U.S. TAX GUIDE IN INDIA
Do US citizens living in India have to file US taxes?
Absolutely, they do.
If you are an American citizen or Green Card holder living in India, you must file a US tax return, no matter where you reside or work. This is because the US tax system is based on citizenship rather than residency, meaning you must report all your global income to the Internal Revenue Service (IRS), even while living abroad.
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Why do US citizens in India need to keep filing US taxes?
The US follows a unique citizenship-based taxation system. This means that if you hold a US passport or a Green Card, your tax filing requirements remain active every year, irrespective of where you live.
So, even if all your earnings come from work in India—whether as an employee, a freelancer, or an investor—these incomes must still be declared on your US tax return.
What are the income thresholds for filing US taxes while in India?
The IRS has specific income limits that determine whether you need to file a tax return. These limits depend on your filing status and age. Here are the thresholds for the 2025 tax year:
Filing Status | Age Under 65 | Age 65 or Older |
Single | US$15,000 | US$17,500 |
Married Filing Jointly | US$30,000 | US$31,500 (one over 65) / US$33,000 (both over 65) |
Married Filing Separately | US$5 | US$5 |
Head of Household | US$22,500 | US$24,000 |
These income limits are the same regardless of where you live. Therefore, if you are living in India and your income surpasses these thresholds, you must file a US tax return, including your earnings from both US and Indian sources.
Do Green Card holders in India need to report their foreign bank accounts?
Yes, they do, if their foreign financial assets exceed certain thresholds.
Specifically, if the total value of your foreign bank accounts, including savings, investments, or retirement funds, exceeds US$10,000 at any point during the year, you must file an FBAR (Foreign Bank Account Report). Not doing so could lead to serious penalties, so it’s important to stay compliant.
For example, let’s say you have multiple bank accounts in India, and the combined value of these accounts surpasses US$05,000 during the tax year. In such a case, filing an FBAR is mandatory. This requirement is separate from your regular tax filing.
Which types of accounts need to be reported on the FBAR?
When it comes to FBAR requirements, you need to report various types of accounts, including:
- Savings Accounts: Any savings accounts you hold in Indian banks.
- Investment Accounts: Investments in mutual funds, stocks, or other securities in India.
- Retirement Accounts: Funds such as the Public Provident Fund (PPF) or other pension accounts held in India.
What are the penalties if you don’t file US taxes or FBAR from India?
The consequences for failing to file your US taxes can be serious. Penalties include late fees, interest on overdue taxes, and other financial penalties that may be applied.
If you neglect to file an FBAR when required, you could be fined up to US$10,000 per violation. In cases where the IRS considers non-compliance to be willful, penalties can increase significantly.
Are there additional forms required, like Form 8938?
Yes, beyond filing an FBAR, you might also need to file Form 8938 (Statement of Specified Foreign Financial Assets). This is required if the value of your foreign accounts exceeds the following thresholds:
- Single Filers: US$200,000 on the last day of the tax year or US$300,000 at any time during the year.
- Married Couples Filing Jointly: US$400,000 on the last day of the tax year or US$600,000 at any point during the year.
It’s important to note that while Form 8938 and the FBAR might cover similar financial assets, they are distinct filings, and you must submit both if required.
What steps can US expats in India take to meet their tax obligations?
- File a US Tax Return Every Year: Regardless of whether you owe any taxes, it’s mandatory to file a tax return each year.
- File an FBAR for Foreign Accounts: If the combined value of your foreign financial accounts exceeds US$10,000 at any point during the year, you need to file an FBAR.
- Submit Form 8938 When Necessary: For individuals with significant foreign assets, ensure Form 8938 is filed alongside your tax return.
- Seek Guidance from Tax Experts: Consulting a tax professional who understands both US and Indian tax systems can make a big difference in staying compliant and possibly reducing tax liabilities.
What to do if you have missed filing US taxes while in India?
If you’ve fallen behind on your US tax filings, it’s important to address this sooner rather than later.
The IRS offers a program called the Streamlined Filing Compliance Procedures. This program is designed to help taxpayers who were unaware of their obligation to file, allowing them to catch up without facing significant penalties.
To qualify for this program, you need to show that your failure to file was unintentional. Through the Streamlined Procedures, you can file the last three years of tax returns and up to six years of FBARs, thereby regularizing your status without facing the worst penalties.
