How to file US Tax on NRE Interest 1099-INT

Anil Gupta  13 Feb, 19      88  Finance India USA

Is Interest Earned on NRE Account Taxable in US?

Yes, Interest earned on NRE Account or NRO Account is Taxable in 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 USA).

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

Calculate Dollar amount for US Tax on NRE /NRO Interest

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

Example:

If you earned 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 exchange rate is 1USD = 70 INR:

10,000 / 70 = $ 143

NRE Account Income is NOT Taxed by Indian Government

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

NRO Account Income is Taxed by Indian Government

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

US Tax Form 1040 – Foreign Tax Credit

File the US income tax form 1040 with online services like TurboTax, TaxAct or H&R block.

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

Find the total amount of Tax (called TDS in India) deducted by bank (by looking at bank statements). Bank would also send you Form 16.

ICICI normally sends form 16 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.

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

Indian banks do not issue Form 1099 INT for interest earned in 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 in less than $10.

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

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

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.

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 Indian bank from your NRO account as Tax Paid to foreign government on your US tax return.

   Read all 88 Q & A

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  1. Priyesh Shah   20 Feb, 19 at 4:13 pm

    There is exclusion of $103,000 on foreign earned income while filing tax return in USA. Does my NRE FD interest income count towards this exclusion?
    Which mean I do not need to pay any tax upto $103K interest income?
    Is interest earned from NRE FD considered income?


  2. I can get all the interest earned on NRO account by using Form 16. Is there any way to know how much interest was earned on NRE saving and FD accounts. Since there is no tax deducted on these accounts, I could not find any way to get interest certificate for NRE accounts (I have HDFC accounts)

    • Anil Gupta   13 Feb, 19 at 5:21 pm

      You have to calculate the interest portion yourself that you may have earned in your NRE account between Jan 1 to Dec 31.
      I don’t know of any other way at this time.

  3. Harish Awasthi   9 Feb, 19 at 10:27 am

    Hi Anil, Very informative article. I have a question – I have a NRE FD. FD matures in OCT 2020. I chose option to payout interest at maturity. Do I need to show interest earned this year while filing 2019 Tax Returns in USA (Please note I have actually not received any interest yet – correct??)? Or I can show the FD income (Maturity Amount – Principal Amount) while filing tax in 2020?

    • Anil Gupta   9 Feb, 19 at 2:09 pm

      As per my opinion, you can show the interest income in 2020 US tax return.

  4. Harish Awasthi   9 Feb, 19 at 10:27 am

    Hi Anil, I have a HDFC Bank NRE Account and Multiple NRE FDs into same Profile (Customer Id). Do I need to report all FDs Accounts separately for Form 8938? Or if I can just provide HDFC savings account?

    • Anil Gupta   9 Feb, 19 at 2:09 pm

      As per my opinion, you can provide the details of savings account if all FDs are attached to it.


  5. Hi Anil… if a person is no longer staying in US does he still have to keep paying tax on money deposited in NRE account?

    • Anil Gupta   9 Feb, 19 at 10:01 am

      It depends on how long you stayed in US in financial year.
      Did you stay in India 182+ days or in US in current year?


  6. Hi Anil, I was wondering if anything has changed regarding claiming foreign tax paid in US tax return? This year it is now allowing me to claim any foreign taxes that I have paid. Please share if you have some info.

    • Anil Gupta   5 Feb, 19 at 2:36 pm

      I don’t understand your question.
      What do you mean by ‘any foreign’ taxes?

      You can claim Indian income tax that you have already paid as foreign tax credit.


      • I am sorry for not being very clear. In the Turbotax (online tax-filing software), this year I am unable to claim Indian income tax (for NRO account) that I have already paid as foreign tax credit in my US tax return. I could do this last year. I was wondering if recent Tax reform by US govt has changed something that is preventing me from claiming Indian income tax that I have already paid as foreign tax credit in my tax return?

        • Anil Gupta   9 Feb, 19 at 10:41 am

          I think you can add up all Indian tax and then enter it in Foreign tax paid field.
          I have not seen turbo tax this year yet.

          Can you share a screen shot and then I can suggest.

  7. Liza Fernandes   5 Feb, 19 at 2:36 pm

    Hi Anil, I got that I can claim my taxes paid in India on my US tax returns as credit and not claim any tax refund in India. But say I was to have more than the taxable income in India (2.5lks) and require to file Indian tax returns as per the Indian tax law – how do I handle that while filing US tax returns?

    • Anil Gupta   9 Feb, 19 at 10:27 am

      In that case, you can file Indian ITR and claim refund in India. Do not claim the tax refund as foreign tax credit in US tax return.

      The idea is to pay tax either in India or USA to be on right side of law.
      If you claim foreign tax paid credit in US and then claim Indian tax refund, you can’t really justify your action if they come auditing your case.

      Does that answer your question?


  8. Two questions
    1) What is purpose of filing Double Tax Avoidance Act (DTAA) formalities with Indian banks? Why not let Indian bank deduct 30% TDS which will be returned at the end of fiscal year in indian income tax return filing anyways?
    For Example :
    FDs total 80 Lakh gives INR 5,00,000 in interest.
    TDS deducted (30%) = INR 1,75,000.
    When you file income tax with 80C deduction, total taxable income will be almost INR 0 hence INR 1,75,000 will be returned back to you. Is my calculation wrong?
    I read somewhere that if your Indian income is way to high, filing DTAA is helpful since you can maximum claim relief of 15% tax in India. I didn’t understand that part.

    2) When filing US Tax return and declaring tax already paid to India, Should we declare Indian Income as INR 5,00,000 and taxes paid as INR 1,75,000 or actual tax paid which is INR 0 ? Claiming INR 1,75,000 in US Tax return will be false since in reality (eventually), India gave back money as a result of return. Please clarify.


    • 1. I am not aware of the maximum 15% slab. Will have to look into it. It is possible that there is a limit.
      2. You should declare the tax as zero if you plan to get refund from Indian government. If you do not want to claim refund, then you can mention tax paid as 1.75 lakh. Stay on the safe side as data is shared between two governments and penalties are grave if discrepancies are found.

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