U.S. taxes from India: what 🇺🇸 Americans actually need to know

Last reviewed April 2026 by Ken Hoven against IRS Pub. 54, the U.S.–India Income Tax Treaty (no totalization agreement), Form 2555 instructions, and Rev. Proc. 2025-32. See editorial standards.

The India-U.S. tax treaty — what it actually does for you

The United States and India have a bilateral tax treaty designed to prevent double taxation and clarify which country has the primary right to tax different types of income. For most income types earned in India by U.S. citizens, the treaty assigns primary taxing rights to India — meaning India taxes first and the U.S. provides relief through a credit or exclusion.

However, the treaty contains a saving clause — Article 1, Paragraph 4 — which preserves the U.S. right to tax its own citizens as if the treaty did not exist. The saving clause effectively means that U.S. citizens living in India cannot simply rely on the treaty to zero out their U.S. tax liability. You are still required to file a U.S. return and use either the FEIE or the Foreign Tax Credit to prevent paying tax on the same income twice.

FEIE in India — qualification and strategy

The Foreign Earned Income Exclusion is available to 🇺🇸 Americans in India who meet either the Physical Presence Test (330 days outside the U.S. in a 12-month period) or the Bona Fide Residence Test (genuine residency in India for a full calendar year).

For most 🇺🇸 Americans working long-term in India — on multi-year assignments or as local hires — the Bona Fide Residence Test is the cleaner qualification path once you have completed one full calendar year. For those who arrived mid-year or have assignment structures that involve frequent U.S. travel, the Physical Presence Test requires careful day-counting.

If you qualify and your total salary is under the FEIE limit — $132,900 for 2026 ($130,000 for 2025) — the FEIE can eliminate your entire U.S. income tax liability on that salary. If you earn more, the exclusion reduces your taxable income by the limit and you owe U.S. tax on the remainder.

Foreign Tax Credit in India — when it wins

India's personal income tax rates reach 30% at the top bracket (income above approximately ₹15 lakh under the old regime). For U.S. expats earning salaries that push into India's higher tax brackets and paying Indian income tax on that salary, the Foreign Tax Credit can eliminate U.S. tax liability entirely — because the Indian taxes paid exceed what the U.S. would charge on the same income.

The credit works dollar-for-dollar (or rupee-converted-to-dollar) up to the amount of U.S. tax owed on that income. Excess credits can be carried back one year or carried forward ten years, providing flexibility if Indian taxes in one year exceed U.S. liability.

A 4% health and education cess applies to the computed tax. Surcharges apply above ₹50 lakh. The old regime (higher headline rates but more deductions allowed — housing allowance, LTA, standard deductions) remains available by election. Many expats on company packages with significant allowances model both regimes each year. Your Indian employer will deduct tax at source (TDS) based on whichever regime you declare at the start of the financial year.

FEIE vs FTC: the India decision

This is the most important strategic choice for U.S. expats in India. The right answer depends primarily on your income level and effective Indian tax rate.

FBAR: Indian bank accounts and reporting

Any U.S. person — citizen, green card holder, or resident alien — whose combined foreign financial accounts exceed $10,000 at any point during the calendar year must file an FBAR (FinCEN Form 114). For 🇺🇸 Americans living in India, this almost always applies.

The following Indian accounts are typically reportable:

• Indian savings accounts — any account at HDFC, SBI, ICICI, Axis, or any Indian bank
• NRE accounts (Non-Resident External) — reportable even though they hold repatriated foreign earnings
• NRO accounts (Non-Resident Ordinary) — reportable
• Fixed deposits at Indian banks — reportable if held in your name
• EPF accounts — reporting status is debated but the safe approach is to include them

Provident Fund — the reporting complexity

Indian Provident Fund accounts — particularly the Employee Provident Fund (EPF) — create some of the most complex U.S. tax reporting questions for Americans in India. Unlike a U.S. 401(k), the EPF has no clear treaty provision granting it tax-deferred status for American expats, and IRS guidance on Indian EPF specifically is limited.

How EPF contributions work

Both employee and employer contribute 12% of basic salary plus dearness allowance (DA) to the EPF each month. For employees earning above the statutory wage ceiling (₹15,000/month in basic), some employers contribute on the capped statutory amount; many multinationals contribute on the full basic salary. The employee's 12% is deducted from gross pay; the employer's 12% is an additional cost on top. EPF accounts earn interest declared annually by the Employees' Provident Fund Organisation (EPFO) — 8.25% for FY 2023-24, with the rate set by the government each year.

U.S. tax treatment — what is and is not settled

• FBAR reporting: EPF accounts are reportable on FBAR if you have signatory authority or a financial interest. The account balance — your accumulated contributions plus interest — counts toward the $10,000 aggregate threshold. Most practitioners treat EPF as a reportable foreign financial account.
• Employer contributions may be currently taxable: Because the EPF is not a U.S.-recognized tax-deferred plan, employer contributions to your EPF in a given year may be currently taxable to you as additional foreign compensation — not deferred the way a 401(k) employer match is. This means the employer's 12% contribution each month could be reportable income in the year contributed.
• EPF interest taxable annually: The interest credited to your EPF each year is likely reportable as foreign interest income on your U.S. return in the year it is credited — even though you cannot withdraw the funds without triggering Indian EPF exit rules. This is a phantom income situation: you owe U.S. tax on interest you cannot yet access.
• Form 3520 / foreign trust question: Some tax professionals argue the EPF structure constitutes a foreign grantor trust under U.S. law, which would require Form 3520 (annual report of foreign trust transactions) and potentially Form 3520-A (annual information return of the trust itself). Penalties for failure to file Form 3520 start at $10,000 per missed filing. The IRS has not issued definitive guidance specifically on Indian EPF, and practitioner opinion is genuinely divided on whether Form 3520 applies to standard government-administered EPF accounts versus privately-administered schemes.
• FATCA Form 8938: If your EPF balance, combined with other foreign financial assets, exceeds the FATCA reporting thresholds, you must also include the EPF on Form 8938 filed with your 1040.

Common situations for U.S. expats in India

Employed by an Indian company

If you are directly employed by an Indian entity and receiving INR salary, you are likely paying Indian income tax through TDS (Tax Deducted at Source). Your Indian employer is not withholding U.S. taxes. You will need to make quarterly estimated tax payments to the IRS or face an underpayment penalty at year-end. The FTC is often the right tool in this scenario since you are paying Indian tax.

Seconded from a U.S. company with tax equalization

Tax equalization agreements — where your employer calculates a hypothetical "stay-at-home" U.S. tax and adjusts your net pay accordingly — add significant complexity. Equalization payments received from your employer may themselves be taxable. The interaction between equalization, FEIE, and FTC requires careful modeling. This is a common situation in manufacturing, energy, and consulting sectors.

Independent contractor

U.S. contractors working in India face the full weight of self-employment tax (15.3%) regardless of FEIE. India does not have a totalization agreement with the U.S. that would exempt 🇺🇸 Americans from U.S. Social Security tax, so you owe both sides. Careful quarterly estimated payment planning is essential.

Practical filing steps for 🇺🇸 Americans in India

1. Determine your qualifying test — Physical Presence or Bona Fide Residence. Count your days carefully if using Physical Presence.
2. Gather Indian income documents — Form 16 from your Indian employer shows TDS withheld and is the primary document for FTC calculations.
3. List all Indian bank accounts — collect account numbers, bank names, and maximum balances for the calendar year for FBAR filing.
4. Model FEIE vs FTC — use the calculator or have your preparer run both scenarios before committing to either.
5. File FBAR by April 15 (automatic extension to October 15) — this is separate from your tax return and filed at bsaefiling.fincen.treas.gov.
6. File Form 1040 with Form 2555 (FEIE) or Form 1116 (FTC) — deadline is June 15 for expats, extendable to October 15.
7. Consider Form 8938 (FATCA) — if your foreign assets exceed the threshold, file this with your 1040.

Written by

Ken Hoven

Currently based in Hyderabad, India. Has personally navigated EPF reporting questions, FEIE vs FTC decisions, and TDS reconciliation across multiple Indian tax years while filing U.S. returns simultaneously. Not a CPA — a U.S. taxpayer who has done this filing while living it.  Editorial standards →