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US Tax Filing and Compliance

US Tax Filing Guide for NRIs

Written by Hatim Dudhiyawala

Updated on: July 3, 202616 mins Editorial Standards

Tax filing may seem complex if you are an NRI living or working in the US. You will have to deal with two countries, two financial years, and two sets of rules. The US taxes its residents on their global income. It means your Indian salary, fixed deposits, rental income, and even mutual funds must be reported to the IRS. Understanding your obligations can help you prevent significant penalties and unnecessary double taxation.

In this blog, we will cover all obligations, critical forms, and deadlines. Keep reading to learn everything you need to know about US tax filing for NRIs to stay fully compliant.

Key Takeaways

A green card or substantial presence test will help you determine whether you need to file Form 1040 (global income) or 1040-NR (US income only).
Interest on NRE/NRO, rent, stocks, mutual funds, and gifts exceeding $100,000 must be reported to the IRS.
Claim relief under the DTAA treaty. Use foreign tax credit (Form 1116) or foreign earned income exclusion (Form 2555) to reduce a significant tax burden.
April 15, June 15, and October 15 are some critical deadlines that may carry real financial consequences if missed.

Who Must File US Taxes as an NRI?

The United States taxes its residents and citizens on their worldwide income, including every dollar earned in India. Unlike other countries that tax only locally sourced income, the US requires you to report full global income the moment you qualify as a US tax resident. You need to file a US federal tax return if you are a:

Resident Alien	Non-Resident Alien
A green card holder at any time during the tax year, regardless of where you lived.	F-1 and J-1 student visa holders, who are typically exempt from SPT counting for 5 years
An H-1B, L-1, O-1, or other work visa holder who fulfills the Substantial Presence Test (SPT)	H-4 visa holders who have no US-sourced income
A dual-status taxpayer in the year you arrived in or departed the US	New arrivals who have not met the SPT threshold for the year yet
A US citizen living in India (file Form 1040, citizen obligation is permanent)	NRIs with only US-sourced income below the filing threshold (As per IRS filing thresholds applicable for the relevant tax year)

How is Your US Tax Residency Status Determined?

You must either meet the green card test or the substantial presence test for the calendar year to be considered a resident alien for tax purposes:

The Green Card Test

You will be recognized as a lawful resident of the U.S. if you are allowed to reside permanently in the U.S. as an immigrant. To achieve this status, you will be issued an alien registration card. U.S. Citizenship and Immigration Services will issue this card, Form I-551, which is also known as the green card.

The Substantial Presence Test

The substantial presence test is used to identify foreign individuals who spend significant periods of time in the U.S. as resident aliens. To complete the test, you must be physically present in the U.S. on at least:

31 days during the current year,
183 days during the 3-year period that includes the current year. Also, the 2 years immediately before that, including:

All the days you were present in the current year
1/3 of the days you were present in the first year before the current year,
1/6 of the days you were present in the second year before the current year

Which Form To File: Form 1040 or Form 1040-NR?

The IRS uses two tax forms based on your residency status. Form 1040 is for US tax residents, and Form 1040-NR is for non-residents. You must report all your income in Form 1040, whether earned in the US or outside India. It includes freelance work, income from property, and foreign investments. Conversely, Form 1040-NR only reports and taxes US-sourced income. To understand which form to use, the table below lists the key differences between Form 1040 and Form 1040-NR:

Basis	Form 1040 (Resident Alien)	Form 1040-NR (Nonresident Alien)
Who Files	US citizens, green card holders, dual-state aliens, and those who meet the substantial presence test	Nonresident aliens who earned US-sourced income, dual-status aliens
Filing Status Options	Single Married filing separately Married filing jointly Head of household Qualifying widow	Single Married filing separately (with exception)
Taxable Income	Worldwide income needs to be reported and taxed	Only US-sourced income is taxed
Tax Treaty Benefits	Available via Form 8833.	Available but commonly used by NRAs
Standard Deduction	Yes	Generally no (with exceptions)
Dependents	Allowed to claim qualifying dependents	Claimable only if covered by a tax treaty (with conditions)
Tax Credits	A range of credits is available	Limited credit eligibility
Filing Deadline	15th of April, 2026 If abroad, an automatic extension of 2 months is permitted (15th June)	15th of June, 2026 In the absence of a W-2 form, the deadline is April 15 if wages are subject to withholding.

What Indian-Sourced Income Must Be Reported on Your US Return?

Once you become a US tax resident, the IRS requires you to report all your Indian Income. Also, ensure to include the Indian income converted to USD using the treasury exchange rate for the applicable date(s). The table below lists every category that Indian NRIs might face:

Type of Income	Where is it reported on 1040	Key notes
Indian salary/employment income	Line 1 (wages); Schedule 1 if foreign employer	If physically present in India, it may be excluded via FEIE (Form 2555)
NRE Fixed Deposits Interest	Schedule B (Interest Income)	It is tax-free in India. Fully taxable in the US as ordinary income.
NRO Fixed Deposit Interest	Schedule B	TDS deducted in India Claim FTC on Form 1116
FCNR (B) Interest	Schedule B	Tax-free in India Taxable in the US as ordinary income
Rental income from an Indian property	Schedule E	Report gross rent Deduct Indian taxes through Form 1116
Indian stock capital gains	Schedule D/ Form 8949	Use the US holding period rules instead of India's 12-month rule. Claim FTC
Indian mutual fund gains/ distributions	Form 8621 (PFIC)	PFIC rules apply. Also, if unreported, severe penalties may apply.
Indian dividends	Schedule B (qualified or ordinary)	If TDS is withheld in India, FTC is claimable. Generally considered as ordinary income in the US.
Gifts received from India	Form 3520 (if received from a foreign person that exceeds $100,000)	Money transfers from parents/relatives may trigger Form 3520
Indian pension /PPF/EPF	It may vary, but often it is Schedule 1	Requires treaty analysis PPF maturity may be exempt under this treaty

How Does the DTAA Treaty Help Avoid Double Taxation?

The US and India have a DTAA that permits NRIs to avoid paying tax on the same income twice. It is an agreement between the government of the United States of America and the Government of the Republic of India to prevent double taxation. The two key mechanisms are the Foreign Tax Credit and the Foreign Earned Income Exclusion:

Foreign Tax Credit (Form 1116)

FTC is the most used mechanism. It allows for a dollar-for-dollar US tax reduction for taxes already paid in India.
File a separate Form 1116 for each income category, including passive income and general income.
Excess credits can be carried back 1 year or forward for up to 10 years.
It is ideal for NRIs with significant Indian income, where India tax rate is more than the US tax rate.
Provide Form 16A/TDS certificates as supporting documents.

Foreign Earned Income Exclusion (Form 2555)

Up to $126,500 of foreign-earned income from US taxable income (Tax Year 2025) can be excluded.
It requires 'bona fide residence' in India or physical presence outside the US for more than 330 days within a 12-month period.
It applies only to earned income, such as salary and self-employment. Not applicable to passive income, such as interest, rent, or dividends.
Ensure you select strategically between Form 2555 and Form 1116, as they cannot be combined on the same income.

What are the Key Treaty Provisions that NRIs Must Know?

The table below lists the key treaty provisions that NRIs must be aware of:

Income Type	Treaty Treatment	What to Do
Indian rental income	India has the main taxing rights The US also taxes	Report on Schedule E Claim FTC via Form 1116
Indian dividends	A maximum of 15% withholding is allowed under the treaty, and 20% default	Submit Form 6166 (IRS TRC) to the Indian company Claim FTC
Indian bank interest	Max 15% withholding is allowed under the treaty	Provide Form 6166, and Form 10F to the Indian bank to reduce TDS
Indian capital gains on property	Indian has the primary right to tax The US also taxes	Use FTC on Form 1116 Remember that the US and Indian definitions of holding period differ.
PPF/ EPF/Gratuity	May be exempt under the treaty Article 20 (government service)	Consult a cross-border CPA, and File Form 8833 to claim the treaty position
Student stipends	Exempt under Article 21 for up to 5 years	Claim exemptions on Form 1040-NR through treaty position disclosure.

What Key Forms Do NRIs Need?

When filing in both countries, many forms are involved. Here are all the forms that you need, along with their use:

Form Name	Usage	Requirement
Form 1040	Main US income tax returns for resident aliens and citizens.	Reports global income, including all Indian income
Form 1040-NR	Tax return for non-resident aliens	Reports only US-sourced income or treaty-specified income.
FinCEN Form 114 (FBAR)	Report of foreign bank and financial accounts	It is required if the aggregate of foreign accounts exceeds $10,000 at any time.
Form 8938 (FATCA)	Statement of Specified Foreign Financial Assets	It is needed when foreign assets exceed $50,000 - $200,000, based on the filing status and location
Form 8621	PFIC annual information statement	File one for each Indian mutual fund, ULIP, or foreign pooled investment vehicle owned.
Form 1116	Foreign tax credit	Used to claim credit for taxes paid in India on income also taxable in the US. Ensure to file separately for each income category.
Form 2555	Foreign earned income exclusion	Exclude up to $126,500 of foreign earned income (TY 2025) if staying outside the US
Form 8833	Treaty-based return position disclosure	Required when claiming a tax treaty benefit that overrides normal US tax rules
Form 8840	Closer connection exception	Claim nonresident status even if you passed the substantial presence test
Form 8843	Statement for exempt individuals	F-1/J-1 students and other individuals claiming exempt status must file this even if they have no income
Form 3520	Annual return to report transactions with foreign trusts and receipt of certain foreign gifts	Required if you receive gifts or inheritance from a foreign person that exceeds $100,000 in a year. For example, money from Indian parents
Schedule E	Report rental income from the Indian property	Deduct the expenses, and then claim FTC via Form 1116 for taxes paid in India on the same income

All Key Deadlines for Tax Year 2025 (Filed in 2026)

For US NRIs, tax filing involves two countries with different financial years. Indian runs from April to March, and the US runs from January to December. Here is the deadline for income earned in 2026:

US Deadlines (For the Calendar Year 2025, Filed in 2026)

Here are the deadlines for filing returns in the US:

April 15, 2026: FBAR (FinCEN Form 114) due.

If you miss this date, an automatic extension will be provided till 15th of October, 2026.

April 15, 2026: US tax return (Form 1040) due. Ensure to pay taxes by this date, even if you file for an extension. Interest applies to unpaid amounts from this date.
June 15, 2026: If you live outside the US on April 15, an automatic 2-month extension is granted. Interest will still accrue from April 15.
October 15, 2026: This is the last extended deadline for FBAR and 1040 (if filed an extension via Form 4868 by April 15).

What is the Process for US Tax Filing for NRIs?

Follow the steps below to file taxes in the US as an NRI:

Step 1: Determine Your Tax Status

Take the IRS Substantial Presence test or check your visa status to determine whether you are a non-resident or resident alien for tax purposes.

Step 2: Gather the Required Documents

You need to submit several documents. It includes a passport, visa details, prior-year tax returns, bank documents showing foreign income, and income statements (W-2 and 1099 forms).

Step 3: Select the Relevant IRS Form for Non-Residents

For non-resident tax filing in the USA, use the following forms:

For non-resident aliens: Form 1040-NR
For exempt individuals, such as teachers, trainees, or students: Form 8843
For an individual holding foreign financial assets above a certain threshold: Form 8938 and FBAR (FinCEN Form 114)

Step 4: Claim Deductions and Exemptions

For a non-resident Indian in the USA, there are various tax exemptions available. It includes deductions under DTAA or student exemptions. Ensure to check what benefits you are eligible to claim.

Step 5: File Online or via Mail

You can file online using tax software that supports the US tax filing process for NRIs. Alternatively, you can also file by mailing your forms to the IRS.

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To Conclude

For NRIs, US tax filing is more complex than just a standard domestic return. Between understanding the dual residency rules, reporting global income, and tracking multiple IRS forms, even a single mistake can be costly. The key is to stay proactive, determine your status, maintain clean financial records across both countries, and ensure compliance. Additionally, seeking assistance from an expert at Savetaxs can help understand both the IRS and the Indian tax system.

At Savetaxs, we have a team of experts who can help with the complex US tax filing process. Our team can help you determine your tax residency status early, choose the correct form, and ensure compliance with both countries' rules. Contact us right away to file US taxes and ensure you never pay more tax than you legally owe.

Glossary

Balance Sheet: A Balance Sheet is a Financial Statement Containing Assets, Liabilities, and Equity of Shareholders.
Best Judgment Assessment: The Best Assessment Judgement Performed by an Assessing Officer on the Financial Conditions of the Assesse.
Capital: Capital, a Financial Term Used for Business Operations, Like Bank Accounts, Stocks, Assets, Etc.
Capital Gain: Capital Gains, Profits on the Financial Assets at the Time of Selling.
Double Taxation Avoidance Agreement (DTAA): DTAA, an Agreement Signed Between the Countries to Avoid Double Taxation.

Disclaimer

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

About Author

Hatim Dudhiyawala Certified Public Accountant (CPA)

Hatim Dudhiyawala is a Certified Public Accountant (CPA) with SaveTaxs and specializes in Indian and NRI taxation. He advises individuals, NRIs, and businesses on income tax filing, capital gains taxation, DTAA benefits, fund repatriation, and tax compliance. With experience in cross-border tax matters, Hatim helps taxpayers understand complex regulations and make informed decisions. Through his articles, he shares practical insights to help readers stay compliant and manage their tax obligations with confidence. See Full Bio

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Frequently Asked Questions

Yes, interest earned on an NRE account in India is tax-free for NRIs. However, that exemption doesn't extend to the US. Once you become a tax resident in the US, the NRE interest is considered ordinary income and becomes taxable at your marginal US federal rate. It must be reported on Schedule B, and include the NRE account in your FBAR if the overall balance in the foreign account exceeds $10,000.

Yes, because FBAR and tax filing are completely separate obligations. FBAR is a disclosure requirement that doesn't create a tax liability. You need to file if your foreign accounts aggregate over $10,000, regardless of whether you paid taxes in India, even if your US tax liability from those accounts is zero.

This is a serious compliance gap, but it can be rectified. If your non-compliance was non-intentional, the IRS Streamlined Compliance Procedures permit you to file the last 3 years of returns and 6 years of FBARs. However, it has a penalty of 5% (or 0% if you were staying outside the US). It is important to act proactively before the IRS contacts. Additionally, Form 8821 has no statute of limitations.

No, you cannot claim both on the same income. You are not allowed to exclude income using Form 2555 (FEIE) and then also claim a credit (Form 1116) for taxes paid on that excluded income. However, you can use FEIE for your Indian earned income and Form 1116 for other passive income. It includes NRO interest, rental income, or dividends. It applies until there is no overlap on the same dollars.

Generally, no, as gifts from foreign persons are not taxable income for the US recipient. However, if you received more than $100,000 in gifts. from foreign individual in 2025, you must file Form 3520 to disclose the amount. Failing to file can trigger a penalty of $10,000, even though no tax is owed. The gift itself will remain non-taxable.