U.S. Tax Residency Explained for Indian Nationals

U.S. Tax Residency Explained

Many Indian nationals working or staying in the United States are unaware that they may be considered U.S. tax residents even if they hold temporary visas like H-1B, L1, F1, or B1/B2. If your CPA or tax preparer doesn’t understand the Substantial Presence Test (SPT) or fails to apply treaty exemptions, you may be filing the wrong form (1040 vs. 1040-NR), missing deductions, or facing IRS penalties for incorrect disclosures.

At Kewal Krishan & Co, we help Indian professionals determine their correct U.S. tax residency status, ensure proper filing, and claim applicable exclusions or treaty benefits.

IRC Reference

The Substantial Presence Test is defined under IRC §7701(b)(3). It outlines the formula to determine if an individual is considered a U.S. resident for tax purposes based on the number of days physically present in the country.

Key IRS Forms Based on Residency

• Form 1040 For U.S. tax residents
• Form 1040-NR   For non-resident aliens
• Form 8843   For exempt individuals (F1, J1, etc.)
• Form 8833   Treaty-based return position disclosure (if applicable)

What Is the Substantial Presence Test?

You meet the Substantial Presence Test if:

• You were physically present in the U.S. for at least 31 days in the current year, AND
• The total number of days you were present in the current year and the two preceding years adds up to 183 days using this formula:
  • All days in the current year
  • 1/3rd of the days in the previous year
  • 1/6th of the days two years before

Example

Rohit, an Indian national, visited the U.S. on a B1/B2 visa:

• 2025: 120 days
• 2024: 120 days
• 2023: 90 days

SPT Calculation:

• 2025: 120 days
• 2024: 120 ÷ 3 = 40 days
• 2023: 90 ÷ 6 = 15 days
  Total = 175 days → Not a resident
  If Rohit visits for even 10 more days in 2025, he meets the SPT (185 days) and becomes a resident alien for tax purposes.

Exceptions to the SPT

1. Exempt Individuals
   • F1, J1 visa holders (students/teachers)   usually exempt for 5 calendar years
   • Must file Form 8843 every year to claim this exemption
2. Closer Connection Exception
   • If in the U.S. for <183 days and maintain a tax home and closer connection to India
   • Must file Form 8840
3. Treaty Claim
   • If considered resident under U.S. rules but also resident in India, you can invoke Article 4 of the U.S. India Tax Treaty to claim non-residency
   • Requires filing Form 8833

Step-by-Step Compliance Guide

1. Track Days of Presence Accurately   Use travel records, I-94 data, passport stamps
2. Apply SPT Formula   Determine if you’re a tax resident
3. Assess Exemptions   Check if you’re on an F1/J1 visa and qualify for exemption
4. Determine Correct Filing Form  
   • If resident → File Form 1040
   • If non resident → File Form 1040-NR
5. Use Treaty if Applicable   If dual-resident, attach Form 8833 with treaty position
6. File Form 8843/8840 if claiming exception
7. Disclose Foreign Assets   As a resident, file FBAR (FinCEN 114) and Form 8938

Conclusion

Understanding your tax residency status is critical. Filing as a resident when you’re not, or vice versa, can lead to misreporting foreign income, missed credits, or audit flags. The Substantial Presence Test, treaty benefits, and exception rules are complex but when applied correctly, they protect you from unnecessary taxes and penalties.

Call to Action

If your current tax preparer is unsure about your residency status or doesn’t understand IRS residency codes or treaty mechanics, it’s time for a consultation. Anshul Goyal, CPA EA FCA is a licensed U.S. Certified Public Accountant, an Enrolled Agent admitted before the IRS, and a cross-border tax expert guiding Indian nationals in the U.S. on accurate residency filings and foreign income reporting.

About Our CPA

Anshul Goyal, CPA EA FCA is a U.S.-licensed CPA, Enrolled Agent, and Indian Chartered Accountant. He has helped thousands of Indian NRIs and cross-border taxpayers with accurate IRS filings, including SPT analysis, dual-status returns, and treaty filings.

Disclaimer

This blog is for educational purposes only and should not be treated as tax advice. IRS rules, treaty positions, and residency statuses are complex and fact-dependent. Always consult a qualified CPA before taking any action.

Top 5 FAQs

1. What is the Substantial Presence Test?
It determines U.S. tax residency based on physical presence over 3 years.

2. Do F1 visa holders meet the SPT?
Usually no, as they are exempt for up to 5 years if they file Form 8843.

3. I stayed in the U.S. for 190 days on a B1 visa. Am I a resident?
Yes, under SPT you are considered a resident alien unless an exception applies.

4. Can I avoid U.S. tax residency using a treaty?
Yes, under Article 4 of the U.S. India Tax Treaty, using Form 8833.

5. What happens if I file the wrong form (1040 vs 1040-NR)?
You may misreport income or miss foreign disclosures, triggering IRS penalties.