Filing taxes as a Non-Resident Indian (NRI) living in the United States can be a complicated process, given the dual tax obligations and the interplay between Indian and U.S. tax systems. Understanding your tax filing responsibilities, avoiding penalties, and maximizing benefits such as treaty advantages or exclusions are essential for maintaining compliance and optimizing your finances.

This blog outlines a step-by-step process for tax filling process for us nri and explains key considerations to ensure smooth and accurate tax compliance.

1. Determine Your Residency Status (India US)

Before filing, determine your tax residency status under both Indian Income Tax Act and U.S. Internal Revenue Code.

• In India, you're considered an NRI for tax purposes if you’ve spent fewer than 182 days in India during the financial year.

• In the U.S., the Substantial Presence Test is used to determine residency for tax purposes. If you meet the test, you are treated as a U.S. resident for tax filing.

Important: An NRI can still be a U.S. tax resident, which means global income may be subject to U.S. taxation.

2. Understand Your Global Income Obligations

As a U.S. tax resident, you're required to report worldwide income, including:

• Salary income (both U.S. and Indian)

• Investment income from Indian mutual funds, stocks, or FDs

• Rental income from Indian property

• Gains from sale of property or other capital assets in India

The U.S. uses a citizenship-based taxation system, which means even if you earn income in India, it must be reported on your U.S. tax return.

3. Collect All Required Documents

Gather all necessary documents before starting the tax filing process. These include:

• Form W-2 (for U.S. salary)

• Form 1099s (for investment income, dividends, interest)

• Foreign bank account statements

• Capital gains/loss records (India and U.S.)

• Indian Form 16/Form 26AS (if earning Indian income)

• Proof of taxes paid in India (for claiming foreign tax credit)

• Form 8938 / FBAR filings (for foreign asset disclosures)

4. File U.S. Tax Return – Form 1040

NRIs who qualify as U.S. residents for tax purposes must file Form 1040 with the IRS.

• Report Global Income: Include all income earned in India (salary, rent, capital gains) as part of total income.

• Claim Deductions/Credits: Utilize the Foreign Tax Credit (Form 1116) to avoid double taxation.

• Use Tax Treaties: India and the U.S. have a Double Taxation Avoidance Agreement (DTAA), which helps prevent the same income from being taxed twice.

5. Report Foreign Bank Accounts – FBAR and FATCA

If you have financial accounts outside the U.S., you may need to file:

• FBAR (FinCEN Form 114): Required if aggregate balance in foreign accounts exceeds $10,000 at any time during the year.

• FATCA (Form 8938): Required under certain thresholds for foreign financial assets.

Non-compliance can result in severe penalties, so timely and accurate disclosure is crucial.

6. File Indian Income Tax Return (If Required)

If you have income in India and your gross income exceeds ₹2.5 lakhs, you must file a tax return in India (using ITR-2 or ITR-3, depending on your income types).

Key Points:

• Declare only Indian income (as you are an NRI in India).

• Claim DTAA benefit if tax is paid in the U.S. on that income.

• File before July 31st (or updated deadline).

7. Avoid Double Taxation – Use DTAA Form 1116

India and the U.S. allow taxpayers to avoid double taxation:

• If you’ve paid tax in India, you can claim Foreign Tax Credit in your U.S. return via Form 1116.

• Conversely, if U.S. tax exceeds Indian tax, you may have to pay the difference to the IRS.

• Maintain proper documentation of tax paid in India (like Form 16 or TRC – Tax Residency Certificate).

8. State Tax Filing (If Applicable)

Most U.S. states have their own income tax laws. NRIs living in states like California, New York, or New Jersey also need to file state income tax returns.

• Income from Indian sources may or may not be taxable, depending on the state.

• Check specific state guidelines or consult a tax advisor.

9. Use Tax Software or Hire a Tax Professional

Given the complexity of dual filings, using tax software that supports international tax filings (like TurboTax Premier or Sprintax) or hiring a tax consultant specializing in NRI taxation is highly recommended.

• Ensure the consultant understands both IRS and Indian tax rules.

• Seek help with FATCA, FBAR, DTAA, and optimizing your foreign income declarations.

10. Important Deadlines

• U.S. Tax Return: April 15 (automatic extension to June 15 for NRIs abroad, but payment is still due by April 15).

• FBAR Filing: April 15 (with an automatic extension to October 15).

• Indian Tax Return: July 31 (unless extended).

Filing late can result in penalties and loss of credits—mark your calendar and file on time.

Final Thoughts

The tax filing process for US NRIs can feel overwhelming due to cross-border reporting requirements. However, with a clear understanding of residency status, income reporting obligations, and treaty benefits, you can ensure compliance and peace of mind. It’s always advisable to consult with a tax expert who understands both Indian and U.S. taxation laws to optimize your filings and avoid errors.

Need help navigating your NRI tax filings? Reach out to professional firms like Dinesh Aarjav Associates, who specialize in U.S. and Indian tax services for NRIs.