US Markets
US Tax for NRI
How Non-Resident Indians living in the US are taxed — residency status, FBAR, FATCA, and filing requirements.
Indians living in the US on visas (H-1B, L1, F-1 OPT, Green Card) face a complex tax situation involving both US and Indian tax obligations. The US taxes residents on worldwide income; India taxes NRIs only on Indian-source income. Understanding your tax residency status in both countries is the critical first step to avoiding double taxation.
US Tax Residency Status
Your US tax status depends on your visa type and days present. This determines how broadly you are taxed.
- US Person (Citizen, Green Card holder): Taxed on worldwide income regardless of where you live
- Resident Alien (H-1B, L1 after Substantial Presence Test): Taxed on worldwide income
- Non-Resident Alien (F-1, new H-1B, short stays): Taxed only on US-source income
- Substantial Presence Test: 31 days this year + 1/3 days year prior + 1/6 days two years prior ≥ 183
- Dual-status year: Year of arrival/departure — complex; consider filing with a CPA
FBAR and FATCA: Foreign Account Reporting
US persons with foreign financial accounts above certain thresholds must report them annually.
- FBAR (FinCEN 114): File if foreign accounts exceeded $10,000 at any point during the year
- FATCA (Form 8938): File if foreign assets exceed $50,000 on last day of year (or $75,000 at any point)
- Indian bank accounts, mutual funds, Demat accounts, PPF all count as foreign financial assets
- Penalties: Willful FBAR failure — up to $100,000 or 50% of account value per violation
- File electronically via FinCEN BSA E-Filing System (FBAR) and with tax return (Form 8938)
Common Tax Situations for Indian-Americans
Most H-1B holders and Green Card holders face these scenarios regularly.
- NRO account interest: Taxable in US at ordinary income rates; credit for Indian TDS deducted
- India mutual fund gains: PFIC (Passive Foreign Investment Company) rules may apply — complex and punitive
- India stock gains: Report on Schedule D; claim foreign tax credit for Indian taxes paid
- NRE account interest: Tax-free in India but taxable in US for US residents
- India employer income: If working remotely for Indian company from US, likely taxable in US
⚠️ Important: PFIC rules for Indian mutual funds are extremely punitive under US tax law. Many H-1B holders unknowingly hold Indian mutual funds in violation of optimal US tax strategy. Consult a cross-border CPA before investing.
Key Takeaways
- ✓US persons are taxed on worldwide income — Indian income must be reported on US tax returns
- ✓FBAR filing is mandatory if Indian accounts exceeded $10,000 at any point — penalties are severe
- ✓India mutual funds may be treated as PFICs — consult a CPA experienced in cross-border tax
- ✓Foreign Tax Credit prevents most double taxation — taxes paid to India can offset US liability
- ✓Hire a CPA who specialises in US-India cross-border taxation — generalise CPAs often miss critical rules
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