that is, an honest oversight rather than deliberate concealment. Under the streamlined route, you file the missing returns and FBARs for a look-back period, pay any tax due, and certify that the failure was non-wilful, generally with greatly reduced or no penalties compared with the draconian default penalties. For a US-based NRI who realises they have years of unreported Indian accounts, this is usually far better than either continuing to ignore the problem or making a noisy voluntary disclosure. Because eligibility and the certification are technical, this is an area to handle carefully with proper US-side advice — but the key message is that there is a recognised, relatively gentle way back into compliance for the honest non-filer, and it is much cheaper than being caught.
Money and gifts crossing between India and the US raise their own reporting points that catch NRIs out. When a US person receives a large gift or inheritance from a foreign person — for example money or property from parents in India — the receipt is generally not taxable as income in the US, but if it exceeds the threshold it must be reported to the IRS on Form 3520, an information return with its own penalties for non-filing. In the other direction, gifts you make, and remittances you send to India, have their own considerations. On the India side, gifts from close relatives are exempt, but gifts to non-relatives above the limit can be taxable to the recipient. The practical point for a US-based NRI is that moving family money across the border is rarely taxable but often reportable, and the reporting — Form 3520 in the US, the gift rules in India — is where the risk lies. Keeping a clear record of the source and nature of any large cross-border gift or inheritance, and filing the information returns, keeps these transfers clean on both sides.
Retirement income has specific treaty treatment that matters as US-based NRIs age. The India-US treaty contains articles dealing with pensions and social security that allocate taxing rights — broadly, private pensions and social-security-type payments are often taxable primarily in one country, and the treaty aims to prevent both from taxing the same pension in full. A US-based NRI drawing an Indian pension, or a returning NRI drawing US Social Security after moving back to India, needs to read the specific articles because the outcome depends on the type of payment and the direction. US Social Security paid to someone who moves to India, and Indian pensions paid to someone in the US, can each be affected by these provisions. Because retirement is exactly when getting this wrong is most costly — the amounts are lifelong — anyone approaching retirement with income streams in both countries should have the pension and social-security position specifically reviewed against the treaty rather than assuming ordinary rules apply.
A longer-horizon issue that green-card holders and US citizens should be aware of is the US estate and gift tax, which can reach an individual's worldwide assets — including Indian property and investments — on death or large lifetime gifts. India abolished its estate duty decades ago, so Indians are often unaware that the US taxes estates, and that a US citizen or long-term green-card holder can be exposed to US estate tax on their Indian assets. The rules, exemptions and the interaction with any estate-tax treaty are complex, and this is firmly a matter for specialist US estate-planning advice, but the awareness point is important: a US-based NRI accumulating substantial Indian assets should factor US estate-tax exposure into their long-term planning, structuring ownership and succession with both countries in mind rather than assuming the Indian position (no estate duty) is the whole story.
The year you move from India to the US is a transition that needs care on both sides. For India, your residential status that year depends on your day-count, and you may still be a resident or RNOR for part of the arrangement — affecting what India taxes. For the US, your first year can involve a dual-status return or a part-year residency, and the substantial-presence test determines when US worldwide taxation begins. Income earned in India before you became a US tax resident is generally outside the US net, while income after that point is caught — so the timing of when you realise Indian income (bonuses, gains, pension draws) around the move can materially change your US tax. Planning the transition — ideally realising or receiving large Indian amounts before US residency begins, and coordinating the Indian RNOR window — is one of the highest-value pieces of advice a moving NRI can get, and it is available only if you plan before the move rather than after.
Because of the PFIC problem and the reporting burden, US-based NRIs should think carefully about how they hold Indian investments, not just whether to hold them. The general guidance many US-based Indians follow is to avoid Indian mutual funds and ULIPs (which are PFICs), and to prefer direct Indian shares, fixed deposits and real estate, which are simpler under US rules — direct equities are not PFICs, and interest and rent flow through the ordinary foreign-tax-credit machinery. Where you want diversified Indian equity exposure, some US-based NRIs use US-domiciled funds or ETFs that invest in India, which sidesteps the PFIC regime entirely because the fund itself is a US vehicle. Retirement products like the NPS and PPF should be approached cautiously given the uncertain US treatment and the reporting they trigger. None of this means an NRI cannot invest in India — many do so very successfully — but the choice of wrapper matters enormously for a US taxpayer, and a product that is perfectly sensible for a resident Indian or a Gulf-based NRI can be a costly mistake for someone filing in the US. Taking five minutes of US-side advice before buying an Indian investment product saves years of PFIC pain, and is the single most useful habit a US-based NRI investor can adopt.
The recurring, expensive errors: not filing FBAR and Form 8938 for Indian accounts, where the penalties dwarf any tax; holding Indian mutual funds without realising the PFIC consequences; assuming NRE interest is tax-free in the US when it is fully taxable there; not obtaining a TRC and Form 10F so Indian TDS is over-deducted; missing the foreign tax credit and paying tax twice; ignoring the PPF/EPF US treatment; and preparing the two returns in isolation so the credit and the reporting don't line up. Each of these is avoidable, and several carry penalties far larger than the tax at stake — which is exactly why the US corridor rewards careful, coordinated handling more than any other.
More than any other NRI, the US-based Indian benefits from having the India and US sides handled in a coordinated way. The Indian work — the treaty rate, the lower-TDS certificate, ITR-2, the repatriation certificates — has to feed the US work — the foreign tax credit, Form 8938, the FBAR, the PFIC reporting. When one accountant handles India and another handles the US without coordination, credits get missed, disclosures get dropped, and PFIC problems go unnoticed until they are costly. A joined-up approach ensures the Indian tax is minimised and correctly evidenced, the US credit is fully claimed, and every Indian account and asset is properly reported — so you pay the right tax once and stay clear of the heavy US non-compliance penalties. For an Indian building a life in the US while keeping assets back home, that coordination is worth far more than it costs.
Usually yes. India taxes your Indian income (rent, interest, capital gains) and you file ITR-2; the US taxes your worldwide income including that Indian income, and you claim a foreign tax credit for the Indian tax paid so you are not taxed twice.
Yes. Under FBAR (FinCEN 114) you report foreign accounts if their aggregate value exceeds USD 10,000 at any time in the year, and under FATCA (Form 8938) you report foreign financial assets above the applicable thresholds. Indian NRE/NRO/FCNR accounts, mutual funds and shares are covered, and the penalties for non-reporting are severe.
Yes. Indian mutual funds are generally treated as PFICs by the US and taxed under a punitive regime (Form 8621) with high rates and heavy reporting. US-based NRIs should take advice before holding Indian mutual funds, ULIPs or similar pooled products.
Yes. NRE interest is exempt in India while you are a non-resident, but the US taxes its residents' worldwide income and does not recognise India's exemption, so NRE interest is fully taxable on your US return — usually with no foreign tax credit because no Indian tax was paid on it.
Use the India-US DTAA: provide a US Tax Residency Certificate and Form 10F so Indian TDS is applied at the treaty rate, file your Indian return, and claim a foreign tax credit (Form 1116) on your US return for the Indian tax paid. Coordinating the two filings ensures the same income is taxed once, at the higher of the two rates.
We handle your Indian side — treaty rate, lower-TDS certificate, ITR-2, repatriation — and coordinate it with your US return so nothing is taxed twice or left unreported.
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