USA

Non-Resident Indians (NRIs) living in the USA who invest in India need to be aware of the tax implications in both countries. The US follows a global income taxation system, which means that US-based NRIs must declare their Indian income while also complying with India’s tax laws. The Double Taxation Avoidance Agreement (DTAA) between India and the USA helps mitigate the risk of double taxation.

Key Taxation Rules for NRIs in the USA

NRIs in the USA are required to report their worldwide income, including earnings from India, on their US tax returns. Below are some important taxation aspects:

India-sourced Income Taxation

Income earned in India is taxed as per Indian tax laws
The same income must be reported in the USA
DTAA provisions help claim tax credits

Filing Requirements in the USA

Form 1040 with the IRS, including income from Indian sources
FBAR is mandatory for accounts exceeding $10,000
Form 8938 (FATCA) for foreign assets above thresholds

US Tax Slabs (2024-25)

10% on income up to $11,000
12% on $11,001 - $44,725
22% on $44,726 - $95,375
24% on $95,376 - $182,100
Higher brackets up to 37%

DTAA Between India and the USA

To prevent double taxation, NRIs can claim tax credits in the USA under DTAA. Methods include:

Tax Credit Method

Taxes paid in India can be claimed as a credit in the USA.

Exemption Method

Some incomes may be exempt from US taxation.

Investment-Specific Taxation

Mutual Funds

Equity Mutual Funds: LTCG (>1 year) taxed at 10% in India.
Debt Mutual Funds: LTCG (>3 years) taxed at 20% in India.
US Taxation: All capital gains taxable regardless of holding period.

Fixed Deposits

NRE FDs: Tax-free in India but taxable in the USA.
NRO FDs: Taxable in both countries, eligible for DTAA credit.

Real Estate

Sale of Property: 20% LTCG tax in India.
Rental Income: 30% TDS deducted in India, taxable in the USA as well.

Common Tax Compliance Mistakes by NRIs in the USA

Not Reporting Foreign Income – Failing to report Indian income in US tax filings can lead to penalties.
Ignoring FBAR and FATCA Compliance – Non-disclosure can result in hefty fines.
Not Using DTAA Benefits – Claiming tax credits reduces tax liability.

Conclusion

Taxation for NRIs in the USA investing in India is complex due to global income reporting. Understanding DTAA benefits, tax slabs, and compliance requirements is essential. Seeking advice from tax experts ensures compliance and minimizes liabilities.

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