How to file US Tax on NRE, NRO Interest (without 1099-INT)

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.

Written by Anil Gupta
  Anil Gupta    Updated  11 Jan, 21


If you are living in the USA for more than 6 months today, you should add your Indian income like NRE/NRO account interest, PPF interest, rental income, share dividends, mutual fund dividends, or sale profit to your US income tax return.

As per the IRS and US taxation system, your worldwide income is taxable in the US as long as you are a tax resident.

  • You can find your Tax residency by going through the IRS substantial presence test. In simple terms, if you have stayed in the USA for about 183 days, you should add your Indian income to your US 1040 tax return form.
  • You can take the foreign tax credit for the taxes paid in India already as TDS (tax deducted at source).

NRE/NRO Tax by Indian Government

NRE account interest income is non-taxable in India. Hence, no tax is withheld/deducted automatically by Indian banks.

On the other hand, NRO account interest is taxable at straight 30% plus applicable surcharges and the cess.

You will be issued Indian TDS form 16A by your bank for this tax deduction which can be claimed in US tax return as ‘foreign tax credit’.

Calculate Total Interest in Indian Bank

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

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

There is no clear guidance with respect to the months or financial year that should be used that we could find. So, we suggest using the Indian interest from Jan to Dec to add to your US taxes.

This means:

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

Indian Interest Conversion to USD

IRS publishes the exchange rate for all foreign countries as ‘year-end treasury rates’. Use this rate to convert Indian (or for that matter, any other country) to reach a USD amount.

It is possible that the current year’s rate is not published by the IRS. In that case, use the xe.com rate for Dec 31.

Example:

If you earned a total of 10,000 INR as NRE interest (add the sub-totals of all your foreign bank account’s interest), then your interest income in USD would be $143 if the exchange rate is 1 USD = 70 INR:

10,000 / 70 = $143

US Tax Form 1040 – Foreign Tax Credit

File the US income tax form 1040 with online services like Turbo Tax, TaxAct, HR Block, Liberty Tax, or FreeTaxUSA.

We have also used e-file.com and their online federal returns software is as good as any other with more free filing options.

Irrespective of the tax filing service you use, you should fill up Schedule B to disclose your Indian income as foreign income.

You should:

  • Find the total amount of Tax (called TDS in India) deducted by the bank (by looking at bank statements).
  • Indian bank should have sent you Form 16 (Indian version of tax form).

ICICI normally sends form 16 by postal mail or email – if you have registered. The same may be available online for Citibank, SBI, or HDFC India customers.

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 the appropriate section.

FAQ

Is Interest Earned on NRE Account Taxable in US?

Interest earned on NRE Account or NRO Account is Taxable in the U.S. including NRE FD, NRO FD interest.

You have 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 in the USA).

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

Do Indian Banks Issue form 1099-INT for Interest Income?

Indian banks do not issue Form 1099 INT for interest earned in the NRE account. You are responsible for disclosing the foreign interest income on the US income tax form 1040.

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

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

You have to pay US income tax on Indian NRO account interest income.

You can claim the TDS deducted by an Indian bank from your NRO account as Tax Paid to a foreign government on your US tax return.

Should I Convert Indian Savings account to NRO after moving to USA?

You should convert your Indian savings bank account to NRO account after moving to the USA.

Converting Indian savings account to NRO is part of Indian tax law and not the USA.

If you have lived outside India for more than 6 months, you are counted as an NRI (Nonresident Indian) as per income tax laws.



Is Indian PPF Account Interest taxable in USA?

The interest earned in Indian public PPF account is also taxable in US.

Are Mutual fund dividends received in India taxable in the USA?

Mutual fund dividend received in India is taxable in the USA.

Is Stock Sale that is not taxable as per Indian Law taxable in the USA?

Any income or profit received after the sale of stocks that are exempted as per Indian taxation can be taxable in the USA.

You should add the total profit to the US tax return and then it will be taxed as per the US rules.

It is required to be added to IRS 1040 form even if you did not pay any tax on this income in India as per Indian income tax law.

I came to US on H1B visa in Oct. Should I add my Indian bank interest?

It depends on which US tax form you are filling.

If you came to the US in October, then you will not be counted as a tax resident for that year as you only spent about 3 months in the US in that year.

In this case, you may not be required to add your Indian interest to the US tax return.

It is better to visit a tax consultant or use a CPA to file your return in this case.

Should I add my Indian salary in US tax return if I came to US first time mid-year?

If you worked for more than 6 months in the USA from Jan to Dec on your first visit to the US, you would pass the substantial presence test.

In this case, you would need to show your Indian income and foreign tax paid on your return.

I suggest checking with your tax consultant and file.

Ita better to file using a CPA in your first year to avoid issues.

You can file yourself using free tax software online from next year onwards when the income is not mixed between Indian and the US.




Author

Written by Anil Gupta
  Anil Gupta           



Recent discussion on forum

  1. vishal_pratap
    vishal_pratap

    The amount from ULIP is taxable in US even if it is non-taxable in India. You should add it to your total US income and then calculate US taxes.

    If someone transfers money to your account, then, it depends on the purpose of that money. If it is not a sale transaction or your income in some way, then it is not required to be taxed.
    Thanks Anil for update
    Question

    1. As Ulip amount is coming to NRO account at the time of maturity ,it is same as someone transfer money to my account then how it is taxable in US ? is that correct understanding ?

    2. If i gain interest on that ulip maturity principle then interest amount is taxable ? is that correct understanding ?


  2. anil_am22
    anil_am22

    Hi @vishal_pratap

    Your understanding is NOT correct.

    Your salary is also credited to your account by someone. Does that mean that it can be counted as transfer by a friend?

    There are laws in place for some meaning and money movement is tracked.

    The Indian bank or ULIP company reports the payouts to Indian government.

    It is your choice if you want to declare it in US or not. Legally, you should.

    Rest is your choice.


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