Tax and Citizenship for U.S.–India Professionals and Expats

A growing number of people with ties to the United States and India are asking the same urgent questions as tax season approaches: If I’m a U.S. citizen residing in India with only Indian income, where do I file, and do I still owe tax in the United States? What if I’m an Indian citizen working in the United States on H‑1B status — do I still need to file in India? The answers hinge on a few core rules about tax residency, source of income, and how exclusions and credits work across two tax systems that often intersect in complex ways.

At the center of these cases is a simple but vital rule. A U.S. citizen must file a federal return and report worldwide income every year, no matter where they live. That filing duty follows you even if every rupee you earn comes from India and you have no U.S. source income.

In parallel, Indian tax law looks at your days in India and other tests to decide whether you are tax resident in India in a given financial year. If you’re a tax resident in India, your global income may be taxable in India; if you’re non‑resident for Indian tax purposes, only India‑sourced income is taxable there. Those two principles define how income is reported and where tax is paid. The good news is that both countries offer tools that can help prevent double taxation — but only if you use them correctly and file on time.

How the U.S. & Indian Systems Interact

For a U.S. citizen residing in India who draws only Indian income, the practical sequence is clear.

• Pay Indian income tax according to Indian law on salary, interest, and house‑property income earned or sourced in India.
• File a U.S. federal return reporting worldwide income.
• Depending on income type and eligibility, claim:
  • Foreign Earned Income Exclusion (FEIE) for earned salary from work performed in India, and/or
  • Foreign Tax Credit (FTC) to offset U.S. tax on amounts like interest or rental income already taxed in India.

If Indian taxes equal or exceed U.S. tax on those items, your final U.S. tax owed may be zero, but the filing requirement remains. Many U.S. citizens abroad confuse “no payment due” with “no filing due.” That can be a costly mistake.

For Indian citizens earning U.S. wages while living primarily in the United States, the logic flips:

• If you’re non‑resident in India for the year and have no India‑sourced income, Indian return filing typically isn’t required just because you filed in the United States.
• If you become Indian tax resident or have India‑sourced income (rent, interest, etc.), you may need to file in India as well.
• The India–U.S. tax treaty and India’s FTC rules can help prevent double taxation.

Common Under‑reporting Risk

VisaVerge.com reports that cross‑border earners frequently under‑report passive income, such as bank interest and rental income. This happens because people often focus on salary and forget:

• The United States taxes worldwide income for citizens and residents.
• India can tax worldwide income for Indian residents.

Salaried professionals usually comply; small passive streams fall through the cracks. Consequences include back taxes, penalties, and audits that may span both countries.

Policy Context and Legal Basics

U.S. rules:
– A U.S. citizen must file U.S. taxes annually and report worldwide income using Form 1040 About Form 1040.
– If eligible, use Form 2555 to claim the FEIE About Form 2555 (excludes earned salary up to an annual limit if you meet bona fide residence or physical presence tests).
– For income that isn’t earned salary (interest, rental), FEIE doesn’t apply. Use Form 1116 to claim the Foreign Tax Credit About Form 1116.

Indian rules:
– Residency status — resident, non‑resident, or resident but not ordinarily resident — depends primarily on days present in India and tie‑breaker rules.
– If resident, global income may be taxable in India.
– If non‑resident, only India‑sourced income is taxed.
– Residency can change each financial year; check it annually.

Important separations:
– Tax filing is separate from citizenship status. A U.S. citizen does not lose citizenship simply by living abroad.
– Likewise, living in India does not grant Indian citizenship or erase U.S. tax duties.
– Immigration status and tax status are different; confusing them can lead to lapsed filings.

IRS resources:
– The IRS maintains an international hub for overseas filers covering filing status, exclusions, credits, and information reporting International Taxpayers.
– That hub links to rules on reporting foreign bank and financial accounts and to special deadlines for those living outside the U.S.

Case Scenarios Driving Compliance Choices

Scenario 1: U.S. citizen residing in India with only Indian income

Who files, where, and when:
– You pay Indian tax on Indian income (salary, interest, rent).
– You file U.S. Form 1040 and report worldwide income.
– You choose between FEIE (Form 2555) for salary and FTC (Form 1116) for passive income. Many filers use FEIE for wages and FTC for passive income.

Key points:
– You might end up with no U.S. tax due after FEIE + FTC, but you still must file.
– FEIE applies only to earned income; FTC is used for passive income.
– You may need to file FBAR if your foreign accounts cross the threshold Report Foreign Bank and Financial Accounts (FBAR).
– Form 8938 may be required for FATCA reporting if thresholds apply About Form 8938.
– U.S. citizenship is not affected by long‑term residence in India.

Common error: assuming Indian tax alone covers U.S. obligations. It does not — you must file and claim relief properly.

Scenario 2: Indian citizen working in the United States with U.S. income

Filing depends on Indian residency:
– If non‑resident in India and no India‑sourced income → typically no Indian filing just because you filed in the U.S.
– Triggers for Indian filing:
– Spending enough days in India to become resident.
– Keeping India‑sourced income (rent, interest).
– If both countries tax the same income, India’s FTC and the tax treaty can offset double tax.

Practical tip: track days in India and timing of your return, since becoming resident mid‑year can require India filing for global income for that period.

Scenario 3: H‑1B professional with U.S. salary and possible Indian ties

• If no India‑sourced income and no Indian residency → no Indian filing.
• Add India‑sourced income (rental income, interest, side business) → Indian filing may be required, even if you live in the U.S.
• If you become Indian tax resident due to time in India → Indian tax on global income may apply for that year, with treaty relief available.

VisaVerge.com notes many H‑1B professionals retain rental units or bank accounts in India that create Indian filing duties despite living in the U.S.

Practical Steps and Common Pitfalls

A short compliance checklist for cross‑border taxpayers:

• Track your days in India each financial year — residency depends on day counts.
• File the right U.S. forms:
  1. Form 1040 — annual U.S. return About Form 1040
  2. Form 2555 — FEIE, if eligible About Form 2555
  3. Form 1116 — Foreign Tax Credit About Form 1116
  4. FBAR — if foreign account balances exceed threshold Report Foreign Bank and Financial Accounts (FBAR)
  5. Form 8938 — FATCA reporting thresholds About Form 8938
• Keep records that align across systems:
  • Payslips, Form 16 or equivalent Indian certificates.
  • Bank interest statements and rental ledgers.
  • Proof of Indian taxes paid for Form 1116 support.
  • Exchange rates used to convert rupees to USD.
• Choose FEIE vs. FTC carefully:
  • FEIE is often best for earned wage income.
  • FTC is typically used for passive income.
  • High Indian salary relative to FEIE may favor FTC.
• Don’t equate refunds with compliance — you can receive a refund in one country and still owe or have filing obligations in the other.
• File on time:
  • U.S. citizens abroad often get an automatic extension to file, but interest on tax due still accrues.
  • If you need more time, request extensions properly to avoid penalties.
• Seek professional advice when income sources multiply (rental, business, investments).
  • Business profits, for example, may not be covered by FEIE, so FTC and other rules become more important.

Real‑World Examples (Human Impact)

Example 1 — U.S. citizen in India who stopped filing:
– Moved to Bengaluru five years ago, earns an Indian salary and modest interest/rent.
– Stopped filing U.S. returns assuming Indian tax covered everything.
– Later needed U.S. tax transcripts for a mortgage, scrambled to file three late returns, compute FEIE and FTC, and prepare missed FBARs.
– Final tax due was small, but the time and cost to clean up were substantial.

Example 2 — Indian citizen on H‑1B returning mid‑period:
– Worked in the U.S. four years, kept a rental apartment in Hyderabad.
– Non‑resident in India initially, filed only in U.S.
– Returned to India and became Indian resident in year three → had to file in India and include U.S. wages for that year.
– Could claim Indian credit for U.S. tax paid only by filing in India and providing documentation.

Lesson: plan ahead and document well to avoid double filing surprises and penalties.

Quick Comparison: Three Common Profiles

Documentation & Recordkeeping (Essential)

Keep these documents year by year:
– Indian tax payment proofs and computation sheets.
– Bank statements showing interest earned and taxes deducted.
– Rental agreements, rent receipts, municipal tax bills for properties.
– Salary slips and employer letters showing India‑source work.
– Year‑by‑year day counts in India to show residency status.

These records support both Indian filings and U.S. foreign tax credit claims. When rupee amounts, dates, and exchange rates align across filings, credits process more smoothly.

Important takeaway: Filing obligations are determined by residency and source of income, and relief comes only when you claim the right exclusions or credits on the correct forms.

Final Practical Advice

• Start with two anchor questions each year:
  1. Where am I tax resident this year?
  2. What is the source of each income stream?
• File the right forms and claim FEIE or FTC as appropriate.
• Keep aligned records in both currencies.
• If your situation is complex (business income, large investments, planned move), consult a cross‑border tax professional early.

The stakes are personal — missed filings can delay mortgages, job clearances, and trigger penalties. Clear compliance can reduce total tax through credits and exclusions and keep your long‑term plans on track. The systems in India and the United States aren’t trying to double‑tax you; they’re aiming to tax what belongs in each system while giving tools to avoid being taxed twice. Use those tools well, and your filings will match your real‑world life: international, yes, but orderly and predictable on paper.

For IRS guidance on filing from overseas and related reporting requirements, see the IRS international hub: https://www.irs.gov/individuals/international-taxpayers