How to file US Tax on NRE, NRO Interest 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
  By Anil Gupta          Updated  19 Jul, 19

  142    


Is Interest Earned on NRE Account Taxable in US?

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

 

US Tax Form 1040 – Foreign Tax Credit

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

Convert Indian Savings account to NRO?

Converting Indian savings account to NRO is part of Indian tax law and not USA. If you have lived outside India for more than 6 months, you are counted as a NRI (Non resident Indian) as per income tax laws. You should convert your standard savings account to NRO account.

PPF Account Interest US tax

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


Finance India
 



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.Gupta
    Anil.Gupta

    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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  142 Useful Questions & Answers

  1. vishal pratap
    vishal pratap 18 Jul, 19 at 10:27 pm

    Hi Anil,
    1. Need to know ULIP amount (For eg. Invested rs1000 and after 10 year I get rs1500) which I get at maturity that is tax free in india under 10(10D) in NRO account.
    Do I need to pay tax in US for extra rs500 I get in NRO account at the time of maturity.
    2. If someone transfer amount to my NRO ACCOUNT then that amount is taxable or not.


    • Anil Gupta
      Anil Gupta 19 Jul, 19 at 6:24 am

      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.


  2. Yogesh Shetty
    Yogesh Shetty 13 May, 19 at 11:13 am

    Case:- No NRO account, India Savings account got interest/Dividend income. showed the interest/dividend income earned in India in US taxes and paid US taxes for foreign income. Any issue with not having NRO? though taxes are paid in US.


    • Anil Gupta
      Anil Gupta 13 May, 19 at 4:16 pm

      It is an Indian tax law requirement that you should convert your savings account to NRO account. US tax law does not care.


  3. pradeep
    pradeep 12 Apr, 19 at 6:44 pm

    Hi Anil,
    I have a NRE account and I earner 12000 Inr as interest. I am going to declare that on my tax return. My account never exceeded 10000$ last year so do I have to mention about my foreign account?


    • Anil Gupta
      Anil Gupta 12 Apr, 19 at 7:11 pm

      I don’t think foreign account declaration is needed if your account never had more than $10k.


  4. Sam Houston
    Sam Houston 10 Apr, 19 at 9:42 pm

    Why do we have to report NRO account and interest earned in NRO account since those assets cannot be transferred to U.S.?


    • Anil Gupta
      Anil Gupta 11 Apr, 19 at 8:30 am

      US tax law says that you have to declare your global income.


  5. Manika
    Manika 31 Mar, 19 at 6:48 pm

    Do we have to fill the form 1116 to receive a foreign ta credit ? The IRS instructions say that you don’t have to fill form 1116 if you received the form 1099-INT (“or substitute statements”). Can the form 16A issued by Indian banks treated as “substitute statements”? Is that recognized by IRS?


    • Anil Gupta
      Anil Gupta 31 Mar, 19 at 7:09 pm

      I don’t think you need to fill any form to claim foreign tax credit.
      If you use any online tax filling software like TaxAct or e-file, they should be able to take care of it.


      • Manika
        Manika 31 Mar, 19 at 10:37 pm

        Well the online tax software (tax act) asks me whether I’m required to fill the form 1116 or not. If I’m required to fill it then they can’t help us.


        • Anil Gupta
          Anil Gupta 1 Apr, 19 at 6:44 am

          Then, use either Turbo tax or FreeTaxUSA as they both do not ask this question.




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