How to file US Tax on NRE Interest 1099-INT

By Anil Gupta,  21 Jan, 18       20  Finance

File NRE account interest in USA tax return. Exchange rate for USD conversion by IRS. 1099-INT is not given by Indian bank. NRE NRO FD interest is taxable.


First quarter of the year is tax return filing season in USA and many questions hover in mind, when you hold a NRI or NRO or both accounts in an Indian bank.

Normally, you would hear the advice from friends that you do not need to file Indian NRE/NRO account interest tax in USA. Please don’t listen to them as this is completely wrong.

You are supposed to add all your income from India, to your US income and pay taxes, if you are a Green Card holder, PIO, OCI or legal resident (working on H1B, L1B, H4 EAD or any other work visa).

NRE FD, NRO FD interest is also taxable.

The income includes the dividend too, if you have invested in mutual funds or SIP (systematic investment plan) in India.

Calculate dollar amount for US Tax on NRE Interest or NRO account

The question has a simple answer if you know the exchange rate to convert your total Indian interest earned.

Well, IRS publishes the exchange rate for all foreign countries on their website and is called year end treasury rates. Use this rate to convert Indian (or for that matter, any other country) to reach a USD amount.

For year 2015, the rates are available here.

USD exchange rate for NRI account interest tax for 2015

USD exchange rate for NRI account interest tax for 2015

Example,

If you earned total of 10,000 INR as interest (add the sub-totals of all your foreign bank account’s interest), then your interest income in USD would be


10,000 / 66.1 = $ 151.285

In case of NRE account, the interest income is non-taxable in India. Hence, no tax was withheld/paid in India.
On the other hand, NRO account interest is taxable at straight 30% (plus applicable surcharges and cess).

US tax on NRE FD interest
US tax on NRE FD interest

I would advise you to file the US income tax form 1040 with online services like TurboTax, TaxAct or H&R block. I have been using TurboTax for last 2 years and it’s interface is pretty user friendly. I am sure other services are equally good.

Irrespective of the service you use, you should fill up Schedule B to disclose your foreign income. Online services would make this task a lot easier as they would fill up most of the fields for you.

Enter zero on the fields that ask for tax already deducted.
If you also have (NRE) of account, you would enter zero. If it is NRO, find the total amount of Tax (Called TDS) deducted by bank (by looking at bank statements). Bank would also send you Form 16. (ICICI normally sends it by postal mail or email – if you have registered).

On the other hand, If you really paid any income tax, in your foreign (the tax might have been applied, if you are not from India) country, you should enter the information in appropriate section.

Frequently Asked Questions FAQ


Do Indian banks issue form 1099-INT for interest income?

No, they do not. You are responsible for disclosing the foreign interest income on the income tax return.

Even US based banks do not issue 1099-INT even the total interest for the year in less than $10.

How to find total interest earned in Indian Bank for the year?

This is pretty simple. Almost all the banks in India pay out interest quarterly (every 3 months).

So, you just need to pull out your each bank (e.g ICICI, SBI, HDFC, Kotak etc.) statement ending in March, June, September and December. Find the interest pay-out and add to grand total.

Count March (of preceding year) interest as well. Remember, financial year in USA is counted from 1 Jan to 31 Dec whereas in India, it is 1 April to 31 March.

For example,

For tax year 2015, count March 2015’s foreign bank account interest.

Do we have to pay tax on NRO account Interest in USA?

Yes, you have to.

NRO account interest income in taxed in India at the rate of 30% (plus applicable surcharges and cess). You have to add it as part of your income while filing for US taxes. Use the above method of INR to USD conversion for getting a dollar value.

NRE account tax implications?

There are no major tax implications apart from:

  1. Reporting the account details using FBAR form and
  2. Adding interest income to your US income tax return.
  • cyclops

    The rupee has depreciated over the years against the dollar. So a 10% interest income is not really 10% when accounting for the depreciation. Is there a way to adjust for the depreciation when paying US tax on this interest income?

  • Hi cyclops,
    I don’t really understand what you mean by real depreciation here.
    If you mean that you lost money while converting the USD to Rupee as an investment, then I am afraid that there is no such depreciation available for currency. I have never heard of any such concept either.
    That’s a risk that you as an individual take while investing in currency hedge.

    In-fact, it is a very good question and I will try to find some more information about it.

  • cyclops

    What I mean is, let’s say:
    1. USD 1000 was worth Rs 50000 10 years age at Rs 50 = 1 USD
    2. Now with Rs 67 = 1 USD, the value of Rs 50000 is USD 746.
    3. Even if I was getting 10% interest per year, my Rs 50000 is now Rs 100000 but that is USD 1492 and not USD 2000.

    However I will have to pay tax on the 10% interest income every year which will come out to ~ USD 1000. If 30% tax then I got USD 492 but paid USD 300 in tax.

  • sagarun

    NRO account interest is taxable in india at 30%.

    The following statement in your article is wrong


    NRO account interest income in NOT taxed in India. You have to add it
    as part of your income while filing for US taxes. Use the above method
    of INR to USD conversion for getting a dollar value.

  • Thanks Sagarun for pointing out the mistake. We have updated the article.

  • sagarun

    I do not see any update. The FAQ entry “Do we have to pay tax on NRO account Interest?” still reads the same

  • Yes, that’s because of caching on the server. It will be re-cached with updated version within a day on all servers.
    If you do ctrl+F5 on your browser, you would probably see an updated version right away.

  • Indian Tiranga

    Citibank issues 1099-INT for your interest income on NRE account. They convert it into USD and reports on 1099-INT. However they somehow shows their address as that of New York

  • Yes, I have heard about banks who have their presence in USA, issuing 1099-INT.
    But, Indian banks like ICICI do not do it.

    Thanks for sharing the information.

  • AA

    For NRIs, some FD’s in India are not taxable. The interest is only paid at the time of maturity. Do we have to US Income tax on interest of matured (non taxable) FDs or also on notional interest. Notional interest means that this is the interest which we will get for the current FY, when it matures. Notional interest is not paid out to the FD owner in the FY.

  • 1. If you are in US, you have to follow the US tax rules. Even if some income is NOT taxable as per Indian rules but is taxable as per US rules, you have to count it as taxable in your US income tax return.
    2. You can just count the actual interest that is paid to you by Indian bank during the US financial year. The Indian bank will also provide you with form 16 (income tax paid in India) statement.
    You should include the Interest that has been actually paid out on maturity in the same financial year that it was paid out (depends on what US financial year it occurred).

  • Anurag Indu

    HI Anil, I have a few FDs with an Indian bank. I recently moved to US. Do I pay the interest accrued in the year or on the total amount on maturity of the FD.
    For instance the interest statement provided by my bank shows the interest for the financial year. Do I show that interest in my 1040 or the final amount when it actually matures a few years later.

  • You should show it as accrued if your Indian bank has shown it on its statement. That’s a safer way to handle it.

  • Vishnu Muralidharan

    Hi Mr. Gupta. Thanks for the post. I perceive a gap in my understanding. Here is my situation:
    1) i want to open, say a recurring deposit, with money deposited in Indian rupees. what type of account will it be?
    2) Let’s say the recurring deposit pays an interest of 7% and upon maturity it comes to 5,00,000 INR. I will have to determine interest earned right?
    Will i have to pay tax only on maturity?
    3) Is the tax bracket same as tax brackets for long term investment income such as dividends e.g.15%,25% etc?
    4) I did not quite understand the forms needed to report this interest as income in the US. Kindly help.

    Thanks,
    Vishnu

  • 1. It depends on your choice. You can either open NRO account or NRE account. NRE is better if you want to bring money back to US easily in future.

    2. It depends on how Indian bank is paying you interest. Normally, it is compounded quarterly or semi-annually. The Indian bank will give you interest certificate each year if they have paid out any interest.
    You have to show that as interest earned the same year in US tax return.

    3. No. There is no separate tax bracket for fixed deposit interest income. You have to add interest earned to your US income and calculate tax.

    4. What is your exact question regarding the form? We have mentioned everything above.

    Let us know if you need more information.

  • mono

    Hello,
    I have an NRO account in India..say 100 rupees NRO FD..
    10 rupees was generated interest. 3 rupees was cut in tax ( 30% )..7 rupees was credited as interest to me after 3 rupees tax cut..
    do i need to add 7 rupees or 10 rupees in my filing of US income tax return…i mean in USD .[ .ie (7/63) or ( 10/63) USDollars if say 1 dollar = 63 INR ] as interest income .

    Do we need to report in FBAR NRO money which was there before becoming an NRI ( before conversion of savings account to NRO )
    say my saving account had 100 rupees when i use to live in india ..i become an NRI ..0 rupees ( no money ) transferred to NRO..from US…do i need to report this NRO account in FBAR..

    Some saving account of mine have not been converted to NRO ..but receiving interest in FD’S done on this saving account….do we need to report these saving’s account in FBAR..and these fd’s ( not NRO FD as not converted ) interest in US income tax return.
    Obviously these saving’s account have not been converted to NRO because of KAAMCHORI of indian bank worker’s ..what can a saving’s account holder do?

    If i transfer 14000 dollars to my parent saving account..is there no need to report about this money in FBAR..( or do i need to take care about the interest earned on this (14000 dollars * 63 rupees ) if fd done on this money by my parent)..and report in US tax return..

  • 1. US tax return show Rs 10 as income. Tax credit (paid to Indian government) = 3. Please read the article. It is mentioned there. There is a field on US tax return which asks you for ‘taxes that you have already paid’ on this interest income.

    2. FBAR reporting is mandatory if you had $10k at anytime in your bank accounts anytime during the year.

    3. Yes, you have to report ALL income. Does not matter if the account has been converted to NRO or not. Converting savings bank account to NRO is an Indian Law.
    US government does not ask you to convert them. They don’t care if you convert them to NRO or not.
    US law says that you should report all your GLOBAL income in whatever form you earn it and whichever account it comes in.

    4. The interest earned by your parents is counted as your parent’s income. You do not need to disclose it on your US tax return. They will have to pay income tax on it based on where they live.
    If you are giving them $14000 as gift or whatever, FBAR does not come into picture. FBAR is for reporting your holding in banks that are equivalent to $10k outside USA.

  • mono

    Thanks for the info

  • jayanti

    Can you tell me whether PPF income needs to be included in the US tax returns;
    Will tax be deducted in the US tax returns for this inclusion;
    Recently an Indian Law has been passed which states NRI’S PPF will be deemed closed.Does this have any impact on US tax returns of an individual having PPF ,but which is deemed closed now..and earning 4% savings account interest.;Is there a way to say these should be tax exempted in US tax return or these are not tax exempted in US tax return at all.If i declare my PPF interest income;there is a box tax-exempt interest.
    In FBAR should i declare PPF income also when indian law has passed NRI PPF account is deemed closed.

    I know DATT with TRC for NRO FD’S is required for bring tax from 30% to 15% in India; Can i not claim this tax while filing income tax returns in India with total income in India less than 2.5 lakhs and so avoid DATT and TAX RESIDENCY CERTIFICATEs.From the amount of money claimed perspective; are these 2 ways different.Does this 2 way have any impact on US tax return,as i have already included the taxes paid in US Tax return.

    I have written Taxes paid for NRO FD in US tax return. so my tax return is now showing i have to pay less tax by this tax amount.Will i get this tax amount back again which was deducted in India while tax filing in India if showing income less that 2.5 lakhs.In USA my additional interest income falls in the 15% category. so for any saving’s account FD done 15% on the income is deducted,but the saving’s bank FD tax is deducted at 10%, so i am paying 5% on the saving’s account FD income more to the US tax return.Is this okk;What if this was a NRO FD;will i have received 30% less tax to pay.and also 30% tax refunded in india while filing incoem tax returns in india with total income less than 2.5 lakhs;so changing the status from Saving bank FD to NRO FD is causing i think less tax to be given in US return;is this okk by following the rules perspective;

    While declaring the saving’s account FD income or NRO FD income, there is a box to tick or not => FATCA FILING REQUIREMENT ;do i need to tick this box ;my savings account as can be perceived is not having the NRI status tagged ;and i think this FATCA is related to NRI accounts only;but I think all incomes whether NRO/SAVINGS/NRE have to declared in FBAR ,or is FATCA related to all account of NRI whether savings or NRO.

    Thanks
    Jayanti

  • You have confused me with so many questions and answers in one shot!

    1. What is know is that any savings interest earned in India is counted as income in INDIA as well as USA, both.
    2. If you have already paid any taxes on interest income in India, you can claim those in US tax return.
    3. You have to add the total interest earned in US tax return and also show what taxes have already been deducted or paid in India on your US tax return. The US tax due will be reduced by tax you have already paid in India.

    Did this answer your question?