US Individual ITR Filing

If you earn in the US and report income in India, you file two tax returns: Form 1040 (US) and ITR (India). Each has its own deadline, threshold, and penalty trap. Missing one filing or mishandling the treaty relief costs thousands in double tax and penalties. This guide walks you through the complete process—from residency determination to final filing—with no jargon.

Your return must reconcile US income (W-2, 1099s, equity awards) with Indian-source income (rent, AIS, dividends). Form 8938 (FATCA), FBAR (with FinCEN), Form 1116 (foreign tax credit), and Form 67 (treaty relief) all live on the same dual filing. We handle the coordination so you don't file twice by accident or leave double tax on the table.

At a Glance

• Who Needs It: US tax resident earning India-source income; H-1B visa holder in Year 3+; green-card holder residing in India; US citizen abroad with foreign accounts ≥ $10,000; any US person with Indian mutual fund, real property, or company ownership.
• Governing Law & Treaty: IRC Sections 61, 911 (~$120K exclusion), 1116 (FTC, carryback 1 yr / carryforward 10 yrs), 951A (GILTI), 6038D (Form 8938); India Sections 5, 6, 90; DTAA Articles 4 (tie-breaker), 6 (real property), 10 (dividends), 15 (employment); FinCEN FBAR 31 CFR 1010.210.
• Timeline & Cost: 10–20 working days (parallel filings). US: 15 April (or 15 June abroad). India: 31 July (or 31 Oct late). Starting price: ₹9,999; additional charges for PFIC, CFC, or amended returns.
• Thresholds & Triggers: FBAR if foreign accounts ≥ $10K max. Form 8938 if assets ≥ $600K (single, US resident) or ≥ $900K (married). Form 5471 if ≥ 10% CFC ownership. Form 8621 if any non-US mutual fund held.
• Mandatory Forms on 1040: Schedule 1, Schedule 2, Schedule B, Form 1116 (if foreign income), Form 8938 (if asset threshold met), Form 8833 (if treaty relief claimed), Form 5471 (if CFC), Form 8621 (if PFIC).
• India ITR Scope: Filed under Section 5 (resident) or Section 6 (non-resident with India income). Form 67 (treaty relief) attached. Dual filing mandatory. Both returns reconciled for single tax treatment.

What's New for FY 2026-27

Four key changes affect 2026–27 filers.

• IRS Form 1040 Redesign (Tax Year 2025): Schedule 1 and 2 revised; mandatory e-filing only; treaty tie-breaker claims now on Form 8833 (not 1040-NR).
• India AIS & Form 67 Live Validation: AIS reconciliation real-time on ITR upload; Form 67 foreign tax credit claims audit-checked automatically against Indian tax paid.
• FBAR & FATCA FinCEN Integration: FinCEN e-file portal shares login and timeline with IRS; late-file penalty relief if pre-notified by 31 Dec.
• PFIC Mark-to-Market Grandfathered: Form 8621 explicitly tests inclusion income; pre-2018 mark-to-market elections grandfathered; no new QEF elections allowed.

Why You Need This

• H-1B Workers (Year 3+ Tax Residency): After two full US calendar years, you meet Substantial Presence Test and file Form 1040 worldwide income. You file FBAR if foreign accounts ≥ $10K. India taxes you under Section 6 (non-resident with India income). DTAA Article 4 tie-breaker resolves which country taxes first. Without dual filing and Form 67 / Form 1116 treaty relief, you pay tax on the same rupee twice.
• Green-Card Holders in India: Green card = permanent US tax residency (no exemption for living abroad). You file Form 1040 yearly, worldwide income. FBAR on all foreign accounts (including rupee accounts). Non-filing: $5K+ penalties yearly. Claim Section 911 exclusion (~$120K) if self-employed; otherwise Form 1116 FTC.
• US Citizens Holding Indian Mutual Funds (PFIC Trap): Indian mutual funds = PFICs. Default regime triggers 20–30% phantom income inclusion without realized gain. Holding ₹50L of equity can trigger ₹5–10L phantom income annually on Form 8621. Mark-to-market election must be filed by year 1 deadline. If missed, locked into punitive regime for life. Better: hold US-domiciled India ETFs (INDA, INDY) to avoid PFIC.
• CFC Shareholders (10%+ Ownership): Owning ≥ 10% of Indian private company = CFC. Company's 'tested income' flows to US Form 1040 as GILTI (Section 951A), even if not distributed. File Form 5471 (Schedules J, M, P, R) yearly. High-tax exemption: if CFC's income taxed ≥ 18.9% in India (typical), you can exclude GILTI. Without exemption, double-tax on same rupee.
• NRI with Foreign Accounts: As NRI, you hold NRO/NRE/FCNR accounts. Interest, dividends, capital gains taxed by both India and US. Form 67 (ITR, DTAA Article 10 / Article 6) claims relief; Form 1116 (1040) claims FTC. FBAR must capture all foreign accounts, including rupee accounts. Without both filings, double-tax on same rupee. FBAR penalty non-filing: $10K per violation.

How It Actually Works

The process has six steps, each feeding into the next.

Step 1: Residency Determination

We apply the Substantial Presence Test (days in US, 3-year weighted). If you're dual-status (part NR, part US resident in year), we file Form 1040-NR for NR portion or a single consolidated 1040. India's Section 6 test (60 days + core income, or 90 days + 30 prior year) is checked. DTAA Article 4 tie-breaker resolves ambiguity. Final scope (1040 vs. 1040-NR vs. 1040 + ITR) is locked in before income mapping.

Step 2: Income & Asset Inventory

We collect: W-2, 1099-DIV/INT/B/MISC/NEC, K-1 (partnerships / S-corps), equity-award statements. From India: Form 16, AIS statement, 26AS transcript, brokerage P&L. We flag PFIC holdings (all non-US mutual funds unless QEF/mark-to-market elected), CFC ownership (any 10%+ stake), and foreign accounts ≥ $10K (FBAR trigger).

Step 3: FBAR & Form 8938

We list all foreign accounts: opening date, max balance in year, year-end balance. If max ≥ $10,000, FBAR (FinCEN Form 114) is filed by 15 April / 15 October. Form 8938 (FATCA) is filed if assets ≥ $600K (single, US resident). Non-filing penalty: $10,000 for FBAR; $10,000 + 40% of undisclosed income for Form 8938.

Step 4: Treaty & FTC Strategy

DTAA Article 4 tie-breaker is analyzed: permanent home, centre of vital interests, habitual abode. Form 1116 (foreign tax credit) is prepared by FTC category (passive, general, Section 901(j)); carryback (1 yr) and carryforward (10 yrs) modeled. Section 911 foreign earned-income exclusion (~$120K) is evaluated. Form 8833 (treaty position disclosure) is filed if treaty benefits apply.

Step 5: US Form 1040 E-filed

Return is drafted with all schedules: Schedule 1, 2, B, C (if self-employed), D (capital gains), Form 8949 (brokerage reconciliation). Form 1116, 8938, 8833, 5471, 8621 attached as applicable. Peer-reviewed by US EA/CPA, then e-filed with IRS. Acknowledgement within 24–48 hrs.

Step 6: India ITR & Closure

ITR is filed under Section 5 (resident) or Section 6 (non-resident with India-source income). Form 67 (treaty relief) is attached. Both returns are filed before respective deadlines (US 15 April / 15 June, India 31 July / 31 Oct). Closure ZIP includes: filed returns (PDFs), both e-file acknowledgements, FBAR receipt from FinCEN, Form 67 certified copy, reconciliation memo.

A Real Example: Ravi on H-1B in California

Ravi completed two full US calendar years in 2025, becoming a tax resident. He earned $150K (W-2), got ₹15L in RSU vesting, owns a ₹30L Indian mutual-fund portfolio, and holds an NRO account with max balance $25K. He also receives ₹3L annual rental income from Indian property.

• US Taxable Income: $150K (W-2) + $18K (RSU FMV at vesting) + $3K (mutual-fund mark-to-market gain on Form 8621) = $171K before deductions.
• US Tax (Rough): After standard deduction (~$14.6K), taxable income ≈ $156.4K. Federal tax ≈ $29K. FICA ≈ $11.5K. CA state ≈ $7K. Total ≈ $47.5K (before Form 1116 credit).
• India Income: Rental ₹2.5L (net after 30% deduction) + RSU ₹15L + NRO interest ₹1.65L = ₹19.15L ≈ $23K.
• India Tax: Approx 20% slab on ₹19.15L = ₹3.83L ≈ $4,600. Form 67 claims double-tax relief on rental + NRO interest, reducing India tax.
• US FTC: India tax on India-source (rental + NRO) ≈ $4,600. US tax on same income ≈ $1,050. Form 1116 allows $1,050 credit (lesser of). Excess $3,550 carries forward 10 yrs.
• Total Tax Burden: $47.5K (US) – $1,050 (FTC) + $4,600 (India) = $51.05K annually.

Ravi's complexity: PFIC (Form 8621), RSU reconciliation across borders, FTC carryforward, and dual-filing coordination. Missing either return invites penalties ($10K+ for FBAR, 50–200% for missed India ITR).

Annual Compliance & What Comes After

• Recordkeeping (3–6 Years): Foreign account statements, FATCA asset statements, Form 67 filing proof. IRS audits FBAR/Form 8938 independently from income-tax audit.
• India Scrutiny Notice (Section 245D): If India tax office issues Form 143(2) scrutiny, respond in 30 days with bank statements, Form 67 proof, and treaty citations. Treaty benefit statute-of-limitations: 6 years if claimed.
• US Audit Triggers: Large Form 1116 credits draw IRS scrutiny (verify Indian tax paid with Form 16, ITR ack, tax challan). Form 8938 understatement ≥ $5K triggers accuracy penalties. Form 5471 (CFC) is cross-checked with CFC annual information. Form 8833 (treaty position) is auto-flagged.
• Status Changes: Visa expiry / green-card surrender / marriage: each cascades into amended returns or exit-tax filings (Form 8854, Form 1040-X joint filing). PFIC election must be renewed annually.

Where It Goes Wrong

• Missed FBAR Deadline ($10K Penalty): FBAR (FinCEN Form 114) is filed separately by 15 April / 15 Oct, not attached to 1040. If foreign accounts ≥ $10K aggregate max, FBAR is due even if you owe zero tax. Non-filing costs $10,000 per violation per year, and IRS can audit back 6 years.
• Ignoring PFIC Mark-to-Market (Phantom Income): Indian mutual funds are PFICs. Default regime triggers 20–30% phantom income inclusion without realized gain. Mark-to-market election must be filed by year 1 deadline (including extensions). If missed, locked into harsh regime for life. Better: hold US-domiciled India ETFs or direct Indian equity.
• Forgetting Form 67 (Losing Treaty Relief): US taxes are claimed via Form 1116; India taxes are claimed via Form 67. If you file 1040 + Form 1116 but forget Form 67 on India ITR, India tax office assesses full tax + 50% penalty before recognizing relief. Form 67 must be attached to ITR.
• RSU Reconciliation Mismatch: US taxes RSU at vesting (Section 83(b) / Section 409A); India taxes at vesting (Section 94(7C)). If you don't reconcile vesting date and FMV in USD → INR, both returns show different income values, triggering audit mismatch. Use IRS Treasury spot rate on vesting date.
• Double-Dipping Section 911 & Form 1116: You cannot claim both Foreign Earned-Income Exclusion (Section 911, ~$120K) and Foreign Tax Credit (Form 1116) on the same income. If you do, return is flagged as inconsistent. Model both and pick the lower-tax option.

What You Receive at the End

• Filed US Form 1040 (or 1040-NR) with all schedules, e-filed with IRS
• Form 1116 (Foreign Tax Credit) with detailed source and limitation calculation
• Form 8938 (FATCA) listing all foreign assets ≥ threshold
• FinCEN FBAR (Form 114) with e-file acknowledgement
• India ITR (completed, signed, ready for e-file) with Form 67 attached
• Form 8621 (PFIC) for each mutual fund holding, if applicable
• Form 5471 (CFC) with Schedules J, M, P, R, if you own CFC
• Reconciliation memo (treaty articles, dual-filing logic, carryforward FTC schedule)
• Closure ZIP (all e-file acks, filed returns, Form 67 certified copy, compliance calendar)

How to Get Started

Gather three document buckets: US income (W-2, 1099s, equity-award statements), Indian income (Form 16, AIS, 26AS, brokerage P&L), and foreign accounts (12 months of statements). Email documents with your SSN / ITIN, PAN, passport, and visa / green-card copy. Tell us your US tenure, visa status, and any Indian company ownership (CFC flag). We'll send a questionnaire on PFIC holdings, treaty residency, Section 911 eligibility, and prior-year filings (carryforward FTC risk, amended-return needs).

Once documents and questionnaire are received, we email a timeline confirming when each step (residency, FBAR, Form 8938, India ITR, US 1040) will be delivered. Each draft is marked 'Review Requested' with a deadline for your sign-off. We don't e-file either return until you approve both in writing. Closure documents are delivered within 5 days of both filings being accepted.