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The tax laws and obligations of the United States are very simple.
It says if you are a salaried employee, you have to submit a w2 form. But you need to file a 1099 form if you are self-employed.
It’s your life that makes tax obligations complicated.
Probably you are confused about your residency status, or maybe you worked in the USA for a few months before coming back to India, yet still drawing a USA salary.
Or maybe your spouse had forgotten to inform you of a long-term investment, and suddenly, one fine morning, you get a nice gift from the IRS in bold letters “Notice”.
There are many more situations that make a tax filing complicated.
This is the reality of complex tax situations of NRIs in the USA. Meanwhile the difference between a clean filing and a costly notice always comes down to getting these details right from the start.
If you are yet to submit your documents of tax year 2025, match your filings with a convenient checklist.
If you are running out of time, get on a free consultation with tax experts to sort out tax papers.
Do You Need to File US Taxes If You Are Living in India Now?
Living in India does not end your US tax obligation. If you hold US citizenship or a Green Card, the IRS taxes your worldwide income regardless of where you live. You must file.
If you’re on a visa and spent significant time in the US during 2025, the Substantial Presence Test determines your status.
- All days in the current year (2025), plus
- 1/3 of days in 2024, plus
- 1/6 of days in 2023
If you cross that threshold, you’re a US tax resident for TY 2025, taxed on global income.
Two obligations that catch NRIs off guard every year:
- FBAR (FinCEN 114): If your Indian bank accounts, FDs, or investment accounts collectively exceeded $10,000 at any point in 2025. This must be filed.
- FATCA (Form 8938): If specified foreign financial assets exceeded $200,000 (for those living abroad at year-end). FATCA reporting is required separately.
Both carry separate penalties for non-compliance. Missing one doesn’t excuse the other.
Which Indian Income Do You Have to Report, and How?
If you’re required to file, your Indian income is already reported to the IRS before you do.
| Income Type | Reportable? | Key Form |
| Indian salary / employment | Yes | Form 2555 (FEIE) |
| Rental income | Yes | Schedule E |
| Bank interest (NRO/savings) | Yes | Schedule B |
| NRE account interest | Yes (for US citizens/GC holders) | Schedule B |
| Indian mutual funds | Yes — likely classified as PFIC | Form 8621 |
| Large gifts/inheritance | Conditionally | Form 3520 |
PFICs are where most NRIs get blindsided.
Indian mutual funds meaning ELSS, index funds, debt funds, are classified by the IRS as Passive Foreign Investment Companies.
Gains are taxed at the highest ordinary income rate plus an interest charge. Each fund requires a separate Form 8621.
If you held Indian mutual funds in 2025 without filing this form in prior years, that’s a conversation to have with a tax expert before you file.
“We’ve seen clients come in with five years of PFIC exposure they didn’t know existed. The catch-up process works, but it takes time and proper strategy. Coming to us in March is always better than coming in June after a notice.” — Arun, US Individual & Expat Tax Specialist, Crescent
Are You a US Tax Resident or Non-Resident on H-1B or F-1?
This is where tax filing diverges sharply, and filing under the wrong status is one of the most common (and expensive) mistakes.
H-1B professionals are not automatically exempt from the Substantial Presence Test. If you were in the US for 183+ qualifying days in 2025, you file as a resident alien on worldwide income, even if you’ve since returned to India.
F-1 students are typically “exempt individuals” for their first five calendar years, meaning those years don’t count toward the Substantial Presence Test. But once that window closes, the same rules apply. An F-1 who moved to OPT and then H-1B may have crossed the threshold without realizing it.
One more layer for 2026: USCIS has updated H-1B program rules for the FY2027 cap season (registration opens April 2026), with changes to lottery selection and employer compliance requirements. If your status changed, or is about to, your tax residency planning needs to account for that transition — starting now.
At Crescent, residency status is the first thing we determine. Everything else like which forms apply, which elections make sense, whether treaty benefits are available, follow suit.
How Can You Avoid Double Taxation?
The US-India Tax Treaty helps you avoid double taxation.
Foreign Tax Credit (Form 1116): Taxes paid to India on income also taxed by the US can offset your US liability dollar-for-dollar. This is the most commonly used route.
Foreign Earned Income Exclusion (Form 2555): If you qualify, through bona fide residency in India or 330 days outside the US in a 12-month period, you can exclude up to $126,500 of foreign earned income from US tax for TY 2025.
These two tools cannot always be combined on the same income. Choosing the wrong one, or mixing them incorrectly, either leaves money on the table or creates a discrepancy the IRS will flag. This is exactly where professional tax services pay for themselves.
The Most Common Mistakes NRIs Make While Filing
After working through hundreds of NRI returns each season, our team at Crescent witnessed similar cases repeat consistently. We advise you to avoid last-minute filing mistakes.
Assuming NRE interest is tax-free. It’s tax-free in India. For US citizens and Green Card holders, it must be reported on Schedule B.
Skipping FBAR because it “feels minor.” Non-willful FBAR violations carry penalties up to $10,000 per occurrence. Willful violations escalate significantly further.
Self-filing without accounting for PFICs. Tax software doesn’t prompt for Form 8621. It doesn’t ask if you hold Indian mutual funds. You have to know to flag it.
Filing as the wrong residency status after a mid-year move, visa change, or remote-work arrangement — particularly when a US employer continued paying an India-based employee through 2025.
“One couple came to us after filing jointly for three years. The wife had Indian mutual funds from before they married. No PFIC forms, no FBAR for two years. We resolved it — but the amended return process took months. One early consultation would have changed everything.” — Vikram P., Cross-Border Tax Specialist, Crescent
What Should You Review Before Submitting?
Even a well-prepared return needs a final review now.
- Filing status: Married Filing Jointly vs. Separately can significantly shift your outcome when one spouse has Indian income or assets. Run both.
- FBAR and FATCA alignment: Do your Schedule B disclosures match your FBAR filing? Is Form 8938 complete?
- PFIC forms: Is Form 8621 filed for every Indian mutual fund held? Is the election method consistent with prior years?
- Treaty claims: If you claim treaty benefits, Form 8833 must be attached. Missing it voids the claim.
- Prior-year AGI: Required for e-filing identity verification — especially if you filed an amended return last year.
What Happens If You Miss the Deadline or File Incorrectly?
The federal deadline for TY 2025 is April 15, 2026.
- Failure-to-file penalty: 5% of unpaid taxes per month, up to 25%
- Failure-to-pay penalty: 0.5% per month on outstanding balance
- FBAR non-willful penalty: Up to $10,000 per violation
- Incorrect filing: Triggers CP2000 notices, audit requests, or demands for documentation
If you need more time to file accurately, Form 4868 grants an automatic 6-month extension, pushing your deadline to October 15, 2026. The extension covers filing, not payment. Interest on unpaid taxes runs from April 15 regardless.
One legislative development to watch: the One Big Beautiful Bill Act (OBBBA), currently in discussion, proposes changes that may affect how foreign income and offshore accounts are treated going forward.
Crescent is tracking this closely – any enacted changes will factor into how we advise clients through extensions and amended returns this cycle.
What Complexities Crescent Handled in the 2025 Tax Season?
- New to the U.S. with India investments (H-1B / H-4 case)
A newly relocated couple had investments in India and were starting fresh in the U.S.
Challenge: Understanding dual-country compliance — FATCA reporting, FBAR filing, and future tax planning.
Suggestion: Structuring reporting obligations from year one and aligning investments to avoid double taxation. - Incorrect residency filing + PAN inoperative issue
An individual filed as a resident incorrectly due to minor India income, leading to refund blocks.
Challenge: Misaligned residency status across countries and compliance gaps.
Suggestion: Correcting U.S. residency classification, advising NRI status in India, and aligning filings to restore compliance. - NRI selling inherited property in India
A client was unsure about tax implications and legal requirements.
Challenge: Capital gains tax, TDS, repatriation rules, and documentation.
Suggestion: Structuring the transaction, ensuring correct tax treatment, and aligning India–U.S. reporting. - Dual rental income (India + U.S.) with timing mismatch
A professional had rental income in both countries with different filing timelines.
Challenge: Claiming foreign tax credit without finalized India returns.
Suggestion: Strategic timing of filings, proper Form 1116 usage, and avoiding double taxation. - Mixed income confusion (W-2 + 1099 transition)
Income reported across employment types created classification issues.
Challenge: Risk of misreporting and incorrect tax liability.
Suggestion: Validating income sources, correcting classification, and ensuring accurate reporting.
Why Book a Consultation with Crescent Before April 15?
Key filing decisions revolving around residency status, FTC vs FEIE, PFIC treatment, joint filing, directly impact long-term compliance.
Errors at this stage often require multiple amendments to correct.
Crescent’s tax consultants specialize in cross-border tax filing services for Indians in USA.
The team handles complexities such as FATCA reporting, FBAR filing, NRE/NRO account treatment, PFIC compliance, and multi-state obligations, the areas where generic software or basic tax consultants fall short.
With 8+ years of experience, 27,000+ Indian NRIs served, and a team of 85+ tax experts across federal and state tax filing services, Crescent focuses on accurate, situation-specific handling rather than one-size-fits-all filing.
Every engagement begins with a free consultation, focused on understanding your case, identifying risks, and outlining the correct approach.
The best tax filing service doesn’t file and stops responding. It ensures your return is structured right from the start.
FAQs
1. Do NRIs need to report income earned in India on US tax returns?
US tax rules require reporting global income, including salary, rent, interest, and capital gains earned in India, even if taxes were already paid there.
2. When should an NRI consider hiring a tax consultant?
Professional help is useful when dealing with multiple income sources, unclear residency status, missed filings, foreign accounts, or when filing close to the deadline with limited time for review.
3. What happens if foreign bank accounts are not reported in US taxes?
Failure to disclose foreign accounts through required filings like FBAR can lead to penalties, even if the accounts did not generate taxable income.
4. Can mistakes in previously filed US tax returns be corrected?
Errors or omissions can be addressed by filing amended returns or using compliance procedures, depending on the situation and whether disclosures or filings were missed in earlier years.
Conclusion
If your return is ready and clean, file before April 15. If there’s any doubt regarding foreign accounts, Indian investment, a status change, previous year’s filings you’re not sure about or just doubting if you have claimed refund against all credible objects, resolve it now, not after a notice arrives.
NRI tax filing is not complicated because the law is unclear. It’s complicated because your life crossed borders and the forms didn’t come with a map. That’s what Crescent deals with professionally.
April 15, 2026. Let’s get on a free consultation call today.
Disclaimer: Tax laws are complex and subject to change. Always consult a professional cross-border tax advisor (CPA or Enrolled Agent) specializing in US-India taxation for specific cases.
