U.S.–India Tax Residency Cheat Sheet: Rules, Dual Residency and Tie-Breakers

India’s 2025 tax rule clarifications are reshaping how cross‑border workers decide where they pay tax, with direct consequences for people who split time between the United States and India. At the center are India’s Residency Rules, which now more clearly exempt certain non‑resident Indians from the 60‑day test and narrow the scope of “deemed residency,” alongside the United States’ Substantial Presence Test that can make a non‑citizen a U.S. tax resident after a few months of presence.

When both countries claim the same person as a resident in the same year, the India–U.S. Tax Treaty sets tie‑breaker steps—yet these benefits don’t apply automatically and must be claimed. The result is a high‑stakes calendar game where even a few extra days can flip someone into global taxation in one or both countries.

U.S. Substantial Presence Test — quick summary

Under U.S. law, citizens and green card holders are taxed on their worldwide income, no matter where they live. Non‑citizens fall under the Substantial Presence Test, which has two parts:

1. Be present in the U.S. at least 31 days in the current year, and
2. Have a 183‑day weighted total over the current year and the two prior years (counting all days in the current year, 1/3 of the days in the prior year, and 1/6 of the days in the second prior year).

• Pass it → you’re a U.S. tax resident for that year (global income taxed).
• Fail it → U.S. tax generally applies only to U.S.‑source income.

For fast‑moving professionals, this test can trigger residence by midsummer without much warning. The Internal Revenue Service page provides baseline guidance for counting days and exceptions. You can review it here: Substantial Presence Test – IRS.

India’s 2025 residency framework — key points

India’s 2025 framework keeps the financial‑year determination (April 1–March 31) but clarifies important edges.

• A person is a resident if:
  • Present in India for 182 or more days in the financial year, or
  • Present 60 or more days in the current year plus 365 or more days in the previous four years.
• RNOR (Resident but Not Ordinarily Resident) remains available as a transitional status for those who recently returned or have limited Indian presence over the past seven years. RNOR limits exposure to some foreign income.

• Non‑residents are taxed only on India‑sourced income, while residents face global taxation.

• Deemed resident: An Indian citizen with Indian‑source taxable income above ₹15 lakh who is not liable to tax in any other country can be treated as a deemed resident (this category is treated as RNOR for some limits).

Important clarifications (2025)

• The 60‑day rule is limited for certain travelers:
  • Indian citizens working abroad and crew members of Indian ships are exempt from the 60‑day trigger.
  • NRIs and Persons of Indian Origin visiting India remain outside the 60‑day test if their Indian income is below ₹15 lakh.
• The deemed resident rule now applies only when someone is not liable to tax anywhere else—avoiding traps for those paying taxes abroad.

These changes matter for tech workers, consultants, students, and returning families with complex income patterns and frequent trips.

Policy changes overview — compliance and relief

Budget 2025–26 and related measures bring several practical changes:

• Basic exemption increased: No income tax for resident Indians on yearly income up to ₹12 lakh (does not apply to NRIs).
• NRIs can own up to two self‑occupied homes without notional rent taxation—easing short‑term stays and returns.
• TCS on foreign remittances under the Liberalised Remittance Scheme raised from ₹7 lakh to ₹10 lakh per year.
  • No TCS on education loans from specified institutions.
• Withdrawal of higher TDS/TCS rates for NRIs who are non‑filers—simplifies enforcement and reduces penalty exposure.
• Income Tax Bill 2025 consolidates several chapters for greater clarity, helpful to returning professionals and families.

Typical real‑world profiles

Three common examples show how the rules play out:

• H‑1B worker who spends two months in India:
  • Likely remains a U.S. resident under the Substantial Presence Test.
  • Usually a non‑resident in India → India taxes only India‑source income; U.S. taxes worldwide income.
• F‑1 student in the U.S. for five years:
  • Typically becomes a U.S. resident for tax purposes.
  • India may tax India‑source income only; U.S. taxes everything.
• Returning H‑1B who spends a full year in India:
  • Could be a non‑resident in the U.S. (if no green card/citizenship) and a resident in India, shifting global taxation to India.
  • U.S. filing obligations may persist for U.S. citizens or green card holders.

How the India–U.S. Tax Treaty resolves dual residency

Dual residency can occur when one country’s test is met by midyear and the other’s by March 31. The treaty provides sequential tie‑breaker steps:

1. Permanent home
2. Center of vital interests (family, economic and social ties)
3. Habitual abode (where you regularly stay)
4. Nationality
5. Mutual agreement by tax authorities (if prior steps don’t resolve the tie)

• These steps are sequential: you move to the next only if the previous one doesn’t settle it.
• Treaty relief is not automatic—it must be claimed. That usually involves:
  • Obtaining a Tax Residency Certificate from the country you claim as resident, and
  • Aligning filings to reflect that claim.

Failure to claim treaty rights can cause double inclusion and mismatched credits that are time‑consuming to unwind (analysis by VisaVerge.com).

Practical steps to reduce risk

The calendar drives outcomes. India’s tax year runs April 1–March 31, and the main filing dates are:

• India individual filing deadline: typically July 31
• U.S. filing deadline: April 15 (automatic extension to June 15 for people living abroad; options to extend further)

Households should take these practical steps:

• Keep a daily log of presence in both countries, with boarding passes and entry/exit stamps.
• Separate Indian and foreign income streams to see what flips when residency changes.
• Evaluate your center of vital interests early—housing, family location, and where your work is managed often decide treaty outcomes.
• Before long trips, test both systems for the upcoming year to avoid accidental dual residency.
• Obtain and keep a Tax Residency Certificate when relying on treaty relief.
• For green card holders planning to settle in India, weigh the tax cost of keeping the card versus formally surrendering it.

RNOR, deemed residents, students, and employers — specific notes

• RNOR status is helpful as a ramp for recent returnees; it limits foreign income exposure in specific cases but is not a blanket shield.
  • Income from a business controlled in India or a profession set up in India can still be taxed.
• The “deemed resident” rule is narrower after 2025 but still requires watching India‑source income totals and whether you’re liable to tax elsewhere.
• Cross‑border students:
  • F‑1 students usually become U.S. tax residents after five calendar years in the U.S.
  • India may tax India‑sourced income (e.g., rental income). Treaty rules or foreign tax credits may be needed to avoid double taxation.
• Employers:
  • Higher TCS threshold on foreign remittances reduces friction for company‑funded travel or allowances.
  • Removal of higher TDS/TCS for non‑filers reduces penalty exposure for workers who move midyear.
  • Companies with mobile teams should brief staff on the 182‑day and 60‑day thresholds and India’s financial‑year reset.

Final takeaways and two broad reminders

This issue is as much about calendars and family plans as it is about tax law:

• One misjudged trip around March can change your tax residency and global obligations.
• For U.S. citizens and green card holders, the rules are stricter: you remain a U.S. tax resident even if you become an Indian resident.

Two critical reminders:

1) Treaty benefits are not automatic — you must claim them and keep proof of the claimed residency.
2) India’s residency status resets every year — last year’s status does not carry forward.

With travel rising and remote work routine, track day counts, income ties, and treaty steps as carefully as visas and school calendars to avoid costly surprises and keep your tax life under control.