The India-US Tax Treaty (DTAA)
The Double Taxation Avoidance Agreement (DTAA) between India and the US exists so you're not taxed twice on the same income. It offers exemptions on certain income types, tax credits for taxes already paid in one country, and caps on how much can be withheld on cross-border income like dividends. To claim these benefits, you'll typically need a Tax Residency Certificate (TRC) from the IRS, submitted to your Indian payer or the CBDT.
Income Tax in USA for Indian on Salary
US tax residents, green card holders or those meeting the Substantial Presence Test are taxed on worldwide income, salary included, just like citizens. Non-residents are taxed only on US-source income.
- In the US: Progressive federal tax rates apply, plus state and local taxes depending on where you live.
- In India: If you've spent under 182 days in India in a financial year, salary earned abroad is generally not taxed there. Indian resident income is taxed at progressive slabs up to 30%.
Under DTAA Article 15, if you work in the US and your income originates from an Indian source, it's typically taxed only in the US, provided you submit a TRC to stop TDS deduction in India.
NRI Investments in India: How Are Returns Taxed?
NRI Investments in India like mutual funds, stocks, fixed deposits, remain popular even after moving abroad, but taxation depends on the asset and holding period:
| Asset |
Short-Term |
Long-Term |
| Equity mutual funds/shares |
20% (held under 1 year) |
12.5% (held over 1 year, ₹1.25 lakh exemption/year) |
| Debt mutual funds |
Taxed at slab rate |
Taxed at slab rate (no indexation for NRIs) |
| NRE account interest |
Tax-free in India |
— |
| NRO account interest |
Taxed at slab rate, TDS applies |
— |
TDS is deducted upfront on most NRI investment income, and since NRIs generally can't claim standard exemption thresholds against it, filing an ITR is how you claim back any excess withheld.
If you're weighing your options, it's worth comparing investment plans for NRIs and best SIP plans before committing. The best NRI investment plans balance growth potential with your US tax filing obligations, since some Indian investment products (like PPF or certain insurance-linked plans) can create extra US reporting complexity under PFIC rules.
NRI Selling Property in India: Tax Implications in the US
This is where most NRIs get caught off guard. Selling property in India triggers tax in India first, and potentially in the US too.
In India:
- Property held over 24 months = Long-term capital gain, taxed at a flat 12.5% with no indexation, for property acquired on or after July 23, 2024. Note for NRIs and residents who have any property acquired before July 23, 2024: a choice between the following options is applicable
- 20% with indexation benefit
- 12.5% without indexation benefit
- Property held under 24 months = short-term capital gain, taxed at your applicable income tax slab.
- The buyer deducts TDS at source under Section 195. 12.5% (plus surcharge and cess) for long-term gains, up to 30% for short-term, usually on the full sale value, not just the gain. A Lower Deduction Certificate (Form 13) can reduce this upfront hit.
- Exemptions under Sections 54, 54F, and 54EC can reduce your taxable gain if you reinvest in another property or specified bonds.
In the US:
The gain must be reported on Schedule D / Form 8949 as part of your worldwide income. You can typically claim a Foreign Tax Credit (Form 1116) for the tax already paid in India, which helps prevent double taxation. Though the credit is capped in proportion to your US tax liability on that foreign income.
Sale proceeds route through your NRO account before repatriation (capped at USD 1 million per financial year), so keeping that account active matters even if you've since consolidated your finances around your NRE account.
Short Term Capital Gains Tax Rate: India vs US
|
India |
US |
| Equity (STCG) |
20% (held under 1 year) |
Added to ordinary income, taxed at your bracket |
| Equity (LTCG) |
12.5% (held over 1 year) |
0%, 15%, or 20% depending on income |
| Property (STCG) |
Slab rate |
Ordinary income rate |
| Property (LTCG) |
12.5% (held over 24 months) |
0%, 15%, or 20% |
The holding-period thresholds differ by asset and country, which is exactly why the same sale can look like a short-term gain in one country and long-term in the other. Plan around the stricter of the two timelines where possible.
NRI Remittance Tax: What to Know
Sending already-taxed money between your Indian and US accounts isn't itself a fresh taxable event, but reporting requirements still apply.
In India: The Indian income of an NRI is taxed at source under Section 195 TDS before it reaches their NRO account. Thus, any transaction to an overseas account up to $1 million is freely repatriated after the bank verifies taxation.
In the USA: Receiving large sums from India generally isn't taxed as income, but if it qualifies as a foreign gift or inheritance above IRS thresholds, it must be disclosed via Form 3520, and any Indian financial accounts you hold need to be reported under FBAR/FATCA rules regardless of whether money moved.
Other Income: Interest, Dividends & Freelance Work
- Interest income from NRO accounts is taxed in India (TDS around 30%) and must also be reported as part of worldwide income in the US, with a foreign tax credit available.
- Dividend income from India is taxed at a flat 20% at source; in the US it's added to your total income and taxed accordingly.
- Freelance/contractual income earned from a US location but sourced from an Indian client is generally taxed only in the US under DTAA Article 15, provided a TRC is on file, otherwise TDS applies in India first, refundable via foreign tax credit.
Tax Filing Requirements in the US
If you are an NRI living in the USA, you are required to file taxes if you fall in the following categories.
- You are engaged in business in the USA.
- You are temporarily residing in the USA on an F, J, M or Q visa as a student, trainee or teacher
- You have a US-based income
You will be required to file Form 1040-NR as a non-resident alien.
For any fixed, determinable, annual or periodic income, you are required to report your income through Schedule NEC of Form 1040-.NR
Conclusion
Tax implications across borders require NRIs to take into account the tax codes of both India and the USA along with their DTAA treaty and the benefits accompanying it. The interaction between the regulations of India and the USA crucially depends on your residency and citizenship status along with your asset holding period. Read thoroughly through the tax implications to ensure that you are able to file your taxes without any hassle and are also able to reap any tax benefits available to you.
FAQs
-
Do NRIs have to pay tax in the US on Indian income?
It depends on US tax residency status. Residents are taxed on worldwide income, including Indian-sourced income, though DTAA credits and exclusions like FEIE can reduce the burden.
-
What's the short-term capital gains tax rate for NRIs?
In India, it's 20% for equity and slab-rate for property (both time-bound by holding period). In the US, short-term gains are simply added to ordinary income and taxed at your applicable bracket.
-
Is there a separate NRI remittance tax?
No standalone tax on the remittance itself, but TCS may apply on the India side above certain thresholds, and the US requires disclosure of large foreign gifts or existing foreign accounts.
-
Can double taxation on property sale be avoided?
Largely yes, through the DTAA foreign tax credit mechanism. The tax paid in India on the sale can usually offset US tax owed on the same gain, subject to IRS limits.
-
Are there NRI investment options that avoid this complexity altogether?
GIFT City-based investment structures are increasingly used by NRIs precisely because they sit in a more US-tax-friendly framework than typical onshore Indian products.
Invest 18k/month & get 2 Crore# Tax-Free*
Manage your funds online60k + happy customers across 25+ countries
Compare & Choose 30+ Plans and 150+ Fund options
