Tax Saving Strategies for Indians Filing
The 2026 tax season (covering the 2025 tax year) is unique because of the One Big Beautiful Bill (OBBB). This legislation has introduced specific “above-the-line” deductions that can significantly lower your taxable income before you even consider standard or itemized deductions.
For Indian citizens in the U.S., combining these new federal laws with the existing U.S.-India Tax Treaty provides a powerful toolkit for tax optimization.
1. Leverage the New Overtime and Tip Deductions
The OBBB introduced two massive savings opportunities for workers, which are especially beneficial for H-1B professionals and those in service industries:
- No Tax on Overtime: You can deduct up to $12,500 ($25,000 for joint filers) of “qualified overtime compensation.”
- The Catch: Only the “premium” portion (the extra 0.5x of your time-and-a-half pay) is deductible.
- Requirement: You must have a valid Social Security Number (SSN) to claim this.
- No Tax on Tips: If you work in an eligible service occupation, you can deduct up to $25,000 in tips from your federal taxable income.
2. The Article 21 “Standard Deduction” Power Move
If you are an Indian student (F-1/J-1) or business apprentice, you are the only group of non-residents allowed to claim the U.S. Standard Deduction.
- The Strategy: For 2025 income, claim the $15,750 standard deduction. This is often overlooked by generic tax software, but it can reduce your tax bill by thousands of dollars.
- How to Claim: You must file Form 1040-NR and specifically cite Article 21 of the U.S.-India Double Taxation Avoidance Agreement (DTAA).
3. Maximize New 2026 Deduction Limits
The OBBB increased several caps that allow you to shield more income:
- SALT Cap Increase: The State and Local Tax (SALT) deduction cap has been raised to $30,000 (up from $10,000). If you live in a high-tax state like California, New York, or New Jersey, itemizing your deductions may now be more beneficial than taking the standard deduction.
- Auto Loan Interest: For 2025–2028, you can now deduct up to $10,000 in interest on new personal-use vehicle loans, subject to income phase-outs.
4. Strategic Use of Foreign Tax Credits (FTC)
If you are a Resident Alien (H-1B/Green Card), you are taxed on your Indian income. To avoid paying twice:
- Form 1116: Use this to claim a credit for any TDS (Tax Deducted at Source) you paid in India on rental income, fixed deposits, or dividends.
- The Math: Because U.S. tax rates are often higher than Indian treaty rates (15% on interest), the FTC ensures you only pay the “difference” to the IRS rather than the full amount.
5. Digital Remittances to Avoid the 1% Tax
Starting January 1, 2026, a 1% excise tax applies to remittances sent via cash, money orders, or physical checks.
- The Strategy: Use electronic bank-to-bank transfers or digital platforms (like Wise, Remitly, or Zest) to send money home to India. Electronic transfers currently remain exempt from this 1% fee.
How KKCA Secures Your Status
Advanced tax planning requires looking at your finances in both the U.S. and India simultaneously. At KKCA, we help you:
- Optimize Overtime Claims: We analyze your paystubs to ensure you are claiming the maximum 0.5x premium deduction allowed under the OBBB.
- Treaty-Itemization Hybrid: We determine if you’ll save more by using Article 21 or by itemizing under the new $30,000 SALT cap.
- PFIC Minimization: We help you restructure Indian mutual fund holdings to avoid the punitive 37%+ tax rates associated with Passive Foreign Investment Companies.
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.