India-US DTAA’s impact on US-based NRIs
Neha Navaneeth
Marketing and Content Associate
Aug 22, 2025
For NRIs living in the USA, whether Indian citizens, green card holders, or on F1/H1 visas, the India-US Double Taxation Avoidance Agreement (DTAA) is key to managing tax liabilities on income from both countries. Signed in 1989, the India- US DTAA prevents double taxation by clearly defining taxing rights and providing relief mechanisms, while also helping curb tax evasion.
This article explains the DTAA’s impact on US-based NRIs.
Eligibility for India USA DTAA
As per the Internal Revenue Services (IRS), these categories of US-based NRIs can claim benefits under the India-US DTAA:
US green card holders (permanent resident card)
Indian students studying full time in US on F1 visa
H-1B visa holders
US Citizens who are Indian descent
Under the DTAA’s Substantial Presence Test, a taxpayer must be physically present in the US for:
At least, 31 days during the current year, and
At least, 183 days during the last 3 years (including the preceding 2 years).
Applicability of India-USA DTAA
For US-based individual taxpayers, India-US tax treaty applies to the following set of taxes.
In the USA:
Federal income tax - It is applicable to the US-equivalent of personal income tax in India and imposed based on the Internal Revenue Code or IRC.
Social security tax - Mostly the salaried employees and self-employed individuals pay this tax and the collected revenue goes to financing the social security system in the US.
Excise tax - This type of tax is applicable to insurance premiums in the US. Tax relief under the India-US DTAA applicable to premium paid to a foreign insurance provider.
In India:
Personal income tax including surcharge and cess
Surtaxes levied on individual taxpayers belonging to the highest tax bracket
Types of relief available under US-India DTAA
Under the US-India DTAA, green card holders, OCIs, and Indians in the US on F1 or H-1B visas can claim tax relief on income earned in both countries in two ways.
Exemption method :
This allows taxpayers to claim exemptions on paying taxes on certain types of income in any one of the countries. For example, US green card holders can claim exemption on paying taxes in the US on their professional income earned in India. However, it requires a valid tax residency certificate and other supportive documentation.
Credit method :
This allows claiming credit in the residence country for tax already paid to the foreign country or Foreign Tax Credit.
Impact of India-US DTAA on Specific Types of Income
The India-US DTAA outlines how income earned in India by US residents is taxed. Key guidelines for US NRIs include:
Some incomes are exempt from tax liabilities in India under certain conditions.
Indian entities making payments to US NRIs are obligated to charge TDS.
NRIs can choose TDS at any one between the prevailing Indian income tax rate or the rate specified under DTAA.
NRIs while filing tax returns in the US can claim FTC through IRS Form 1116 on TDS paid in India.
However, none of the benefits under the DTAA apply automatically. Taxpayers need to file a TRC with the US IRS, 10F with the Indian tax authority and also need to have a PAN in India.
Tax liabilities for US NRIs in India for different types of incomes
Earning from investments
Interest income
Under Article 11 of the DTAA, interest income for US NRIs is capped at 15% TDS.
NRE account interest is tax-free in India, while NRO interest is normally taxed at 30%.
A US NRI can claim benefit of TDS at a reduced rate (15%) on interest earned from NRO account upon submission of US resident certificate with the Indian tax authority.
Capital gains
For income from sales of any movable and immovable assets owned in India, a US-based taxpayer needs to pay tax as per Indian tax rate. However, applicable tax rate in India will vary based on asset type and the period of holding for the said asset.
As per India US DTAA capital gains provisions, TDS applicable to such sales in India for US-based NRIs:
Type of sales transaction | Holding period less than 12 months (STCG) | Holding period more than 12 months (LTCG) |
Listed equity shares | 20% | 12.5% |
Unlisted shares | 30% | 30% |
Physical gold | 30% | 30% |
Real estate | 30% | 12.5% without indexation 20% with indexation |
Mutual Funds
IRS treats US-based NRIs’ investments in mutual funds in India as Passive Foreign Investment Companies (PFICs). PFIC rules are unilateral tax laws in the USA and the DTAA does not provide any relief to this tax.
As per the PFIC reporting and taxation rules:
US tax residents are taxed on unrealized gains each year for their investments in mutual funds in India.
Gains are treated as ordinary income, which could be taxed at a rate as high as 37%.
It is necessary to report PFIC by filing Form 8621 every year—for each mutual fund scheme you hold.
PFIC regime makes investing in Indian mutual funds tax-inefficient for US-based NRI.
Dividend income
Dividend income in India by a US resident can be chargeable both in US (resident country) and India (source country). However, as per the Article 10, the DTAA between US and India limits the maximum rate that India can charge on dividend paid to a US-based beneficial owner of dividend-paying company’s shares. For individual US NRIs, this rate is effectively 25%.
In comparison, without claiming the relief under DTAA, the standard TDS applicable to NRIs on their dividend income in India is 20%.
Salary income or professional income
India-US DTAA separate personal income between two types for taxation purposes:
Dependent personal services (Employment)
As per the Article 16 of DTAA, this type of personal income received by a US resident in India is taxable in India if the taxpayer is present in India for more than 183 days (in aggregate) in that fiscal year, employer is Indian and salary paid by an entity with permanent establishment in India. Income earned while living for a shorter duration is exempt from paying taxes in India.
Independent personal services/ professional services (self-employed)
The article 15 of the DTAA applies to this type of personal income. For a US-resident, such income is taxable in India if the recipient stayed in India more than 90 days (in aggregate) during the relevant fiscal year and the recipient has a fixed base in India for the purpose of delivering the services.
Income from other sources
Rental income (immovable property)
As per the India-US DTAA, the following types of income can be considered as income from immovable property for individual NRI taxpayers.
Income from agricultural land
Income derived from rental or similar use of any immovable property
Income derived from immovable property for providing services from the said property
Article 6 of the India-US DTAA is applicable to these types of income. An example will be rental income of US-based NRI from their property in India. Usually, rental income attracts a TDS at a rate of 30%. However, a US resident can claim a discount on TDS on rental income in India. The applicable TDS under the DTAA is 15% upon submission of US tax residency certificate (TRC) with Indian authority.
Royalties and fees included service
Article 12 of the India-US DTAA taxes royalty income in India at 10%- covering use of copyright, patents, trademarks, formulas, or equipment. ‘Fees for included services,’ such as consultancy or technical services that make available know-how or skills, are taxed at 15% under the DTAA.
Pension (private and government)
Private pension income received by US residents for their employment in India is taxable in the resident country (US). Pension and retiral benefits received in India for employment in the central and state governments in India are taxable in the source country (i.e., India) irrespective of resident status of pensioners. Similarly, social security payments are also taxable in the source country under India-US DTAA.
Which investments are most beneficial for NRIs given DTAA?
Investments in listed equity shares in India are the most tax efficient for US NRIs under India-US DTAA. The long term capital gains (LTCG) on this investment attracts the lowest tax rates compared to capital gains on other types of investment assets.
Benefits of filing as a Tax Resident in the USA
US-based NRIs must file in India as US tax residents to claim DTAA credits and exemptions. Without a US TRC, they face:
Double tax liability for salary income in both resident and source countries
Higher TDS on interest earned from NRO accounts
Higher tax rate on rental income in India
Lose tax benefits on income earned as royalties and fees
Lose tax benefits on income from academic, education and research engagement in India
How to get a TRC in the USA?
Obtaining a Tax Resident Certificate of the US involves getting Form 6166 from the Internal Revenue Service (IRS). It is a computer-generated letter from the IRS as proof of a taxpayer’s resident status in the US. For Form 6166, a taxpayer needs to apply online using Form 8802 (Application for United States Residency Certification).
The India-US DTAA helps US-based NRIs avoid double taxation on income like salary, capital gains, and interest. To claim its benefits, you must hold US tax residency and maintain the right accounts—NRO for Indian income and NRE for foreign currency. With Rupeeflo, managing NRO/NRE accounts across major Indian banks becomes simple and seamless.
