Navigating U.S. & Indian Taxes

An interactive guide for U.S. citizens with income from India. Understand your dual obligations, avoid common pitfalls, and plan strategically.

Core Concepts: The Two Tax Systems

🇺🇸

United States: Citizenship-Based Taxation

As a U.S. citizen, you are taxed on your **worldwide income**, regardless of where you live or where the income is earned. Every rupee of Indian income must be reported on your U.S. tax return (Form 1040) after converting it to U.S. dollars.

🇮🇳

India: Source-Based Taxation

As a Non-Resident Indian (NRI), you are taxed in India **only on income that comes from an Indian source**. This includes rent from Indian property, interest from Indian bank accounts, and capital gains from selling Indian assets.

Compliance Hub: Foreign Asset Reporting

Beyond income tax, the U.S. requires you to report your foreign financial assets. These are separate filings with severe penalties for non-compliance. The automatic exchange of information between the U.S. and India makes accuracy essential.

Attribute	FBAR (FinCEN Form 114)	FATCA (IRS Form 8938)
Governing Agency	FinCEN (Treasury Dept.)	IRS
Filing Threshold (in U.S.)	Aggregate value of all foreign accounts exceeds $10,000 at any time.	Assets over $50,000 (end of year) or $75,000 (any time) for singles. Higher for joint filers.
What's Reported	Foreign financial accounts (Bank, Brokerage, Mutual Funds).	Specified foreign financial assets (includes accounts + assets like foreign stock not in an account).
How to File	Separately from tax return via FinCEN's online system.	Attached to your Form 1040 tax return.
Primary Penalty	Willful: Greater of $100,000 or 50% of account balance.	$10,000+ failure-to-file penalty.

Income Explorer: U.S. vs. India Tax Treatment

How is your Indian income taxed? Select an income type below to see a side-by-side comparison of the rules and understand how the Foreign Tax Credit (FTC) helps prevent double taxation.

Strategic Planner: Avoiding Tax Traps

Good planning involves more than just filing; it means making smart decisions. The biggest trap for U.S. citizens is using Indian tax exemptions that are not recognized by the U.S., leading to unexpected tax bills.

The Capital Gains "Exemption Mismatch" Trap

If you sell an Indian property, you can use exemptions (like Sec. 54) to avoid paying the 20% tax in India by reinvesting the gains. However, the U.S. does not recognize this exemption. This means you pay **zero tax in India**, get **zero Foreign Tax Credit**, and end up paying the **full capital gains tax in the U.S.**

Simulate Your Capital Gain (in USD)

$10k $500k

$150,000

Note: Chart assumes a 20% LTCG tax rate in India and a 15% qualified LTCG rate in the U.S. for illustrative purposes. Actual rates may vary.