Indian Citizens Need to File Taxes
One of the most frequent points of confusion for Indian nationals whether living in the U.S. on an H-1B/L-1 visa, studying on an F-1, or managing investments from India is their IRS obligation. For 2025, the stakes are higher than ever as the IRS has increased scrutiny on foreign asset reporting and digital income.
The short answer is: It depends on your “Residency” status, not your citizenship. Being an Indian citizen does not exempt you from U.S. taxes if you meet specific physical presence or income thresholds.
1. The “Substantial Presence” Trigger
Even without a Green Card, the IRS considers you a “Resident Alien” for tax purposes if you pass the Substantial Presence Test. In 2025, you are generally a resident if you were physically present in the U.S. for:
- At least 31 days during 2025, AND
- 183 days over a 3-year period (calculated using a weighted formula: all days in 2025, of days in 2024, and of days in 2023).
The Global Income Trap: Once you pass this test, the IRS treats you like a U.S. citizen. You must report your worldwide income, including rental income from property in Mumbai, interest from NRE/NRO accounts, and dividends from Indian stocks.
2. Filing for Non-Residents (Form 1040-NR)
If you are an Indian citizen living in India but earned income from U.S. sources, you may still need to file Form 1040-NR. Common scenarios include:
- U.S. Dividends: Often subject to a 15% treaty rate, but reporting is required.
- Rental Property: If you own a rental home or investment property within the U.S.
- Freelance/Business: If you performed services for U.S. clients while physically present in the U.S. (even for a few weeks).
3. The U.S.-India Tax Treaty Advantage
The U.S. and India share a Double Taxation Avoidance Agreement (DTAA). This is your primary tool for avoiding paying tax twice on the same dollar.
- Standard Deduction for Students: Unlike most international students, Indian students on F-1/J-1 visas can often claim the standard deduction under Article 21 of the treaty.
- Tie-Breaker Rules: If both countries claim you as a resident, the treaty provides “tie-breaker” rules (Permanent Home, Center of Vital Interests) to determine which country has the primary taxing right.
4. The “Hidden” Forms: FBAR and FATCA
For Indian citizens classified as U.S. tax residents, the most dangerous part of filing isn’t the income tax, it’s the disclosure of Indian assets.
- FBAR (FinCEN Form 114): Required if the aggregate value of your Indian bank accounts (NRE, NRO, PPF) exceeded $10,000 at any point in 2025.
- FATCA (Form 8938): Required for higher thresholds of specified foreign financial assets.
Warning: Failure to file an FBAR can lead to “non-willful” penalties starting at over $10,000 per violation. For many Indian expats, the penalty for forgetting to report an old PF account can exceed the actual balance of the account.
Key 2026 Deadlines for the 2025 Tax Year
- April 15, 2026: Deadline for residents and non-residents with U.S. wage income.
- June 15, 2026: Deadline for Indian citizens living abroad with U.S. source income.
- October 15, 2026: Final extension deadline for all filers.
How KKCA Secures Your Global Status
Navigating the intersection of Indian and U.S. tax law requires more than just software; it requires a legal strategy. At KKCA, we help you:
- Treaty Optimization: We apply Article 21 and Article 25 protections to ensure you aren’t overpaying the IRS.
- FBAR & FATCA Compliance: We meticulously reconcile your Indian bank statements and fixed deposits to ensure 100% accurate reporting.
- Residency Analysis: We help you determine if filing Form 8840 (Closer Connection) can save you from being taxed on your global wealth.
Contact
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.