NRI Tax Filing Basics: Your Real US Tax Status

If you’ve searched “NRI tax filing” while living in the US, the first thing to know is that “NRI” isn’t a US tax category at all — it’s an Indian one, defined by how many days you spend inside India each financial year. What the IRS actually cares about is a completely separate test called the Substantial Presence Test, and passing it means the US taxes your worldwide income, not just what you earn domestically. Most of the confusion — and most of the compliance mistakes — start from treating these two systems as if they’re the same thing.

The Substantial Presence Test, in actual numbers

The IRS decides whether you’re a resident alien (taxed like a US citizen, on worldwide income) or a nonresident alien (taxed only on US-source income) using a formula in IRS Publication 519. You pass — and become a resident alien for tax purposes — if both of these are true:

1. You were physically present in the US for at least 31 days during the current year, and
2. The weighted sum below is 183 or more:

(days in current year × 1) + (days in prior year × 1/3) + (days in year before that × 1/6)

Worked example: an H1B holder who was in the US for 300 days in 2025, 310 days in 2024, and 305 days in 2023:

300 + (310 ÷ 3) + (305 ÷ 6)
= 300 + 103.3 + 50.8
= 454.1

454.1 is well over 183, and 300 days clears the 31-day floor, so this person is a resident alien for US tax purposes — full stop, regardless of visa type, regardless of whether they also qualify as an NRI under India’s rules, and regardless of intent to eventually move back.

Exception that trips people up: exempt individuals. F-1 and J-1 students don’t count their days toward the Substantial Presence Test for their first 5 calendar years in the US — they’re “exempt individuals” and generally file Form 1040-NR during that window. J-1 teachers and researchers get a similar carve-out, but only for 2 calendar years. Someone on F-1 who converts to H1B mid-year needs to work out exactly which days count and which don’t for that transition year — this is the single most common year people get their filing status wrong.

What resident alien status actually triggers

Once you clear the Substantial Presence Test, three separate reporting obligations kick in, and treating them as one thing is where most mistakes happen.

1. Form 1040, worldwide income. Your Indian rental income, NRO account interest, capital gains from Indian mutual funds or stocks, everything — not just your US salary — goes on your US return. The US-India tax treaty prevents you from being taxed twice on the same income: Indian tax you’ve already paid (like TDS withheld on NRO interest) generally becomes a Foreign Tax Credit via Form 1116, which offsets your US tax liability dollar-for-dollar up to certain limits. Skipping the credit means you pay full tax to both countries on the same income.

2. FBAR (FinCEN Form 114). If the combined high-water mark of all your foreign financial accounts — NRE, NRO, fixed deposits, and similar — exceeded $10,000 at any single point during the calendar year, you must file FBAR. It’s filed separately from your tax return, through FinCEN’s BSA e-filing system, due April 15 with an automatic extension to October 15. This is not optional paperwork: penalties for a non-willful failure to file start around $10,000 per violation, and willful failures can run to the greater of $100,000 or 50% of the account balance, per violation, per year.

3. FATCA (Form 8938). A separate, higher-threshold reporting requirement attached to your actual tax return. For a single filer living in the US, the threshold is foreign assets exceeding $50,000 on the last day of the year, or $75,000 at any point during the year (these thresholds roughly double if you’re married filing jointly, and are higher still if you’re living abroad — confirm current figures on the IRS FATCA page before filing, since these are the kind of numbers that get revisited). FBAR and FATCA overlap in what they cover but are legally distinct filings with different penalty regimes — filing one doesn’t satisfy the other.

The PFIC problem hiding inside Indian mutual funds

This is the pitfall that catches even people who’ve correctly handled everything above. The IRS treats Indian mutual funds — the SIPs and equity/debt funds many NRIs keep running from before their US move — as Passive Foreign Investment Companies (PFICs). That classification triggers Form 8621 reporting per fund, per year, and without a timely QEF (Qualified Electing Fund) or mark-to-market election made in the first year you hold the fund as a US taxpayer, the default PFIC tax regime is punitive: excess distributions and gains get taxed at the highest marginal rate plus an interest charge that treats the gain as if it had been earned evenly over your entire holding period. This is narrow enough, and expensive enough to get wrong, that it deserves a CPA who has specifically handled PFIC elections before you touch Indian mutual fund transactions again as a US resident alien.

Which filing status applies to you

The Substantial Presence Test math above is exact, but it’s rarely the whole story — treaty tie-breaker rules, dual-status years (the year you cross from nonresident to resident), and first-year choice elections all layer on top of it. Run your actual day counts through the tool below to see where you land, then use that as the starting point for a conversation with a CPA who works with cross-border filers specifically.

Once you know your filing status, cost of living planning and remittance strategy both get a lot more concrete — worth reading next if either move is on your radar.