Working in the United States, Keeping Money in India
What Must You Report?
Moving to the United States does not mean leaving your financial life in India behind. You may still have a savings account, fixed deposits, mutual funds, retirement savings, or a home that produces rental income. You may also send money regularly to support your parents or other family members.
Those connections are understandable. But they can add requirements to your U.S. tax filings that are easy to overlook.
Two questions deserve separate attention: Does the income belong on your U.S. tax return? And must you report the account or investment itself? You may have one obligation, both, or neither, depending on your circumstances.
Start With Your U.S. Tax Residency
Your Indian citizenship does not, by itself, determine how the United States taxes you.
An Indian professional working in the U.S. can become a U.S. tax resident through the substantial presence test, even without a green card. This test considers days spent here during the current year and portions of the previous two years, subject to exceptions. Your arrival year and changes in visa status deserve particular attention.
Once you are a U.S. tax resident, you must report worldwide income. That includes interest, dividends, rental income, and other taxable income earned in India. Leaving the proceeds in an Indian account does not remove that requirement.
“Tax-Free In India” Does Not Automatically Mean Tax-Free Here
An account’s treatment under Indian law does not necessarily carry over to your U.S. return.
For example, interest on a qualifying Non-Resident External, or NRE, account can be exempt from Indian income tax. That Indian exemption does not automatically exempt the interest from U.S. tax when the account holder is a U.S. tax resident.
The same principle deserves attention when reviewing fixed deposits and other investments marketed as tax advantaged in India.
You also should not wait for a U.S. Form 1099 before considering whether income is reportable. Your Indian statements and investment records may be the documents needed to prepare your return.
Foreign Accounts May Require An FBAR
The Report of Foreign Bank and Financial Accounts, commonly called the FBAR, is separate from your income tax return.
A U.S. person must file an FBAR when the combined value of reportable foreign financial accounts exceeds $10,000 at any time during the calendar year. The threshold applies across accounts, including accounts in countries other than India.
An account may require reporting even if it earned no income. Certain accounts over which you have signature authority can also count, even when the money belongs to someone else.
The FBAR is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. It is due April 15, with an automatic extension to October 15.
Form 8938 Is Another Reporting Requirement
Some taxpayers must also attach Form 8938, Statement of Specified Foreign Financial Assets, to their federal income tax return.
For taxpayers living in the United States, the thresholds generally are:
- Single or married filing separately: More than $50,000 at year-end or more than $75,000 at any time during the year.
- Married filing jointly: More than $100,000 at year-end or more than $150,000 at any time during the year.
These thresholds apply to the combined value of specified foreign financial assets. Form 8938 can cover assets beyond bank accounts, including certain investments and interests in foreign entities.
Filing an FBAR does not replace Form 8938, and filing Form 8938 does not replace the FBAR. Some taxpayers need both.
Indian Mutual Funds Deserve Special Attention
An Indian mutual fund may be a familiar investment at home while creating a complicated U.S. tax filing.
Many foreign mutual funds fall under the U.S. rules for passive foreign investment companies, or PFICs. Depending on the investment and applicable exceptions, these rules can require Form 8621, potentially for each fund.
The tax treatment can also differ substantially from the treatment of a U.S. mutual fund, including special calculations and interest charges on certain distributions or gains. Review existing holdings and proposed sales before making changes.
Indian retirement and savings arrangements also deserve an individual review. Their U.S. treatment should not be assumed from their treatment in India.
Rental Property Creates A Different Set Of Questions
If you own a home in India and rent it out, the rental income belongs on your U.S. return when you are a U.S. tax resident. U.S. rules determine the allowable expenses and calculation of taxable income.
Real estate owned directly is not itself reported on an FBAR or Form 8938. However, an Indian account receiving the rent may be reportable. Owning the property through a company or another entity can change the reporting requirements.
Paying Indian Tax Does Not Eliminate U.S. Reporting
If India taxes income that is also taxable in the United States, a foreign tax credit may help reduce double taxation.
However, the credit has eligibility rules and limitations. Indian tax withheld does not automatically offset every dollar of U.S. tax, and it does not eliminate foreign-account reporting obligations. Keep records of both the income and the Indian taxes paid or withheld.
Keep Family Transfers Separate From Investment Income
Moving your existing savings between your own accounts generally does not, by itself, create new income. The original source of the money and any related earnings still matter.
Sending money to relatives can raise separate gift-tax questions. Receiving a large gift or inheritance from family abroad can also trigger reporting, even when the receipt is not taxable income. For example, qualifying gifts or bequests from foreign individuals or foreign estates totaling more than $100,000 during the year generally require Form 3520, with aggregation rules for related donors.
Keep records showing whether a transfer was your own money, a gift, a loan, or payment for something.
Give Your Tax Preparer The Full Picture
Before preparing your U.S. return, gather your Indian account statements, investment transactions, rental records, retirement-plan information, and Indian tax documents. Include accounts held jointly and accounts over which you have signature authority.
Tell your preparer about these financial ties even if the accounts are small, the income stayed in India, or you believe the investment is tax-free.
GurelCPA can help you understand how your Indian accounts, investments, and income fit into your U.S. tax filings, so your financial life in both countries receives the attention it needs.
The article is meant for informational purposes only. Please contact me directly to discuss how this applies to your individual tax situation.