NRI Tax Obligations: Everything You Owe India and the IRS

You left India. You built a life in the US. You file your 1040 every April like everyone else. And somewhere in the back of your mind, you know there might be "some India stuff" you should be handling.

There is. Quite a lot of it, actually.

If you are an NRI living in the United States, you are caught between two tax systems that both want a piece of your financial life. The US taxes you on your worldwide income. India taxes you on income that originates within its borders. And the compliance paperwork on both sides is relentless.

This guide lays out every single tax obligation you face as an NRI in the US -- on both the American and Indian sides. No vague advice. No "consult a CA" hand-waving. Just a clear, complete list of what you owe, when you owe it, and what happens if you miss it.

The Two-Country Problem

Here is why your tax life is harder than your American coworker's.

The United States operates on a worldwide taxation model. If you are a US tax resident -- meaning you hold a Green Card, are a US citizen, or meet the Substantial Presence Test -- the IRS wants to know about every dollar you earn, everywhere on the planet. That includes the interest trickling into your old HDFC savings account, the rent from your flat in Pune, and the capital gains from selling mutual fund units on Groww.

India, meanwhile, operates on a source-based taxation model for NRIs. If income originates in India -- interest from Indian bank accounts, rental income from Indian property, capital gains from Indian investments -- India's Income Tax Department wants its share, regardless of where you live now.

The result: as an NRI in the US, you have two governments demanding disclosure of the same pool of assets and income, each with its own forms, deadlines, thresholds, and penalties. Miss an obligation on either side, and you are looking at fines that can make your stomach drop.

This is not theoretical. The IRS penalty for a single missed FBAR is $10,000 per account per year -- and that is the non-willful penalty. India's penalty for not filing ITR when you have taxable Indian income is up to Rs 10,000, plus interest on unpaid tax. Stack up a few years of non-compliance on both sides and the numbers get ugly fast.

Let us break down exactly what each country expects from you.

US Tax Obligations for NRIs

If you are a US tax resident (Green Card holder, citizen, or you pass the Substantial Presence Test), here is what the IRS and related agencies require.

Form 1040: Your Federal Income Tax Return

This is the baseline. You report your worldwide income on Form 1040, including all Indian-source income: bank interest, rental income, dividends, capital gains, business income. Everything.

Indian income must be converted to USD using the IRS-accepted exchange rate for the tax year. You will report it alongside your US salary, and your total tax liability is calculated on the combined amount.

Deadline: April 15 (automatic extension to June 15 for US citizens/residents abroad, with further extension to October 15 if you file Form 4868).

Penalty: Failure-to-file penalty is 5% of unpaid tax per month, up to 25%. Failure-to-pay is 0.5% per month.

FBAR: FinCEN Form 114

If the aggregate balance of all your foreign financial accounts exceeded $10,000 at any point during the calendar year, you must file an FBAR. This is not an IRS form -- it goes to the Financial Crimes Enforcement Network (FinCEN).

"Foreign financial accounts" includes your NRO account, NRE account, savings accounts, fixed deposits, PPF, mutual fund accounts (including demat/trading accounts), and even accounts where you have signature authority. The $10,000 threshold is the combined peak balance across all accounts, not per account.

Deadline: April 15, with automatic extension to October 15.

Penalty: Up to $10,000 per violation for non-willful failure. For willful violations, the penalty jumps to the greater of $100,000 or 50% of the account balance. Per account. Per year. These are not exaggerations -- these are the numbers on the statute.

For a deep dive, read our FBAR guide.

FATCA: Form 8938 (Statement of Specified Foreign Financial Assets)

FATCA overlaps with FBAR but has higher thresholds and different rules. You file Form 8938 with your tax return if your foreign financial assets exceed:

• $50,000 on the last day of the tax year, or $75,000 at any point during the year (single filers living in the US)
• $200,000 on the last day, or $300,000 at any point (single filers living abroad)
• Thresholds are doubled for married filing jointly

Unlike FBAR, FATCA covers not just bank accounts but also foreign stocks, mutual funds, interests in foreign entities, and foreign-issued insurance policies (hello, LIC).

Deadline: Filed with your 1040 (April 15, or extended deadline).

Penalty: $10,000 for failure to file, increasing by $10,000 for each 30-day period of non-filing after IRS notice, up to $50,000.

PFIC: Form 8621 (Passive Foreign Investment Companies)

This is the one that catches the most NRIs off guard. If you hold Indian mutual funds -- any mutual fund domiciled outside the US -- the IRS classifies them as Passive Foreign Investment Companies (PFICs). The tax treatment is punitive by design.

Under default PFIC rules, gains are taxed at the highest ordinary income rate (currently 37%), plus an interest charge calculated as if the gains accrued evenly over your holding period. There is no long-term capital gains benefit. No indexation. Just the worst rate plus interest.

You must file Form 8621 for each PFIC you hold or have disposed of during the tax year. If you own 10 mutual fund schemes, that is 10 forms.

Deadline: Filed with your 1040.

Penalty: Failure to file extends the statute of limitations on your entire return indefinitely. The IRS can audit you for that year forever.

Most NRIs are better off not holding Indian mutual funds at all while they are US tax residents. Read our PFIC guide for the full breakdown of your options.

State Income Taxes

Most US states impose their own income tax on top of federal tax, including on foreign income. California, New York, New Jersey, Texas (no state income tax), and Washington state (no income tax, but a capital gains tax) each have different rules.

Some states allow foreign tax credits that mirror the federal FTC. Others do not. If you live in a high-tax state, your effective tax rate on Indian income can be significantly higher than you expect.

What to watch for: Washington state enacted a 7% capital gains tax on gains above $270,000. If you sell Indian property while living in Washington, this may apply on top of federal tax and Indian capital gains tax.

Estimated Quarterly Tax Payments

If you have Indian income that is not subject to US withholding -- rental income, capital gains, interest -- you may need to make estimated quarterly payments to the IRS using Form 1040-ES. The deadlines are April 15, June 15, September 15, and January 15.

Penalty: If you underpay estimated taxes, the IRS charges an underpayment penalty calculated on the shortfall.

Indian Tax Obligations for NRIs

India does not forget you just because you left. If you earn income in India, here is what the Income Tax Department expects.

ITR Filing (Form ITR-2)

If your total income in India exceeds the basic exemption limit (Rs 3,00,000 under the new tax regime for FY 2025-26), you must file an Indian income tax return. NRIs use ITR-2 (since ITR-1 is not available to non-residents).

Even if TDS has been deducted on all your Indian income, filing ITR lets you claim refunds on excess TDS, claim DTAA benefits, and carry forward capital losses. Many NRIs skip this and leave refund money on the table.

Deadline: July 31 of the assessment year (so July 31, 2026 for FY 2025-26). If you miss it, you can file a belated return by December 31, but with a late fee of Rs 5,000 (Rs 1,000 if income is below Rs 5 lakh).

Penalty: Rs 5,000 for late filing (Section 234F). Plus interest on unpaid tax at 1% per month under Sections 234A, 234B, and 234C.

TDS on Indian Income

India deducts Tax Deducted at Source on most income paid to NRIs, often at higher rates than for residents:

• Bank interest (NRO accounts): 30% TDS (plus surcharge and cess, effective ~31.2%)
• Rental income: 30% TDS under Section 195 (tenant or buyer must deduct)
• Capital gains on property: 20% TDS on long-term gains, 30% on short-term
• Capital gains on equity/MFs: 12.5% on long-term (above Rs 1.25 lakh), 20% on short-term
• Dividends: 20% TDS

You can apply for a lower TDS certificate under Section 197 if your actual tax liability is lower than the default TDS rate. This is especially useful if DTAA rates are more favorable.

Advance Tax

If your Indian tax liability (after TDS) exceeds Rs 10,000 in a financial year, you must pay advance tax in quarterly installments:

• 15% by June 15
• 45% by September 15
• 75% by December 15
• 100% by March 15

This mainly applies if you have capital gains or rental income where TDS does not cover the full liability.

Penalty: Interest at 1% per month under Section 234C for shortfall in advance tax installments.

Form 67: Claiming Foreign Tax Credit in India

If you pay tax on the same income in the US and India, you can claim a foreign tax credit in India using Form 67. This must be filed before you file your ITR for that year. Many NRIs forget this step and end up paying double tax.

Form 67 requires details of income earned outside India, tax paid in the foreign country, and the relevant DTAA article under which you are claiming relief.

The DTAA Safety Net

The India-US Double Taxation Avoidance Agreement (DTAA) is the treaty that prevents you from being fully taxed by both countries on the same income. It does not eliminate your filing obligations, but it can dramatically reduce your actual tax bill.

How DTAA Works

The treaty assigns taxing rights for different types of income. In simplified terms:

• Salary/employment income: Taxed primarily in the country where you work. If you earn salary in the US, the US gets primary taxing rights. India generally cannot tax this.
• Interest income: Can be taxed in both countries, but the DTAA caps the India withholding rate at 15% (versus the default 30% TDS rate for NRIs). You then claim a credit for the Indian tax paid on your US return.
• Dividends: Similar treatment -- taxable in both countries with credit relief.
• Capital gains on property: Taxable in India (where the property is located). You claim credit on your US return.
• Capital gains on shares: Generally taxable in the country of residence (the US), though India may also tax under domestic law, with credit relief.
• Rental income: Taxable in India. Claim credit in the US.

How to Claim DTAA Relief

You claim relief on the US side by filing Form 1116 (Foreign Tax Credit) with your 1040. This gives you a dollar-for-dollar credit for taxes paid to India, subject to limitations.

On the Indian side, you file Form 67 and claim relief under Section 90 of the Income Tax Act. You will need your US tax return and proof of tax payment.

The key principle: You should never pay more total tax than the higher of the two countries' rates on any given income. If India taxes your interest at 15% and the US rate on that income is 24%, you pay 15% to India and 9% to the US. If India's rate is higher, you pay India's rate and get a full credit in the US (though excess credits can be carried forward).

What DTAA Does NOT Cover

• FBAR and FATCA reporting obligations: These are disclosure requirements, not taxes. DTAA does not exempt you from filing.
• PFIC taxation: The punitive PFIC regime applies regardless of DTAA.
• Social security: There is no Social Security Totalization Agreement between India and the US. If you pay into both systems, there is no offset.
• State taxes: DTAA is a federal treaty. Your state may or may not honor foreign tax credits.

Tax Residency Certificate (TRC)

To claim DTAA benefits in India, you need a Tax Residency Certificate from the US. This is IRS Form 8802, which you must apply for well in advance (processing takes 6-8 weeks). The resulting Form 6166 is what you submit to Indian authorities as proof of US tax residency.

Cost: $85 user fee per applicant.

See the full compliance calendar for all DTAA-related deadlines.

Banking and Identity Compliance

Beyond taxes, there is a whole set of financial and identity compliance requirements that catch NRIs off guard.

NRO/NRE Account Conversion (FEMA)

Under the Foreign Exchange Management Act (FEMA), once your residential status changes to NRI, you are legally required to convert your resident savings accounts to NRO (Non-Resident Ordinary) accounts. You can also open NRE (Non-Resident External) accounts for repatriating funds.

This is not optional. Maintaining a resident savings account as an NRI violates FEMA regulations. The penalty: up to three times the amount involved in the contravention.

If you have been in the US for years and still have a regular savings account at SBI or HDFC that you have not converted -- this is one of the most common compliance gaps we see.

PAN-Aadhaar Linking

If you have a PAN card, the Income Tax Department requires it to be linked to Aadhaar. For NRIs who have Aadhaar, this linking is now enforced. If your PAN becomes inoperative due to non-linking:

• You cannot file ITR
• TDS is deducted at a higher rate (20% instead of the applicable rate)
• You cannot open new financial accounts in India

For NRIs who do not have Aadhaar, there are exemption provisions, but you may need to apply for an Aadhaar Enrolment ID when you visit India.

Check our PAN card guide for step-by-step instructions on how to fix an inoperative PAN.

Bank KYC Updates

Indian banks require periodic KYC (Know Your Customer) re-verification. For NRI accounts, you typically need to update KYC every 2-3 years. If your KYC lapses, the bank can freeze your account -- you will not be able to withdraw funds until you update it.

KYC updates require: passport copy, overseas address proof, recent photograph, and often a visit to the branch (though some banks now allow video KYC for NRIs).

OCI Card Updates

If you hold an OCI (Overseas Citizen of India) card, the rules require you to re-issue the OCI card:

• Each time you get a new passport (up to age 20)
• Once after turning 50 (if the OCI was issued before age 50)

Failure to update OCI can create problems at immigration and with property transactions in India. The penalty is not financial per se, but an outdated OCI can delay or block legal transactions.

The Complete NRI Compliance Checklist

Here is every obligation in one table. Bookmark this.

That is 19 potential obligations. Not every one applies to every NRI. Your specific combination depends on your assets, income sources, immigration status, and filing status.

Take the compliance quiz to find out exactly which ones apply to you.

What Most NRIs Get Wrong

After analyzing thousands of NRI compliance profiles, here are the mistakes we see over and over again.

Mistake 1: Not Filing Indian ITR Because "TDS Is Already Deducted"

Yes, TDS is deducted on your NRO interest, rental income, and capital gains. But TDS at 30% is often higher than your actual liability, especially if you are in a lower slab or can claim DTAA benefits. Filing ITR is how you get that excess TDS back. We have seen NRIs leave Rs 50,000 to Rs 2,00,000 in refunds on the table every year because they assumed TDS meant they were "done."

Filing also creates a paper trail that makes it easier to claim DTAA credits on the US side.

Mistake 2: Ignoring PFIC Rules for Indian Mutual Funds

This is the single most expensive mistake. You bought SIP mutual funds before you moved to the US, or worse, you continued your SIPs after moving. Each of those funds is a PFIC. Each requires Form 8621. And the tax treatment is brutal.

If you have been holding Indian mutual funds as a US tax resident without filing Form 8621, you have a compounding compliance problem. The longer you wait, the worse the interest charges get. Talk to a cross-border CPA immediately.

Mistake 3: Keeping a Resident Savings Account

You have had that SBI savings account since college. It still works. Your parents deposit money into it. You use it when you visit India.

It is a FEMA violation. Every day it stays as a resident account while you are an NRI, you are technically in contravention of Indian foreign exchange law. Convert it to NRO. Do it this week.

Mistake 4: Forgetting FBAR Because "My Balances Are Small"

The $10,000 threshold is the aggregate across all accounts. If you have Rs 2 lakh in an HDFC savings account, Rs 1.5 lakh in a PPF, Rs 3 lakh in an FD, and Rs 1 lakh in a trading account -- congratulations, you have crossed the threshold. Most NRIs cross it without realizing.

And FBAR reports the peak balance during the year, not the year-end balance. If your NRO account briefly hit $11,000 in March before you transferred the money out, you still need to file.

Mistake 5: Not Getting a Tax Residency Certificate for DTAA

You cannot just claim DTAA benefits on your Indian ITR because you feel like it. You need to prove your US tax residency with Form 6166 (Tax Residency Certificate). Getting this requires filing Form 8802 with the IRS, paying $85, and waiting 6-8 weeks. Plan ahead or miss the benefit.

Mistake 6: Missing Estimated Tax Payments

If you sell Indian property in April, you might owe the IRS estimated tax by June 15. If you wait until you file your return the next April, you will owe underpayment penalties and interest for every quarter you were late. Indian rental income, interest, and dividends all create estimated tax obligations if you do not have sufficient US withholding to cover them.

Mistake 7: Ignoring State-Level Obligations

Your state may tax Indian income differently from the federal government. California, for example, does not conform to all federal foreign tax credit rules. If you claim an FTC on your federal return, do not assume the same credit flows through to your state return. Check your state's specific rules.

How to Get Started

Looking at a list of 19 obligations is overwhelming. Here is how to prioritize.

Tier 1: Fix These Immediately (Penalty Risk Is Severe)

These obligations carry the steepest penalties and the highest enforcement risk. If you are behind on any of these, address them this month.

1. FBAR -- If you have not been filing and your foreign accounts exceeded $10,000 at any point, consider the IRS Streamlined Filing Compliance Procedures. This program lets you catch up on the last 3 years of returns and 6 years of FBARs with reduced penalties. But it is only available to non-willful violators, and it is a one-time option.

2. FATCA Form 8938 -- File with your amended or current return. Same urgency as FBAR.

3. PFIC Form 8621 -- If you hold or held Indian mutual funds, get a cross-border CPA involved. This one is too complex and too expensive to DIY.

4. FEMA account conversion -- Call your Indian bank. Initiate NRO conversion today. Some banks let you start the process online.

Tier 2: Fix These Soon (Financial Cost Adds Up)

These carry moderate penalties or cause you to lose money through over-taxation.

1. Indian ITR filing -- If you are owed TDS refunds, you are leaving money on the table every day you delay.

2. Form 67 and DTAA claims -- Without these, you are paying double tax. File Form 67 before your next ITR submission.

3. Tax Residency Certificate -- Apply for Form 6166 now so you have it when you need it.

4. PAN-Aadhaar linking -- If your PAN is inoperative, you are paying higher TDS on all Indian income. Fix it now.

Tier 3: Handle When You Can (Important but Lower Urgency)

1. Bank KYC updates -- Check with each Indian bank. If your KYC is expiring soon, schedule an update.

2. OCI card update -- If you have gotten a new passport since your OCI was issued, get the re-issue started.

3. Estimated quarterly payments -- Set up a quarterly payment schedule with the IRS to avoid underpayment penalties going forward.

4. State tax review -- Check your state's treatment of foreign income and foreign tax credits.

The 30-Day Action Plan

• Week 1: Take the compliance quiz to identify your specific gaps. Download your personalized report.
• Week 2: Address Tier 1 items. Call your Indian bank for FEMA conversion. Gather foreign account statements for FBAR.
• Week 3: File or amend Indian ITR. Apply for Tax Residency Certificate. File Form 67 if applicable.
• Week 4: Review state obligations. Set up estimated tax payments. Update KYC and PAN status.

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The two-country problem is not going away. The IRS and India's Income Tax Department are sharing data through bilateral agreements, and enforcement is tightening every year. The cost of staying non-compliant goes up with each passing deadline.

But here is the good news: most of this is fixable. The Streamlined Filing Procedures exist specifically for NRIs who fell behind on US filings. India's belated return provisions let you catch up on missed ITRs. Banks process NRO conversions in days, not months.

The hardest part is knowing what applies to you. Once you know, the path forward is clear.

Take the compliance quiz -- it checks all 19 obligations against your specific situation, in about two minutes. No account needed. No jargon. Just a clear picture of where you stand and what to do next.

You did not come to the US to worry about compliance paperwork. But ignoring it does not make it go away. Knowing exactly what you owe -- and handling it -- does.