🇮🇳2026 Tax Guide

US Expat Taxes in India: NRI Filing Guide

2026 guide to US tax obligations for Americans in India, NRIs with US ties, and Indian-Americans with income in India

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Tax Treaty

Since 1989

Local Tax Rate

5-30% (Individual) + 4% Health & Education Cess

Filing Deadline

July 31 (India), June 15 (US expats)

US-India Tax Relationship

The US-India Double Taxation Avoidance Agreement (DTAA), signed in 1989 and amended by protocol in 2006, is the cornerstone of cross-border tax planning for Americans in India and NRIs with US ties. Article 10 (Dividends) limits withholding to 15% for portfolio dividends and 25% for dividends where the beneficial owner is a company holding less than 10% of voting stock. Article 11 (Interest) caps withholding at 10% for bank interest and 15% for other interest income, which is significantly lower than India's domestic withholding rates. Article 12 (Royalties and Fees for Technical Services) limits withholding to 10% for royalties and 15% for fees for included services (FTS) — a critical provision for US-based consultants and software companies receiving payments from India. Article 13 (Capital Gains) provides that gains from sale of immovable property (real estate) are taxable in the country where the property is situated, while gains from sale of shares or other assets are generally taxable only in the seller's country of residence unless they relate to a permanent establishment. Article 15 (Dependent Personal Services / Employment) allows India to tax employment income only if the employee is present in India for more than 183 days in a fiscal year, has an Indian employer, or the remuneration is borne by a permanent establishment in India. Article 21 (Pensions) is particularly valuable: private pensions are taxable only in the country of residence of the recipient, meaning a US resident receiving an Indian private pension pays tax only to the US. Article 4 (Residency) provides a tiebreaker test for dual residents: permanent home, center of vital interests, habitual abode, and finally mutual agreement by competent authorities. The treaty also includes a Limitation on Benefits (LOB) clause added in the 2006 protocol, which prevents treaty shopping by requiring that the person claiming benefits be a qualified person — a bona fide resident with substantial connection to the treaty country. Note: India does not have a Totalization Agreement with the US for social security, which means dual social security contributions are possible.

Key Tax Considerations for India

NRI Status Complexity

Your NRI status in India does not affect US tax obligations. The US taxes citizens and Green Card holders on worldwide income regardless of Indian residency classification. However, NRI status is beneficial from the Indian side: NRIs are taxed only on India-source income (salary earned in India, Indian rental income, Indian capital gains), not on foreign income. Understanding both classifications is essential to determine which income is taxed where and which treaty articles apply.

PPF & EPF Reporting

Indian PPF (Public Provident Fund) and EPF (Employees Provident Fund) accounts must be reported on FBAR if combined Indian accounts exceed $10,000. Interest earnings are taxable in the US despite being tax-exempt in India. PPF may also be classified as a foreign trust under IRC Section 671-679, potentially triggering Form 3520/3520-A reporting — this is an unsettled area of US tax law with aggressive IRS positions emerging. EPF employer contributions are taxable as additional compensation on your US return in the year contributed.

Rental Property in India

Must report Indian rental income on US return on Schedule E. India withholds TDS at 31.2% (30% + 4% cess) on rental payments to NRIs, which can be claimed as Foreign Tax Credit on Form 1116. The property's cost basis must be converted to USD at the exchange rate on the date of acquisition. Depreciation rules differ between countries — India allows depreciation under the Income Tax Act while the US uses MACRS. If the property was inherited, US cost basis is the fair market value at date of death (stepped-up basis).

Gift Tax Differences

India abolished gift tax in 1998 but reintroduced taxation of gifts received under Section 56(2)(x) of the Income Tax Act for amounts exceeding INR 50,000 from non-relatives. The US has no income tax on gifts received but requires informational reporting on Form 3520 for gifts from foreign persons exceeding $100,000. Large gifts to Indian relatives may trigger US gift tax reporting (Form 709) if from a US person.

PFIC Risk for Indian Mutual Funds

Indian mutual funds — including ELSS, debt funds, hybrid funds, and index funds held through platforms like Zerodha, Groww, or any Indian AMC — are classified as Passive Foreign Investment Companies (PFICs) under IRC Section 1297. This triggers punitive US tax treatment: gains are taxed at the highest marginal rate (37% in 2026) plus an interest charge on the deemed deferral, regardless of your actual tax bracket. Each fund requires a separate Form 8621. The compliance cost alone ($500-1,500 per form per year) makes holding Indian mutual funds extremely expensive for US persons. Use US-listed ETFs that track Indian markets (INDA, EPI, SMIN) instead.

NPS (National Pension System) Reporting

India's National Pension System (NPS) accounts must be reported on FBAR and potentially Form 8938. Employer contributions to NPS are likely taxable as additional compensation for US purposes. The US does not recognize NPS as a qualified retirement plan. NPS may also be classified as a foreign grantor trust, requiring Forms 3520/3520-A. Upon withdrawal, 60% of NPS is taxable in India (40% is tax-free if used for annuity under current rules), but the entire amount may be taxable in the US. The treaty Article 21 pension provision may provide relief for private pensions.

Old vs New Tax Regime Choice

India offers two parallel income tax regimes. The New Regime (default from FY 2023-24): 0% up to INR 4 lakh, 5% for 4-8L, 10% for 8-12L, 15% for 12-16L, 20% for 16-20L, 25% for 20-24L, 30% above 24L — plus standard deduction of INR 75,000 and rebate under Section 87A up to INR 7 lakh. The Old Regime: 0% up to INR 2.5L, 5% for 2.5-5L, 20% for 5-10L, 30% above 10L — but allows deductions under Sections 80C (INR 1.5L for PPF, ELSS, insurance), 80D (health insurance), 80E (education loan interest), HRA, LTA, and home loan interest under Section 24. For US tax purposes, the regime choice affects your Foreign Tax Credit calculation: higher Indian tax paid = higher FTC available. The Old Regime with full deductions may result in lower Indian tax, leaving more US tax to pay. Model both scenarios to optimize total tax across both countries.

No US-India Totalization Agreement

Unlike Canada, UK, and Australia, there is no Social Security Totalization Agreement between the US and India. This means dual social security contributions are possible: US self-employment tax (15.3%) applies to all self-employment income, AND Indian EPF/ESI contributions may be mandatory for employed individuals in India. There is no mechanism to combine credits from both systems or avoid double contributions. For employees, this can mean paying both US Social Security (if still covered) and Indian EPF on the same earnings.

PAN Card Requirement

A Permanent Account Number (PAN) card is mandatory for NRIs with any taxable income in India, including rental income, capital gains, or interest income above the basic exemption limit. Without a PAN, TDS rates are doubled under Section 206AA — for example, TDS on NRI rent goes from 31.2% to 60%+. PAN is also required to file Indian income tax returns and claim treaty benefits. Apply via NSDL or UTIITSL online portal.

State Tax Considerations (Sticky States)

Several US states continue to tax former residents even after they move abroad. California, New York, and Virginia are particularly aggressive ('sticky states'). California may tax you for the entire year you leave and applies a complex sourcing analysis. New York taxes non-residents on NY-source income indefinitely. If you maintained a domicile in these states before moving to India, you may still owe state income tax. No US-India treaty provision addresses state taxes.

Required US Tax Forms

Form 1040

US Individual Tax Return

Required for all US citizens and Green Card holders regardless of residence. Report worldwide income including Indian salary, rental income, interest, dividends, and capital gains — all converted to USD.

Form 2555

Foreign Earned Income Exclusion

Exclude up to $132,900 of foreign earned income in 2026. Must meet either the Physical Presence Test (330 days outside US in a 12-month period) or Bona Fide Residence Test. Generally less beneficial than FTC for US expats in India due to India's high tax rates.

Threshold: Up to $132,900

Form 1116

Foreign Tax Credit

Claim credit for Indian taxes paid (income tax, TDS, advance tax) to avoid double taxation. Often more beneficial than FEIE in India due to high combined Indian tax rates (30% + 4% cess = 31.2% top rate). Separate baskets for general category income, passive income, and Section 901(j) income. Cannot claim FTC and FEIE on the same income.

Threshold: Dollar-for-dollar credit up to US tax on foreign income

FBAR (FinCEN 114)

Foreign Bank Account Report

Report ALL Indian financial accounts: savings accounts, NRE/NRO accounts, PPF, EPF, NPS, fixed deposits, mutual fund folios, demat accounts, and any other account with a financial institution in India. Filed electronically via BSA E-Filing. Due April 15 with automatic extension to October 15.

Threshold: $10,000 aggregate at any point during the year

Form 8938

FATCA Statement of Foreign Financial Assets

Report specified Indian financial assets including bank accounts, fixed deposits, mutual funds, shares, insurance policies with cash value, and pension accounts (PPF, EPF, NPS). Higher thresholds than FBAR for residents abroad.

Threshold: $200,000 (end of year) / $300,000 (at any point) for residents abroad

Form 3520

Foreign Trust/Gift Reporting

Report gifts or inheritances from Indian persons exceeding $100,000 (informational, no tax owed). PPF may be treated as a foreign trust under IRS theory, potentially requiring Form 3520 for annual contributions and Form 3520-A for annual information return of the trust. This is an aggressive but emerging IRS position.

Threshold: $100,000 for gifts; any amount for trust transactions

Form 8621

PFIC Annual Information Return

Required for each Indian mutual fund held — ELSS, debt funds, hybrid funds, index funds, liquid funds, or any pooled investment vehicle. Each fund is a separate PFIC requiring its own Form 8621. Failure to file results in the PFIC being taxed under the punitive Section 1291 default rules (37% + interest charge). Consider QEF or mark-to-market elections if available.

Threshold: Any ownership in an Indian mutual fund

Form 8833

Treaty-Based Return Position

Required when taking a position on your US return based on the US-India DTAA that reduces or modifies US tax liability — for example, claiming Article 21 pension exemption, Article 15 employment income exclusion, or reduced withholding under Articles 10/11/12. Failure to file Form 8833 can result in a $1,000 penalty per failure.

Threshold: Any treaty-based position that affects US tax

Common Expat Scenarios

Tech Worker Relocated to Bangalore

US citizen working for tech company in India, has 401k in US, opened NRE/NRO accounts, parents gifted property.

Our Approach: File both Indian ITR-1/ITR-2 and US Form 1040. Report NRE/NRO on FBAR. FTC is usually better than FEIE given India's 30%+ top rate. Report property gift on Form 3520 if value exceeds $100,000. Avoid opening Indian mutual fund SIPs — they are PFICs. Use US-listed ETFs instead.

Software Engineer Earning INR 30 Lakh in Bangalore

US Green Card holder working at an Indian IT company in Bangalore, earning INR 30 lakh (~$36,000) annual CTC. Employer contributes to EPF. Has NRE account from previous US employment and NRO account for Indian salary. Comparing Old vs New Tax Regime.

Our Approach: Under the New Regime: taxable income after standard deduction (INR 75,000) = INR 29.25 lakh. Tax: 0% on first 4L + 5% on 4-8L + 10% on 8-12L + 15% on 12-16L + 20% on 16-20L + 25% on 20-24L + 30% on 24-29.25L = approximately INR 5.73 lakh (~$6,900). Under the Old Regime with Section 80C (INR 1.5L for EPF), 80D (INR 25,000 health insurance), and HRA exemption: taxable income drops to ~INR 24L, tax = ~INR 4.73L (~$5,700). US side: report $36,000 income on Form 1040, claim FTC of ~$6,900 (New) or ~$5,700 (Old) on Form 1116. Since Indian tax exceeds US tax on $36,000 (which would be ~$4,200 at the 12% bracket), you owe zero US federal tax under either regime — but the New Regime generates more excess FTC carryforward. Report EPF, NRE, and NRO on FBAR.

NRI with Rental Property in Mumbai

US citizen (NRI) owns a 2BHK apartment in Mumbai rented for INR 50,000/month. Tenant is required to deduct TDS. Also has NRE FDs and US employment income.

Our Approach: Annual rental income: INR 6 lakh (~$7,200). India withholds TDS at 31.2% (30% base + 4% cess) = INR 1.87 lakh (~$2,250) deducted by tenant under Section 195. NRI can claim standard deduction of 30% on rental income under Indian law, reducing taxable rental income to INR 4.2 lakh. US side: report full $7,200 rental income on Schedule E (no 30% standard deduction — US uses actual expenses). Claim allowable US deductions: property taxes, insurance, depreciation (MACRS over 27.5 years on building value), management fees. Claim $2,250 FTC on Form 1116 (passive category basket) for Indian TDS paid. If US tax on the net rental income is less than the Indian TDS, excess FTC carries forward 10 years. File FBAR for all Indian accounts including the account receiving rent.

Retiree with PPF, EPF, and Indian Pension

Retired US citizen living in the US, has matured PPF account, EPF balance from former Indian employer, and receives monthly pension from a private Indian company.

Our Approach: PPF: matured PPF proceeds are tax-free in India but the accumulated interest is taxable in the US over the years it accrued (catch-up reporting may be needed). PPF may need to be reported as a foreign trust (Forms 3520/3520-A) — consult a specialist. EPF: withdrawal is tax-free in India after 5 years of continuous service, but the entire withdrawal (both employer and employee portions plus interest) is taxable in the US. Report on Form 1040 as foreign pension income. Claim FTC for any Indian TDS withheld. Indian private pension: under Article 21 of the US-India DTAA, private pensions are taxable only in the country of residence. If you are a US resident, India should not tax the pension (claim treaty benefit with Form 10F in India). Report the pension on your US return and file Form 8833 to disclose the treaty-based position. Report all Indian accounts (PPF, EPF, pension account, bank accounts) on FBAR.

Indian-American with Inherited Property

US citizen inherited property and bank accounts from parents in India, receives rental income.

Our Approach: Report inheritance on Form 3520 (informational, no US tax on receipt). US cost basis = fair market value at date of death (stepped-up basis) converted to USD at the exchange rate on that date. File FBAR for inherited bank accounts. Report rental income on Schedule E and claim FTC for Indian TDS. If you sell the property, report capital gain on Schedule D using the stepped-up basis. India will also tax the capital gain — claim FTC to avoid double taxation.

Green Card Holder Returning to India

Living in India but maintaining Green Card, has US investments, Indian salary and PF contributions.

Our Approach: Still must file US returns with worldwide income. Risk of Green Card abandonment if abroad too long (re-entry permit needed for absences over 1 year). Indian salary, EPF contributions (employer portion = additional compensation), and all investment income taxable on US return. Claim FTC for Indian taxes. If you relinquish the Green Card after holding it for 8+ of the last 15 years, you may be subject to the IRC Section 877A exit tax (mark-to-market on worldwide assets). Plan relinquishment carefully.

Tax Advantages

Comprehensive DTAA since 1989 with reduced withholding rates on dividends (15-25%), interest (10-15%), and royalties (10-15%)
NRI status means only India-source income is taxed in India — US/global income is exempt from Indian tax
Article 21 pension provision: private pensions taxable only in country of residence
Article 4 residency tiebreaker prevents dual-resident taxation disputes
India's high tax rates (31.2% top) generate strong FTC to offset US tax liability
Student and teacher special provisions in the treaty for temporary stays
Growing FATCA compliance by Indian financial institutions simplifies IRS reporting
Rupee depreciation against USD may reduce the USD-equivalent of Indian income and thus US tax
India has no estate or inheritance tax — simplifies cross-border estate planning
Digital India initiatives improve accessibility of Form 26AS, ITR filing, and PAN services for NRIs

Watch Out For

PPF/EPF tax-free status not recognized by US — interest taxable on US return annually
PPF foreign trust classification uncertainty — emerging IRS position may require Forms 3520/3520-A
Indian mutual funds classified as PFICs with punitive 37% + interest charge tax treatment
PFIC compliance costs ($500-1,500 per Form 8621 per fund per year) make Indian fund holdings impractical
Complex Indian TDS system (multiple rates, multiple sections) complicates FTC calculations on Form 1116
Property valuation in INR vs USD — exchange rate fluctuations create phantom gains/losses
Different fiscal year (India: April 1 - March 31 vs US: Jan 1 - Dec 31) requires careful income allocation
Joint family property (HUF) ownership complications — US does not recognize HUF as a tax entity
No US-India Totalization Agreement — dual social security contributions on the same income
Sticky US states (CA, NY, VA) may continue taxing even after relocation to India

Frequently Asked Questions

Is my Indian PPF account tax-free in the US?

No. While PPF is tax-exempt in India under Section 10(11) of the Income Tax Act, the US does not recognize this benefit. You must report PPF interest income on your US tax return annually. The account must also be disclosed on FBAR (FinCEN 114) if combined Indian accounts exceed $10,000, and on Form 8938 if above FATCA thresholds. Additionally, there is an emerging IRS position that PPF may be classified as a foreign trust, potentially requiring Forms 3520 and 3520-A. The compliance burden makes PPF less attractive for US persons than it is for Indian residents.

How do I report NRE and NRO accounts?

Both NRE and NRO accounts must be reported on FBAR if total foreign accounts exceed $10,000 at any point during the year. Key differences: NRE (Non-Resident External) accounts hold foreign currency converted to INR, are fully repatriable, and interest is tax-free in India — but that interest is fully taxable in the US. NRO (Non-Resident Ordinary) accounts hold Indian-source income (rent, dividends, pension), have limited repatriation (up to $1 million per year with CA certificate), and interest is subject to 30% TDS in India — that TDS qualifies for Foreign Tax Credit on Form 1116. Both account types must also be reported on Form 8938 if above FATCA thresholds.

My parents want to gift me property in India. What are the US tax implications?

Gifts received from non-US persons over $100,000 in aggregate during a tax year must be reported on Form 3520 (informational only — no US tax is owed on receipt). The gift itself is not taxable income. However, your US cost basis in the property will be the donor's original cost basis (carryover basis), not the current fair market value — this is different from inheritance, where you get a stepped-up basis. When you eventually sell, you will owe US capital gains tax on the difference between the sale price and the carryover basis (converted to USD). India may also tax the capital gain, but you can claim FTC to avoid double taxation.

Does my NRI status affect my US taxes?

No. Your NRI (Non-Resident Indian) status is an Indian tax concept under Section 6 of the Income Tax Act and has no bearing on US tax obligations. As a US citizen or Green Card holder, you must report worldwide income to the IRS regardless of whether India classifies you as a Resident, NRI, or RNOR (Resident but Not Ordinarily Resident). However, NRI status is beneficial from the Indian side: NRIs are taxed only on India-source income (salary earned in India, rental income from Indian property, capital gains on Indian assets), not on their US or global income. This asymmetry actually simplifies things — you avoid Indian tax on your US income while using the DTAA treaty to minimize double taxation on Indian income.

Does India tax NRI foreign income?

No. Under Indian tax law, Non-Resident Indians (NRIs) are taxed only on income that is earned in India or received in India. This includes Indian salary, rental income from Indian property, capital gains from sale of Indian assets, interest from Indian bank accounts (NRO), and dividends from Indian companies. Income earned outside India — such as US salary, US investment income, or income from other countries — is not taxable in India for NRIs. This is a significant advantage: your US employment income is not subject to Indian tax, and only your India-source income needs to be managed under the DTAA.

What is the DTAA benefit for NRI?

The US-India DTAA (Double Taxation Avoidance Agreement) provides several key benefits for NRIs with US ties: (1) Reduced withholding rates — dividends capped at 15-25% instead of India's domestic 20%, interest at 10-15% instead of 30%, royalties at 10-15%. (2) Residency tiebreaker under Article 4 — if you qualify as a resident of both countries, the treaty uses a hierarchy (permanent home, center of vital interests, habitual abode) to determine treaty residence for relief purposes. (3) Article 21 pension provision — private pensions taxable only in the country of residence. (4) Article 15 employment income — India can only tax employment income if you are present for 183+ days, have an Indian employer, or the salary is borne by an Indian PE. (5) Foreign Tax Credit — taxes paid to India under the DTAA can be credited against US tax on Form 1116, preventing double taxation. To claim treaty benefits in India, file Form 10F and obtain a Tax Residency Certificate (TRC) from the IRS.

Are Indian mutual funds taxable in US?

Yes, and they are taxed punitively. Indian mutual funds — including equity funds, ELSS, debt funds, hybrid/balanced funds, index funds, liquid funds, and any pooled investment vehicle offered by Indian AMCs (SBI, HDFC, ICICI Prudential, etc.) — are classified as Passive Foreign Investment Companies (PFICs) under IRC Section 1297. Under the default Section 1291 rules, gains are taxed at the highest marginal rate (37% in 2026) plus an interest charge calculated on the years of deemed deferral, regardless of your actual tax bracket. Each fund requires a separate Form 8621 filed annually, costing $500-1,500 per form in professional preparation fees. QEF (Qualified Electing Fund) election is rarely available because Indian AMCs do not provide the required PFIC Annual Information Statement. Mark-to-market election is possible but requires annual recognition of unrealized gains. The bottom line: US persons should avoid Indian mutual funds entirely and use US-listed India ETFs (INDA, EPI, SMIN, INDY) instead.

Do I need a PAN card as a US citizen in India?

Yes, a PAN (Permanent Account Number) card is mandatory for any person with taxable income in India, including NRIs and US citizens. Without a PAN, TDS (Tax Deducted at Source) rates are doubled under Section 206AA of the Income Tax Act. For example, TDS on NRI rental income jumps from 31.2% to over 60%, TDS on interest from 30% to 60%, and TDS on property sale from 20% to 40%. PAN is also required to file Indian income tax returns (necessary to claim refunds for excess TDS), open NRO accounts, buy/sell property over INR 10 lakh, and invest in Indian securities. NRIs can apply for PAN online through the NSDL or UTIITSL portals. You will need your passport, a foreign address proof, and a passport-sized photo.

Which ITR form should NRI file?

Most NRIs should file ITR-2, which covers individuals with income from salary, house property, capital gains, and other sources (but not business/profession income). If you have business or professional income in India (freelancing, consultancy), file ITR-3. ITR-1 (Sahaj) is NOT available to NRIs — it is restricted to Resident Indians with income up to INR 50 lakh from salary, one house property, and other sources. Key ITR-2 schedules for NRIs: Schedule HP for rental income, Schedule CG for capital gains, Schedule OS for interest/dividends, and Schedule FSI (Foreign Source Income) if you are RNOR. Filing deadline is July 31 for non-audit cases. You can file a belated return by December 31 of the assessment year with a penalty of INR 5,000.

Is there a Social Security agreement between US and India?

No. There is no Totalization Agreement between the United States and India. This means that if you work in India, you may be required to contribute to both US Social Security (self-employment tax of 15.3% if self-employed, or FICA if employed by a US company) AND Indian social security programs (EPF at 12% of basic salary, ESI if applicable). There is no mechanism to avoid dual contributions or combine credits from both systems for benefit eligibility. This is a significant cost disadvantage compared to countries like Canada, UK, and Australia, which all have totalization agreements with the US. For US employees seconded to India, careful structuring of the employment arrangement can minimize the double contribution.

What are the Indian income tax slabs for 2026?

India offers two tax regimes. New Tax Regime (default from FY 2023-24, recommended for most without heavy deductions): 0% on income up to INR 4 lakh, 5% on 4-8 lakh, 10% on 8-12 lakh, 15% on 12-16 lakh, 20% on 16-20 lakh, 25% on 20-24 lakh, and 30% on income above 24 lakh. Standard deduction of INR 75,000. Rebate under Section 87A makes income up to INR 7 lakh effectively tax-free. Old Tax Regime (opt-in, beneficial if you have significant deductions): 0% up to INR 2.5 lakh, 5% on 2.5-5 lakh, 20% on 5-10 lakh, 30% on income above 10 lakh. Allows deductions under Sections 80C (INR 1.5 lakh for PPF, ELSS, insurance premiums, tuition), 80D (health insurance premiums), 80E (education loan interest), 80G (donations), HRA exemption, and home loan interest under Section 24 (INR 2 lakh). Both regimes add 4% Health and Education Cess on the tax amount. For US FTC purposes, higher Indian tax = higher credit available on Form 1116.

What is the TDS rate for NRI rental income?

TDS on rental income paid to NRIs is 31.2%, comprising 30% base rate under Section 195 of the Income Tax Act plus 4% Health and Education Cess. If the NRI does not have a PAN, the rate doubles to over 60% under Section 206AA. The tenant (or property manager) is responsible for deducting TDS before making the payment and depositing it with the government using Form 26AS. The NRI can claim a refund of excess TDS by filing an Indian income tax return (ITR-2) after applying the 30% standard deduction on rental income and any applicable deductions. For US tax purposes, the TDS withheld qualifies as a creditable foreign tax on Form 1116 (passive income basket). If TDS exceeds your US tax on the rental income, the excess FTC carries forward for 10 years.

How do I claim FTC for Indian taxes paid?

File Form 1116 (Foreign Tax Credit) with your US return. Indian taxes eligible for FTC include: income tax, TDS on salary/rent/interest/dividends, advance tax, self-assessment tax, and the 4% Health and Education Cess. Surcharge is also creditable. You must use separate Form 1116 baskets for each income category: general category (salary, business income), passive category (interest, dividends, rent, capital gains), and Section 901(j) income if applicable. The FTC is limited to the US tax attributable to the foreign-source income in each basket — you cannot use excess FTC from passive income to offset tax on general income. Excess credits carry back 1 year and forward 10 years. Attach Indian Form 26AS (tax credit statement) as documentation. You can choose FTC or FEIE each year but cannot use both on the same income — and revoking FEIE has a 5-year lock-in rule.

What is the difference between NRE and NRO accounts?

NRE (Non-Resident External) accounts are for foreign income converted to INR: fully repatriable (principal + interest), interest is tax-free in India, and the account is maintained in INR. NRE accounts are ideal for parking overseas savings in India. NRO (Non-Resident Ordinary) accounts are for Indian-source income (rent, dividends, pension, sale proceeds): limited repatriation up to $1 million per financial year (requires CA certificate and Form 15CA/15CB), and interest is subject to 30% TDS plus 4% cess = 31.2%. Both accounts must be reported on FBAR and Form 8938. For US tax purposes, interest from both NRE and NRO accounts is taxable — the tax-free status of NRE interest in India does not apply in the US. The TDS on NRO interest qualifies for FTC on Form 1116. NRE FDs (fixed deposits) offer higher interest rates than US savings accounts but remember: the interest is US-taxable and rupee depreciation may erode returns.

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