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US tax on Indian money: FBAR, FATCA, Indian mutual funds and tax credits

As a US tax resident, the IRS taxes your Indian interest, rent and gains, and FinCEN wants a list of your Indian accounts. What to report, the Indian mutual fund (PFIC) trap, and how to avoid paying tax twice.

Last verified 2026-10-02 Reviewed October 5, 2026 General guidance, not legal advice. Always check with a qualified attorney

Are you a US tax resident?

Most H-1B and H-4 holders are, from their first year. The IRS uses the substantial presence test: at least 31 days in the US this year, and at least 183 days counting all of this year, a third of last year and a sixth of the year before. Your first year is usually “dual status” (nonresident until you arrived). Students on F-1 are generally exempt from counting days for up to five calendar years, so the test usually starts biting when you move to H-1B.

Once you’re a resident, the US taxes your worldwide income: Indian bank interest (including NRE interest), rent, dividends, and gains when you sell shares, mutual funds or property.

FBAR: the list of your foreign accounts

Every US person (including residents on H-1B and H-4) must file FinCEN Form 114 (FBAR) if the combined highest balances of all foreign accounts went over $10,000 at any time in the calendar year.

Counts: savings, NRE, NRO, FCNR, fixed deposits, demat and brokerage accounts, mutual fund folios, insurance policies with a cash value, and accounts you can sign on (a parent’s account where you’re a joint holder counts, even if none of the money is yours).
Use each account’s highest balance in the year, converted at the Treasury year-end rate.
Due April 15, with an automatic extension to October 15. File online through FinCEN’s BSA E-Filing system, separately from your tax return. It’s free.
Penalties: up to $16,536 for a non-willful violation and much more for willful ones (2025 inflation-adjusted figures). The Supreme Court ruled in 2023 that non-willful penalties apply per year, not per account.

FATCA Form 8938

This is filed with your Form 1040 and has higher thresholds. For people living in the US:

Single or married filing separately: more than $50,000 on the last day of the year, or more than $75,000 at any time.
Married filing jointly: more than $100,000 on the last day, or more than $150,000 at any time.

Form 8938 includes some things FBAR doesn’t (foreign shares you hold directly), and leaves out accounts where you only have signature authority. Property you own directly, like a flat in Pune, is on neither form; the rent and any sale are income.

Not sure which applies? Use the FBAR & FATCA checker.

The Indian mutual fund trap (PFIC)

Indian mutual funds and ETFs are almost always passive foreign investment companies (PFICs) under US tax law. The default PFIC rules spread any gain back over the years you held the fund, tax it at the highest rates and add interest. You also file Form 8621 for each fund, every year, unless your total PFIC holdings are small and nothing was sold or paid out.

Many people sell Indian funds after moving and invest through US-domiciled funds instead. If you already hold them, talk to a CPA who does PFIC returns before you sell: there are elections (mark-to-market, QEF) that change the outcome.

Indian shares held directly are not PFICs. PPF: the IRS hasn’t said directly how to treat it; most practitioners report it on FBAR.

Not paying tax twice

Indian tax deducted on NRO interest, rent or a property sale can usually be claimed as a foreign tax credit on Form 1116. You can skip Form 1116 only for small amounts shown on a statement like a 1099, which Indian tax certificates usually aren’t.
The US–India tax treaty (1989) sets rules for which country taxes what first.
In India, a credit for US tax is claimed with Form 67 (being replaced under the new Income-tax Act).

Keep this file every year

Your highest balance in each Indian account, the year-end balance, Indian tax certificates (Form 16A / TDS certificates), and the bank’s remittance advice for money you moved to the US. Your CPA will ask for all of it.

The good

Indian tax paid can usually be credited against US tax (Form 1116)
FBAR is free to file online and takes about 20 minutes
An automatic extension gives you until October 15 for FBAR

The hard

Missing an FBAR can cost up to $16,536 per year, even by mistake
Indian mutual funds are PFICs: punishing US tax and Form 8621 for each fund
NRE interest is tax-free in India but not in the US

Sources

Rules change often. If something here looks out of date, it probably is; check the official source and talk to an immigration attorney about your own case.