New Rules for Income from Other Sources Affect Tax Year 2025–26 India & U.S.

(INDIA) — A quiet but important compliance shift is underway for Income from Other Sources across India & United States, and the effective dates matter if you move, invest, or hold accounts in both countries.

In India, Finance Act changes effective April 1, 2025 (FY 2025–26) raise the stakes on reporting interest and dividends even when TDS is deducted. India’s Income Tax Act, 2025 then takes effect April 1, 2026, bringing “tax year” terminology and more digital checks.

In the United States, the One Big Beautiful Bill Act (OBBB) became law on July 4, 2025 (Public Law 119-21). It applies starting U.S. tax year 2025 (returns filed in 2026). Several provisions phase in for 2026+, which affects planning for tax year 2026 (returns filed in 2027).

Current as of: Monday, January 26, 2026.

1) What counts as “Income from Other Sources”

“Income from Other Sources” is a residual bucket. It covers income not treated as salary, business income, or capital gains.

Common cross-border examples include interest, dividends, and other taxable receipts that don’t fit other heads.

• Interest income from bank savings, fixed deposits (FDs), bonds, and similar instruments
• Dividend income from shares, mutual funds, and REIT-style products
• Other taxable receipts, such as referral bonuses or awards not tied to employment

A frequent mistake is assuming withholding equals compliance. It does not. You may still need to report the income, claim a credit, or disclose foreign accounts.

2) India: Tax treatment for FY 2025–26 (effective April 1, 2025)

For India’s FY 2025–26 (often described as the Tax Year 2025–26 in everyday language), “Income from Other Sources” remains a formal head under the Income-tax Act. This continues under the Income Tax Act, 2025 from April 1, 2026.

What changed in India starting April 1, 2025

New regime slabs under section 115BAC apply by default, unless you opt for the old regime. The revised slabs for FY 2025–26 are:

• Up to ₹4 lakh: Nil
• ₹4–₹8 lakh: 5%
• ₹8–₹12 lakh: 10%
• ₹12–₹16 lakh: 15%
• ₹16–₹20 lakh: 20%
• ₹20–₹24 lakh: 25%
• Above ₹24 lakh: 30%

Because of the enhanced Section 87A rebate, income up to ₹12 lakh under the new regime can be effectively tax-free, subject to conditions.

Reporting rules tightened in practice

• Interest and dividends must be reported even if TDS was deducted.
• Banks and brokers report data into AIS/26AS. Mismatches now trigger faster notices.

Residency and foreign income rules

• ROR (Resident and Ordinarily Resident): report worldwide income, including foreign interest and dividends.
• NRI (Non-Resident): generally report Indian-sourced passive income. Foreign income is usually outside scope, subject to DTAA.
• Compliance pressure is rising due to CRS/FATCA data exchanges.

Structural reform starting April 1, 2026

The Income Tax Act, 2025 begins April 1, 2026. It keeps the heads of income, including “other sources.” It also expands digital compliance and replaces “previous year/assessment year” with “tax year.”

3) United States: Tax treatment under OBBB (effective for U.S. tax year 2025)

OBBB does not change the basic rule. Interest and dividends remain taxable under U.S. federal law. The change is the wider framework around rates and deductions.

Core U.S. rules that still apply

• Interest is commonly reported on Form 1099-INT.
• Dividends are commonly reported on Form 1099-DIV.
• Dividends may be ordinary or qualified. Qualified dividends can receive preferential rates.
• Withholding does not replace reporting. You still report income if you must file.

For residency, start with IRS Publication 519 and the Green Card and Substantial Presence tests. See Publication 519 (PDF) and the IRS international taxpayers page.

Why OBBB matters to immigrants and visa holders

OBBB made parts of the TCJA-style framework more durable, and added or adjusted deductions for some taxpayers. Some provisions phase in for 2026 and later. That means your 2026 planning may differ from your 2025 filing profile.

This matters in immigration settings too. Tax compliance often comes up when people prepare for status changes or interviews. Sponsors filing Form I-864 also commonly need IRS tax transcripts.

Before/After: What changed (and when)

4) Cross-border compliance: common scenarios (India ⇄ U.S.)

Scenario A: NRI moving to the U.S. with Indian FDs

You may have Indian FD interest credited with TDS. If you become a U.S. tax resident, you generally report worldwide income, including Indian interest.

You may also need foreign account reporting. Two key U.S. forms are:

• FBAR (FinCEN Form 114): required if foreign accounts exceed $10,000 aggregate at any time.
• Form 8938 (FATCA): thresholds depend on filing status and residency.

Scenario B: U.S. dividends, then you return to India and become ROR

Once you are ROR, India generally expects worldwide income reporting. That can include U.S. dividends shown on 1099s, even if U.S. tax was withheld.

Scenario C: Students and early career workers (F-1 → H-1B)

• F-1 and J-1 students are often nonresident aliens for several years under the Substantial Presence Test rules in IRS guidance.
• Many F-1 nonresidents still file Form 1040-NR when they have U.S. income.
• H-1B workers often become U.S. tax residents under Substantial Presence. Then worldwide reporting typically applies.
• FICA rules can change when you move from F-1 to H-1B. That affects paychecks, not “other sources,” but it changes overall withholding.

Use the IRS forms and publications index to confirm current-year forms and instructions.

5) Penalties and practical compliance notes

India

Notices for AIS/26AS mismatches are increasingly common. Interest and dividend entries are frequent triggers. Reconcile before filing.

United States

Missing items can trigger failure-to-file or failure-to-pay penalties and interest. Also reconcile all 1099 forms to bank and broker statements.

If you have Indian accounts, also check whether you have an FBAR or Form 8938 requirement. Those penalties can be severe.

6) Updated tax treatment (at a glance)

Recommended actions and timeline (tax year 2026 returns filed in 2027)

1. Now (early 2026): Identify all passive income streams in both countries. Include small interest credits.
2. Before India FY 2025–26 filing: Reconcile interest and dividends to AIS/26AS and bank statements.
3. Before U.S. tax year 2026 filing (in 2027): Track foreign accounts for FBAR $10,000 and Form 8938 thresholds.
4. If you changed status (F-1 to H-1B, or moved countries): Confirm your tax residency position under IRS rules in Publication 519.
5. If immigration paperwork is upcoming: Keep filed returns and transcripts ready. Consistent reporting reduces delays.