Your Dual Tax Identity
As an Indian citizen living in the US, you have two tax residencies. Understanding how each country views you is the first step to effective tax planning. This section clarifies your status in both India and the USA, which forms the basis for all tax obligations covered in this guide.
🇮🇳 In India: You are a Non-Resident (NRI)
India taxes you only on income that you earn or receive in India. This is called Source-Based Taxation. Your status is confirmed each year based on your physical presence.
Key Test: You are an NRI if you stay in India for less than 120 days in a financial year (if Indian income > ₹15 lakh).
🇺🇸 In the USA: You are a Resident Alien
The US taxes you on your income from all sources, worldwide. This includes your salary in the US and your rental income from India. This is called Worldwide Taxation.
Key Test: You are a Resident Alien if you have a Green Card or meet the Substantial Presence Test.
Managing Your Indian Income Streams
Each type of income you earn from India has specific rules in both countries. This section breaks down the challenges, such as high tax withholding (TDS) and double taxation, and provides interactive tools to explore the solutions. Use the tabs below to navigate through your different income sources.
🏠 Rental Income from Indian Property
The Challenge: High TDS Withholding
Your tenant in India is legally required to deduct Tax at Source (TDS) at a high rate of **31.2%** on your rental income. This often results in far more tax being withheld than what you actually owe, blocking your cash flow.
The Solution: Lower Deduction Certificate
You can apply for a **Lower or Nil Deduction Certificate (Form 13)** from the Indian Income Tax Department. This official certificate instructs your tenant to deduct TDS at a much lower rate, or not at all, freeing up your funds.
In the US:
Your Indian rental income is also taxable in the US. You can claim a **Foreign Tax Credit (FTC)** for the taxes paid in India to avoid double taxation.
Interactive TDS Calculator
📈 Capital Gains from Property Sale
The Challenge: Tax on Profit & TDS
Profit from selling property held over 24 months is a Long-Term Capital Gain (LTCG), taxed at **20%** in India. The buyer withholds this tax. The key is to correctly calculate your gain and explore legal ways to reduce the tax.
The Solution: Indexation & Reinvestment
1. **Indexation:** Adjust your purchase price for inflation to lower your taxable profit.
2. **Reinvestment (Sec 54/54EC):** You can legally avoid the tax by reinvesting your capital gain into a new house in India or into specified government bonds.
In the US:
This gain is also reported in the US. You can claim a **Foreign Tax Credit (FTC)** for the Indian taxes paid.
LTCG & Tax-Saving Calculator
💰 Interest from Bank Accounts
The type of Indian bank account you use has a direct impact on your tax liability. Choosing the right account for the right purpose is a simple but powerful tax-saving strategy.
Non-Resident Ordinary (NRO) Account
Use this for your **Indian income** (e.g., rent). The interest earned on this account is **fully taxable** in India. TDS @ 31.2% is deducted by the bank.
Repatriation: Limited to $1M USD per year, requires Forms 15CA/CB.
Non-Resident External (NRE) Account
Use this for your **foreign income** remitted to India (e.g., your US salary). The interest earned on this account is **completely tax-free** in India. No TDS.
Repatriation: Freely and fully repatriable without limits.
Which Account Should I Use?
Click a source of funds to see the recommended account.
Critical Compliance & Investment Risks
Beyond paying taxes, the US government requires extensive reporting of your foreign assets. Furthermore, some common Indian investments carry severe tax penalties for US residents. This section highlights these critical areas to help you avoid costly mistakes.
⚠️ US Foreign Asset Reporting (FBAR & FATCA)
You must report your foreign financial assets to the US government annually. These are separate filings with severe penalties for non-compliance.
FBAR (FinCEN): Report if aggregate foreign accounts exceed **$10,000**.
FATCA (IRS Form 8938): Report if specified foreign assets exceed thresholds (e.g., **$50,000** at year-end for a single filer in the US).
Note: These are two separate requirements. You may need to file both.
🚫 The PFIC Investment Trap
Most **Indian mutual funds and ETFs** are considered Passive Foreign Investment Companies (PFICs) by the IRS. Holding them as a US resident can lead to extremely high, punitive tax rates that can wipe out your gains.
Safer Alternatives:
- Invest directly in individual stocks.
- Use US-based ETFs that track the Indian market.
Your Annual Action Plan
Navigating dual-country taxes requires a structured approach. Here is a simplified checklist of key actions and their deadlines to keep you compliant and tax-efficient throughout the year.
🇮🇳 For India (Financial Year: Apr 1 - Mar 31)
- ✓ Ongoing: Track days of stay in India to maintain NRI status.
- ✓ Pre-Transaction: Apply for Form 13 LDC before selling property or for high rental income.
- ✓ By July 31: File Indian Income Tax Return (ITR-2/3) to report income and claim TDS refunds.
- ✓ As Needed: File Forms 15CA/CB to repatriate funds from your NRO account.
🇺🇸 For USA (Calendar Year: Jan 1 - Dec 31)
- ✓ Ongoing: Review Indian investments to avoid the PFIC trap.
- ✓ By April 15: File US Tax Return (Form 1040), reporting worldwide income. File Form 1116 for Foreign Tax Credit.
- ✓ By April 15 (auto-extended to Oct 15): File FBAR (FinCEN 114) if foreign accounts > $10k.
- ✓ With Tax Return: File Form 8938 (FATCA) and Form 8621 (PFIC) if applicable thresholds are met.
This guide provides a high-level overview. Tax laws are complex and change frequently. Consulting with a qualified cross-border tax professional is highly recommended for personalized advice.