NRI US Tax Guide 2026 — Complete Guide for Non-Resident Indians

Non-Resident Indians (NRIs) living and working in the United States face some of the most complex tax situations in the world — obligations to both the US and India, foreign account reporting, treaty elections, and decisions about NRE/NRO accounts. This comprehensive guide covers everything an NRI needs to know about US taxes in 2026.

Am I an NRI for US Tax Purposes?

The term “NRI” in US tax law corresponds to nonresident alien — but the definition is more nuanced than in Indian law. Your US tax status depends on whether you pass the Substantial Presence Test (SPT):

• Nonresident alien (NRA): Did not pass SPT — typically newly arrived (under ~183 weighted days), or on F1/J1 visa (exempt from SPT for limited years)
• Resident alien: Passed SPT or holds a Green Card — taxed like a US citizen on worldwide income

Most NRIs who have lived in the US for a full calendar year on H1B are actually resident aliens for US tax purposes — meaning they file Form 1040, not 1040-NR. This guide covers both situations.

US Tax Obligations for NRIs — Quick Overview

Indian Income You Must Report in the US

If you are a resident alien (H1B, Green Card), you must report all income from India on your US return:

Rental Income from Indian Property

• Report gross rent received, minus allowable expenses (property tax, maintenance, depreciation)
• Must convert to USD using the average exchange rate for the year
• If you also pay Indian tax on this rental income, claim Form 1116 (Foreign Tax Credit)
• Indian TDS withheld on rental income counts toward the Foreign Tax Credit

Interest from NRE and NRO Accounts

• NRE account interest: Exempt from Indian tax but taxable in the US as a resident alien. This surprises many NRIs.
• NRO account interest: Taxable in India (TDS withheld) AND in the US. Claim Foreign Tax Credit for Indian TDS.
• Report all interest on Schedule B of Form 1040

Capital Gains from Indian Investments

• Indian mutual funds: Gains are taxable in the US. Classification as short-term or long-term follows US rules (1 year holding period), not Indian rules.
• Indian stocks: Similar treatment — report on Schedule D using US capital gains rates
• Sale of Indian property: Capital gains taxable in both India and the US. DTAA Article 13 generally gives India the primary right to tax, with Foreign Tax Credit available in the US.

India Salary (If You Worked in India)

• If you worked in India for part of the year, that salary may be taxable in the US (resident aliens report worldwide income)
• Claim Foreign Tax Credit for Indian tax paid on India salary

US-India DTAA — How It Saves You Money

The US-India Double Taxation Avoidance Agreement prevents the same income from being taxed twice. Key provisions for NRIs:

FBAR and FATCA for NRIs

Most NRIs with Indian accounts will have FBAR and potentially FATCA requirements:

• FBAR (FinCEN 114): Required if combined foreign accounts exceed $10,000 at any point in the year. Covers NRE/NRO savings, fixed deposits, demat accounts, brokerage accounts.
• Form 8938 (FATCA): Required if foreign financial assets exceed $50,000 at year-end (single filer). Broader than FBAR — includes mutual funds and some insurance policies.
• Penalties for missing FBAR: up to $10,000 per account per year (non-willful)

NRI Tax Checklist — What to Gather

• W-2 from US employer(s)
• Indian bank statements (NRE/NRO) — need highest balance of the year
• Indian fixed deposit certificates with interest earned
• Indian rental income — rent receipts, property tax paid
• Form 26AS from India (TDS certificate showing Indian taxes withheld)
• Annual Information Statement (AIS) from Indian IT portal
• Indian mutual fund statements (for capital gains)
• RSU/ESPP statements from your US employer’s equity platform
• Sale documents for any Indian property sold in the year
• Previous year US tax return

Common NRI Tax Mistakes

• Not reporting NRE account interest — NRE interest is exempt from Indian tax but not US tax for resident aliens
• Missing FBAR — even small accounts must be reported if the aggregate exceeds $10,000
• Wrong exchange rate — must use IRS/Treasury rates, not Google rates or RBI rates
• Not claiming DTAA benefits — leaving money on the table by not claiming the Foreign Tax Credit
• Not reporting Indian mutual fund gains — especially LTCG which is taxed differently in India
• Filing Form 1040-NR when they should file 1040 — common for H1B holders who don’t know about the Substantial Presence Test