Living in India as a U.S. expat can be an exciting and enriching experience, but your tax obligations don’t disappear when you leave the United States. The U.S. is one of the few countries that taxes its citizens and residents on their worldwide income—no matter where they live. If you’re a U.S. citizen or green card holder residing in India, it’s important to understand your responsibilities to the IRS and stay compliant to avoid costly penalties.
Here are essential U.S. tax tips for expats living in India:
- File a U.S. Tax Return Every Year
As a U.S. citizen or resident alien, you’re required to file an annual U.S. federal tax return (Form 1040) if your income exceeds the minimum filing threshold, even if all your income is earned in India. This includes wages, freelance income, rental income, and even investment income.
Even if you owe nothing (due to credits or exclusions), filing is mandatory.
- Use the Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (Form 2555) allows you to exclude up to $126,500 (for tax year 2024) of foreign earned income if you meet either:
- The Physical Presence Test: 330 full days in a foreign country in a 12-month period, or
- The Bona Fide Residence Test: You’re a resident of India for an entire tax year.
This is a major tax-saving tool for expats.
- Claim the Foreign Tax Credit
If you’re paying taxes in India, you may qualify for the Foreign Tax Credit (Form 1116). This allows you to offset your U.S. tax liability with taxes paid to the Indian government. It’s particularly useful if you earn above the FEIE threshold or have unearned income that doesn’t qualify for the exclusion.
- File FBAR if You Have Indian Bank Accounts
If the total value of your foreign financial accounts (bank, investment, or pension accounts in India) exceeds $10,000 at any point during the year, you must file an FBAR (FinCEN Form 114). This is filed separately from your tax return and carries hefty penalties if missed.
In some cases, you may also need to file FATCA Form 8938 with your return.
- Watch the Deadlines
U.S. expats receive an automatic two-month extension to file their tax returns, moving the deadline from April 15 to June 15. However, any taxes owed are still due by April 15 to avoid interest.
You can also request an extension to October 15 using Form 4868, but it doesn’t extend your payment due date.
- Self-Employment and Social Security Taxes Still Apply
If you’re self-employed in India, you may still need to pay U.S. self-employment taxes, unless there’s a Totalization Agreement in place between the U.S. and India. Unfortunately, the U.S. and India do not currently have such an agreement, which means you could owe Social Security and Medicare taxes to the U.S. even while paying Indian taxes.
- Stay Organized and Document Everything
Keep good records of:
- Indian tax returns
- Income statements
- Proof of residency or physical presence
- Bank account balances
- Dates of travel
These are critical in case of an audit or to qualify for exclusions.
Conclusion
Avoiding IRS penalties starts with knowing your obligations and staying on top of your filing requirements. U.S. expats living in India must navigate a unique tax landscape, but with proper planning and timely filing, you can minimize or even eliminate your U.S. tax bill.
If you need help navigating your U.S. taxes from India, consult a tax professional who specializes in expat taxes. It’s a small investment that can save you from major penalties down the line.
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