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NRI Tax Guide for Indians in the USA: FBAR, FATCA & Indian Assets (2026)

If you are an Indian national living and working in the United States, you face a dual tax reporting obligation that most immigrants from other countries don't face with the same complexity. The US taxes its residents on worldwide income. India has rules about NRI status, NRE/NRO accounts, and repatriation. The intersection is where problems occur — and where a specialized CPA saves you real money.

4 Sections
4 FAQs
Verified 2026
Section 1

FBAR: who must file and what counts

FBAR (FinCEN 114) must be filed if you have foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year. This includes:

- NRE savings accounts and FDs - NRO savings accounts and FDs - Regular Indian bank savings accounts - EPF (Employee Provident Fund) — this is debated, but the safer position is to report it - PPF (Public Provident Fund) — similarly debated; conservative approach is to report - Demat accounts holding stocks or mutual funds (the account value, not per-investment)

FBAR is filed on FinCEN's website (BSA E-Filing), not with your IRS tax return. It's due April 15 with an automatic extension to October 15. Non-willful failure to file: penalties up to $10,000/year per unreported account. Willful violation: up to $100,000 or 50% of account value per year.

Section 2

FATCA Form 8938: the higher-threshold parallel requirement

FATCA (Form 8938, filed with your 1040) kicks in at higher thresholds: $50,000 for single filers, $100,000 for married filing jointly (double these if living abroad).

FATCA covers a broader range of financial assets than FBAR — including Indian mutual funds, ULIPs, PMS accounts, and any interest in a foreign entity (like being a partner or shareholder in an Indian business).

If you are required to file both FBAR and FATCA, file both — they are separate requirements with separate penalties. There is some overlap in what you report, but you don't choose one over the other.

Section 3

NRE vs NRO accounts: US tax treatment

NRE (Non-Resident External) accounts: interest earned is tax-free in India. However, it is NOT automatically tax-free in the United States — you may need to pay US tax on NRE interest and claim a foreign tax credit or treaty benefit.

NRO (Non-Resident Ordinary) accounts: interest is taxed by India at 30% (TDS). On your US return, you report the gross interest and claim a foreign tax credit for the Indian TDS paid.

The US-India Double Taxation Avoidance Agreement (DTAA) helps prevent double taxation, but applying it correctly requires understanding Article 11 (interest) and knowing how to make the treaty election on your US return. This is where general-practice CPAs sometimes make errors.

Section 4

Indian mutual funds: a compliance minefield

Indian mutual funds are classified as PFICs (Passive Foreign Investment Companies) under US tax law. This triggers one of the most punitive and complex US tax regimes.

Under default PFIC rules, gains on Indian mutual funds held more than one year are taxed at the highest ordinary income rate plus an interest charge — not the 15-20% long-term capital gains rate. The result: tax on Indian mutual funds can be significantly higher than the equivalent US fund.

Options: some taxpayers make a QEF (qualified electing fund) election, but this requires the Indian fund company to provide US-compliant financial statements — which virtually none do. The MTM (mark-to-market) election requires annual recognition of unrealized gains.

The practical advice from many NRI CPAs: sell Indian mutual funds before becoming a US tax resident, or hold them through an Indian entity structure (which has its own complexity). This is a decision worth making with a qualified CPA before your first year of US tax residency.

Frequently Asked Questions

Q
Do I need to report my Indian PPF account to the IRS?

Probably yes for FBAR (if aggregate foreign accounts exceed $10,000). The US position on PPF is unsettled — some practitioners report it, others don't. The conservative and safe approach is to include it in your FBAR. The tax treaty provision that exempts PPF interest in India doesn't automatically exempt it in the US without a treaty election.

Q
How does the US tax money sent from my parents in India?

Gifts received from foreign persons are generally not income — you don't pay US income tax on money your parents send you. However, if you received more than $100,000 from foreign individuals in a year, you must report it on Form 3520 (informational only, no tax). Failure to file Form 3520 has significant penalties.

Q
I have Indian rental property. How do I report it in the US?

Indian rental income must be reported on Schedule E of your US tax return (net of allowable deductions). Indian tax paid on that rental income can usually be claimed as a foreign tax credit on Form 1116. Depreciation rules differ between India and the US — a qualified CPA should handle this.

Q
What is the best time to become a US tax resident if I have significant Indian assets?

If possible, restructure or sell Indian mutual funds and PFICs before crossing the 183-day threshold that makes you a US tax resident. Many NRIs work with Indian CAs and US CPAs jointly to "clean up" the Indian portfolio before US residency begins to avoid PFIC complications.