US Expat Taxes for Americans Living in India – What You Need to Know
It has been estimated that there are 60,000 Americans living in India.
Many Americans living in India are there on career placements for multinationals. Others are attracted to the exotic and diverse culture, or the landscapes and history. As an American expatriate living in India though, what exactly do you need to know regarding filing US expat (and Indian) taxes?
All US citizens and green card holders who earn more than $12,550 (in 2021, or just $400 of self-employment income or just $5 if you’re married to a foreigner) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income originates.
The good news is if you are paying income tax in India, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earned more than US$12,550 (in 2021, or $400 of self-employment income etc), you are required to file Form 1040. While taxes are still due by April 15, expats get an automatic filing extension until June 15, which can be extended further online until October 15.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Also, an education cess (EC) at 2% and a secondary and higher education cess (SHEC) at 1% are applicable (irrespective of the level of income) on top of income tax.”
If you pay income tax in India, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Indian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in India. These exemptions can be combined if necessary.
The US and Indian governments share taxpayer info, and Indian banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Indian dual citizen, and you have been living in India but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Indian taxes – what you need to know
Indian residents pay income tax on their worldwide income. A resident is defined as someone who spent a minimum of 182 days in India in the tax year, or just 60 days if they’ve spent a total of 365 days in India across the preceding four tax years.
India’s income tax rates rise from 0% to 30%, depending on your income. Health Insurance and Life Insurance Premiums, as well as home loan repayments, are allowable deductions.
The Indian tax year runs from April 1 to March 31. Indian tax returns are due by July 31. The Indian tax authority is called the Income Tax Department. Their website has plenty of information in English.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in India that you contact a US expat tax specialist.