India is a rapidly growing economy with a comprehensive US income tax treaty, but no totalization agreement. US citizens and green-card holders living in India face unique tax considerations, particularly regarding local retirement schemes, investment vehicles, and the application of US self-employment tax.
US filing basics every American abroad must know
US citizens and green-card holders are taxed on worldwide income wherever they live, and usually must file Form 1040 once gross income exceeds the IRS threshold ($15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household for 2025), even when no tax is ultimately due. The tools that prevent double taxation are the Foreign Earned Income Exclusion (FEIE, up to $130,000 for 2025 under IRC §911) and the Foreign Tax Credit.
Two reporting rules catch most filers in India: the FBAR (FinCEN Form 114), required when foreign financial accounts exceed $10,000 in aggregate at any point in the year, and Form 8938 (FATCA) for specified foreign assets above the applicable threshold. Both can carry penalties even when no tax is owed. If you are behind, the Streamlined Filing Compliance Procedures are the usual penalty-free path back for non-willful taxpayers.
US tax treaty with India
The US-India income tax treaty (signed in 1989, effective 1990) aims to prevent double taxation and fiscal evasion. While it provides relief for certain income types and sets withholding limits, the US saving clause significantly limits its benefits for US citizens and green-card holders, who are generally taxed by the US as if the treaty did not exist. Its primary utility for US persons often lies in reduced withholding on investment income and resolving residency tie-breaker rules.
Article 1, Paragraph 3 (Saving clause). The United States reserves the right to tax its citizens and residents as if the treaty had not entered into force, with limited exceptions. This means most US citizens in India must still file a full US tax return and report worldwide income.
Article 19 (Government service). Salaries, wages, and similar remuneration paid by one government (e.g., US government) to an individual for services rendered to that government are generally taxable only by that government, with exceptions for local nationals and permanent residents.
Article 20 (Pensions and annuities). Pensions, annuities, and other similar remuneration derived by a resident of a Contracting State in consideration of past employment are generally taxable only in that Contracting State. However, the saving clause can override this for US citizens and residents, meaning US tax may still apply.
| Income type | Treaty rate | Statutory rate | Notes |
|---|---|---|---|
| Dividends | 15% / 25% | 30% | 15% if the beneficial owner is a company owning at least 10% of the voting stock; 25% in all other cases. |
| Interest | 10% / 15% | 30% | 10% if paid on a loan granted by a bank or similar financial institution; 15% in all other cases. |
| Royalties | 10% / 15% | 30% | 10% on industrial, commercial, or scientific equipment; 15% on copyrights, patents, trademarks, and similar rights (Article 12). |
Due to the saving clause, a US citizen or green-card holder generally cannot use the US-India tax treaty to exempt income from US taxation. The treaty primarily helps to reduce foreign withholding taxes on US-source income and provides rules for determining tax residency in cases of dual residency.
Indian Retirement Schemes and US Tax
India offers several popular retirement and savings schemes, such as the Employees' Provident Fund (EPF), Public Provident Fund (PPF), and National Pension System (NPS). For US tax purposes, these are generally not treated as qualified retirement plans like a US 401(k) or IRA.
The US tax treatment depends on the specific structure of the fund, but they are often viewed as foreign grantor trusts or foreign financial accounts. This can lead to annual US taxation of contributions and earnings within the fund, even if they are tax-deferred or tax-exempt in India. These accounts almost always count towards the $10,000 FBAR aggregate and may require reporting on Form 8938. If an Indian retirement fund is deemed a foreign trust, it could trigger complex reporting requirements on Form 3520 and Form 3520-A.
There is no totalization agreement between the US and India, meaning contributions to Indian social security or provident funds do not count towards US Social Security coverage, and vice versa. This also means US citizens and green-card holders working in India may be subject to both Indian social security contributions and US self-employment tax if they are self-employed.
Investments, property, and capital gains in India
Indian mutual funds and many Exchange Traded Funds (ETFs) are typically classified as Passive Foreign Investment Companies (PFICs) for US tax purposes. This classification can lead to complex reporting on Form 8621 and potentially punitive tax treatment unless a Qualified Electing Fund (QEF) or Mark-to-Market election is made. US citizens must report worldwide capital gains, and while India has its own capital gains tax regime (with different rates for short-term and long-term gains), the US offers the Section 121 exclusion, which excludes up to $250,000 ($500,000 if married filing jointly) of capital gain on the sale of a primary residence. Therefore, a property sale that is tax-exempt in India could still result in a taxable capital gain for US purposes if the gain exceeds these limits or the property does not qualify.
Self-employment and companies in India
If you own an Indian company, such as a Private Limited Company (Pvt Ltd), it could be classified as a Controlled Foreign Corporation (CFC) for US tax purposes. This triggers annual reporting on Form 5471 and may result in current US taxation of certain types of income, such as Global Intangible Low-Taxed Income (GILTI) or Subpart F income, even if the income is not distributed. For sole traders and independent contractors, US self-employment tax (15.3%) applies to net earnings from self-employment, regardless of where the income is earned. Since there is no totalization agreement with India, the Foreign Earned Income Exclusion (FEIE) does not reduce self-employment tax, and you may owe both Indian social security contributions and US self-employment tax.
Worked examples
Software engineer on local payroll in Bengaluru (2025)
Sarah earns an annual salary of INR 4,000,000 (approximately USD 48,000). She contributes to the Employees' Provident Fund (EPF). Since her earned income is below the 2025 FEIE threshold of $130,000, she can exclude her entire salary from US income tax using Form 2555. However, her EPF account must be reported on her FBAR (if the aggregate balance of all foreign accounts exceeds $10,000) and potentially Form 8938. The earnings within her EPF may also be subject to annual US taxation, depending on its classification, even if tax-deferred in India. She will also need to consider the Foreign Tax Credit for any Indian income tax paid on non-excluded income.
Freelance consultant in Mumbai (2025)
David is a freelance consultant earning INR 6,000,000 (approximately USD 72,000) from his services in India. He can exclude his earned income using the Foreign Earned Income Exclusion (FEIE) on Form 2555, reducing his US income tax liability on these earnings to zero. However, the FEIE does not reduce his US self-employment tax obligation. David will owe 15.3% self-employment tax on his net earnings, calculated on Schedule SE (Form 1040). He also needs to report any Indian bank accounts and investment holdings on FBAR and potentially Form 8938. Any Indian mutual funds he holds would likely be PFICs, requiring Form 8621.
Common mistakes for Americans in India
- Failing to report Indian retirement accounts (EPF, PPF, NPS) on FBAR and Form 8938, and potentially Form 3520/3520-A.
- Assuming Indian mutual funds or ETFs are treated like US mutual funds and failing to file Form 8621 (PFIC).
- Believing the FEIE exempts self-employment income from US self-employment tax (it does not).
- Not reporting income from an Indian Private Limited company on Form 5471 if it's a Controlled Foreign Corporation (CFC).
- Assuming that because income is tax-exempt or tax-deferred in India, it is also tax-exempt or tax-deferred for US purposes.
- Not claiming the Foreign Tax Credit for Indian income taxes paid on income not excluded by the FEIE.
India tax FAQ
Do I need to report my Indian bank accounts and investments to the IRS?
Yes. If the aggregate balance of all your foreign financial accounts (including bank accounts, brokerage accounts, and many retirement funds like EPF/PPF/NPS) exceeds $10,000 at any point during the calendar year, you must file an FBAR (FinCEN Form 114). Additionally, if your specified foreign financial assets exceed certain thresholds (e.g., $200,000 for those living abroad), you must also report them on Form 8938, Statement of Specified Foreign Financial Assets.
Are Indian mutual funds considered PFICs?
In most cases, yes. Indian mutual funds and many ETFs are typically classified as Passive Foreign Investment Companies (PFICs) for US tax purposes. This requires annual reporting on Form 8621 and can lead to complex and potentially punitive tax treatment unless specific elections (like QEF or Mark-to-Market) are made.
Does the US-India tax treaty prevent me from paying US tax on my Indian income?
Generally, no, if you are a US citizen or green-card holder. The US-India tax treaty contains a 'saving clause' (Article 1, Paragraph 3) which allows the US to tax its citizens and residents as if the treaty did not exist. While the treaty can reduce Indian withholding on certain US-source income, US citizens and residents must still report their worldwide income to the IRS and may use the Foreign Earned Income Exclusion (Form 2555) or the Foreign Tax Credit (Form 1116) to avoid double taxation.
Do I have to pay US self-employment tax if I'm self-employed in India?
Yes. US citizens and green-card holders are subject to US self-employment tax (15.3%) on their net earnings from self-employment, regardless of where they live. There is no totalization agreement between the US and India, so you cannot use it to avoid double social security contributions. The Foreign Earned Income Exclusion (FEIE) does not reduce self-employment tax.
How are Indian retirement accounts like EPF or PPF treated for US tax purposes?
Indian retirement accounts are generally not treated as qualified retirement plans by the IRS. They are often viewed as foreign grantor trusts or foreign financial accounts. This means that contributions and earnings within these accounts may be subject to annual US taxation, even if they are tax-deferred or tax-exempt in India. They also require reporting on FBAR and potentially Form 8938, and in some cases, Form 3520 and Form 3520-A.
Sources and last reviewed
- IRS, India Tax Treaty Documents (verified 2026-06-07)
- IRS Publication 901, U.S. Tax Treaties (verified 2026-06-07)
- IRS, Foreign Earned Income Exclusion (verified 2026-06-07)
- IRS, Report of Foreign Bank and Financial Accounts (FBAR) (verified 2026-06-07)
- SSA, International Agreements (Totalization Agreements) (verified 2026-06-07)
Last reviewed .
Common services needed by expats in India
Most Americans abroad in India need help with at least one of the following core compliance areas, which frequently interact:
- US expat tax returns, Form 1040 with FEIE, FTC, treaty positions, and any required state returns.
- FBAR reporting, FinCEN Form 114 for foreign financial accounts exceeding $10,000 aggregate at any time during the year.
- Form 8938 (FATCA), IRS disclosure of specified foreign financial assets when thresholds are met.
- Streamlined catch-up filing, For eligible non-willful taxpayers with prior unfiled years.
Related country guides
- US expat tax in South Korea
- US expat tax in Japan
- US expat tax in Hong Kong
- US expat tax in Singapore
- US expat tax in Thailand
- US expat tax in Taiwan