U.S. Expats Living in India - FBAR and Other Tax Obligations Explained!

Sep 19, 2017

This post will discuss some of the most pertinent information impacting Indian expats living in the United States. Before reading this article, you should quickly check out the free FBAR Wiz app to determine your IRS filing obligations with respect to foreign assets and foreign accounts. Additionally, the FBAR Wiz recently discussed some helpful tips for Indians filing the FBAR form in a related blog post. U.S. Expat Taxes in India If you are a citizen or permanent resident of the U.S., then you are obligated to file U.S. taxes with the IRS each year no matter what country you live in. And in addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Form TD 90.22.1, the FBAR Form. While the US taxes the international income of its citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including: (1) the foreign earned income exclusion, which allows you to exclude up to $97,600 in 2013 of foreign earned income from your US taxes; (2) the foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar; and (3) the foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad. With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your U.S. expat taxes. Please note that even if you do not believe you will owe any U.S. income taxes, you will more than likely still be required to file a return. India's Tax Due Date You should be aware that tax dates in India are different than the deadlines for U.S. expat taxes. This means that you will need to pro-rate your income earned and taxes paid for reporting on your US expat taxes. The tax year in India begins April 1st and ends March 31st of the following year. Tax returns must be submitted with the Ministry of Finance by July 31st. Thus, you are required to file taxes for expats in India if your income exceeds INR 180,000 (INR 190,000 for female residents). You will also need to file a return if you wish to exclude taxation paid to the US or other tax authorities. If you are requested by the Income Tax Department of the Ministry of Finance to submit a return, you are required to do so for the year requested. Most importantly, you will be taxed on worldwide income if you are considered Resident and Ordinarily Resident (ROR) in India. Those with other residency statuses are only required to report income sourced in India or earned from activities occurring in India. Determining Residency in India Residence status is determined each fiscal year. For each fiscal year in which an individual is considered a resident, they are required to pay taxes in India. There are three types of residency statuses:

  • Resident and Ordinarily Resident (ROR) – individuals who spend more than 181 days in India in a given fiscal year and have more than 729 days in India over the past seven years.
  • Resident but Not Ordinarily Resident (RNOR) – individuals who spend more than 181 days in India in a given fiscal year but have spent less than 730 days in India over the previous seven years.
  • Non-Resident – individuals who spend 181 days or less in India but have earned income in India. Tax residency in India also depends on the scope of the income tax liability.

U.S.-India Tax Treaty The United States and India have a tax treaty in place which is helpful when determining which country should be paid specific taxes and at what point those taxes should be paid. The US – India tax treaty is an expat’s guide to ensuring that taxes are paid to the right country. If you are unsure of the language in the treaty or have any other questions, be sure to talk to a tax advisor to ensure the correct taxes are paid to the correct country. Remember that the easiest way to begin determining your offshore reporting obligations is to try out the free FBAR Wiz app. The FBAR Wiz will tell you if you have to file the FBAR form, Form 8938, and more information. Try it out today!