U.S. taxes for Americans in India: what to file, and how to catch up.
Many Americans in India are returning NRIs, dual families or professionals on assignment, and all of them still file a U.S. return every year. Indian tax often covers the U.S. bill on wages. The traps are Indian mutual funds, PPF and NRE accounts, which are tax-free or favored in India but not for the IRS, and a tax year that runs April to March. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You moved to India and kept your U.S. citizenship.
- You invest in Indian mutual funds through a SIP.
- You have an NRE account because it’s tax-free in India.
- Your Indian bank or fund house asked for FATCA details.
How does the IRS treat Indian funds, PPF, EPF and NRE accounts?
Every one of these goes on your FBAR. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| Indian mutual funds | Usually PFICs (Form 8621), including those you buy through a SIP. Reporting and tax rules are complex. | Watch out |
| PPF | Tax-free in India only. The interest is usually taxable for the U.S., and the account counts toward your FBAR total. | Taxable |
| EPF | Could be treated as Indian social security, which the treaty leaves to India, or as a foreign retirement account the U.S. can tax. The rules don’t settle it. | Check first |
| NRE and NRO accounts | NRE interest is tax-free in India but taxable for the U.S. Both count toward your FBAR total. | Taxable |
| ULIPs | Insurance with funds inside. The funds can be PFICs, and growth may be taxable for the U.S. | Watch out |
| Fixed deposits | Interest is taxable for the U.S. each year as it accrues, with a credit for Indian tax withheld on it. | Taxable |
Which Indian investments are PFICs?
Indian mutual funds of every kind, equity, debt and hybrid, Indian ETFs, and the funds inside ULIPs. For U.S. tax they’re passive foreign investment companies, or PFICs.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- A SIP makes it harder: each monthly installment is a separate block of shares for the PFIC rules.
- Not PFICs: shares of individual companies, government bonds, fixed deposits, PPF and bank accounts.
Many returning NRIs carry a dozen funds from years of SIPs, which is often the biggest part of an Indian filing.
What does the U.S.–India tax treaty actually say?
The treaty was signed in 1989 and took effect in 1991. For Americans living in India, these parts matter most:
- The saving clause. The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists.
- Indian social security. Benefits are taxable only in India, even for U.S. citizens. Whether your EPF counts as social security isn’t settled.
- Relief from double tax. The U.S. gives a credit for Indian income tax on the same income, matched across the different tax years.
There’s no U.S.–India social security agreement in force, so a self-employed American generally owes U.S. self-employment tax. Read the U.S.–India tax treaty on IRS.gov.
Two Indian tax years, one U.S. return
U.S. returns run January to December, and the Indian tax year runs 1 April to 31 March. So each U.S. return covers part of two Indian tax years, and we work out which income and which tax belong to which U.S. year, using your payslips, Form 16 and Form 26AS.
| India | United States | |
|---|---|---|
| Tax year | 1 April to 31 March | January to December |
| Annual return | Usually July 31, later if your accounts need an audit | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | TDS from your salary and interest, plus advance tax in installments | April 15, even if you file later |
| Foreign accounts | Residents list foreign assets, U.S. accounts included, on the Indian return | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in India?
- Higher earners paying Indian rates of 30%, plus surcharge and cess, usually do best with the foreign tax credit.
- At moderate salaries, Indian tax can be less than the U.S. tax, so the foreign earned income exclusion, up to $130,000 for 2025, may do more.
- Returning NRIs who are “not ordinarily resident” in India pay no Indian tax on most foreign income for a few years, so U.S. income has no Indian tax to credit.
- Income that’s tax-free in India, like NRE and PPF interest, is taxed in full by the U.S.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: a returning NRI in Bengaluru
Priya, a U.S. citizen, moved back to Bengaluru in 2018. She earns ₹40 lakh at a tech company, runs SIPs in four mutual funds, has a PPF, and kept an NRE fixed deposit from her years in the U.S. She hasn’t filed a U.S. return since moving.
| Item | How it’s handled |
|---|---|
| Salary | Split across the Indian tax years, then covered by the credit for her Indian tax; her U.S. tax on it is little or nothing. |
| Four mutual funds | PFICs: a Form 8621 for each, with every SIP installment tracked. |
| PPF and NRE deposit | The interest is taxable on her U.S. return, with no Indian tax to credit. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if she qualifies. |
Catching up from India
Most Americans in India who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
Do I pay U.S. Social Security tax in India?
Usually not if you work for a local employer. There’s no U.S.-India social security agreement, though, so self-employment tax can still apply if you work for yourself, and FICA if you work for a U.S. company.
Are my Indian social security benefits taxed by the U.S.?
Under the treaty, Indian social security benefits are taxable only in India, even for U.S. citizens. Whether your EPF counts as social security isn’t settled, so we look at it case by case.
Should I sell my Indian funds?
Maybe, but not before getting advice. Selling has tax consequences in both countries. We’ll show you the U.S. cost of keeping versus selling.
Is my NRE account tax-free for the U.S.?
No. NRE interest is tax-free in India only. It goes on your U.S. return, and the account counts toward your FBAR total.
How do you handle the April tax year?
U.S. returns use the calendar year, so we split your Indian income and tax between the two U.S. years using your payslips, Form 16 and Form 26AS. It’s routine for us.
I have an OCI card. Do I still file U.S. returns?
Yes. An OCI card doesn’t change your U.S. citizenship, so you file like any American abroad.
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