Why Most CPAs Miss This-and What It Costs You
Many Indian-Americans maintain NRO fixed deposits (FDs) in India-but most U.S. tax preparers fail to properly report the interest or claim Foreign Tax Credit for the TDS (Tax Deducted at Source).
This oversight leads to double taxation, missed credits, and red flags on audits. At Kewal Krishan & Co, we regularly help Indian clients recover from poor filings by inexperienced CPAs-saving them thousands annually. In fact, fixing this issue alone can create lifetime tax savings of $50,000 to $1,000,000+.
Let’s break it down.
IRS Tax Code & Reporting Requirements
According to IRC §61(a)(4), interest income from any source-including Indian fixed deposits-is fully taxable in the U.S.
Additionally, the U.S.-India Tax Treaty allows taxpayers to claim Foreign Tax Credit (FTC) for the TDS deducted in India, provided proper documentation is filed.
You must report:
- Gross interest on Schedule B (Form 1040)
- TDS claimed via Form 1116
- FATCA disclosures via Form 8938
- FBAR disclosures via FinCEN 114
Indian TDS & Double Taxation Explained
Indian banks deduct TDS @ 30% on interest earned in NRO accounts, often without informing U.S. taxpayers of how to claim a credit.
If you don’t report this:
- The U.S. taxes the same income again
- You lose credit for TDS
- You miss eligibility for refund via Form 1116
Example: Fixed Deposit Interest & Tax Credit
Example:
- You have ₹25 lakh (~$30,000) in NRO FDs
- Bank pays ₹1.5 lakh (~$1,800) in interest
- Indian bank deducts ₹45,000 (~$540) as TDS
- U.S. tax on $1,800 = ~$396 (assuming 22%)
Without FTC:
You pay full $396 in U.S. + lost ₹45,000 in India = Double tax
With FTC (Form 1116):
U.S. tax reduced by $396; no double tax. You keep your refund or apply against other income.
Step-by-Step Guide for 2025 Filings
Step 1: Collect Interest Certificates
- Download Form 16A / TDS certificates from your Indian bank
- Get fixed deposit interest breakup per account
Step 2: Report Interest on 1040
- Use Schedule B to report gross interest in USD
- Use clean descriptions like “Interest from NRO FD – SBI India”
Step 3: Claim TDS via Form 1116
- Report TDS amount as foreign taxes paid
- Choose appropriate category: Passive income
- Attach proof of tax paid
Step 4: Report FATCA & FBAR
- If total FDs exceed thresholds:
- Use Form 8938 (FATCA)
- Use FinCEN 114 (FBAR) if combined accounts exceed $10,000
Step 5: Use Tax Treaty Clause
- If needed, attach a disclosure citing U.S.-India Tax Treaty Article 11
Common Mistakes to Avoid
- Reporting net interest instead of gross
- Missing Form 1116 for TDS
- Not converting INR to USD using year-end RBI rate
- Ignoring NRO FD in FBAR or FATCA
- Filing 1040 without Schedule B or foreign disclosures
Conclusion
Indian fixed deposits are easy to overlook-but critical to report correctly. With proper filings, you can eliminate double taxation, reduce audit risk, and legally minimize your U.S. tax bill.
Call to Action
Work with Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, authorized Enrolled Agent before the IRS, and a cross-border taxation expert. We specialize in helping Indian Americans with foreign income reporting, tax credit claims, and FATCA/FBAR compliance.
About Our CPA
Anshul Goyal is a U.S. CPA, Indian CA, and Enrolled Agent recognized by the IRS. He assists Indian-American taxpayers with IRS compliance, foreign income reporting, international treaties, and audit protection-all with strategic tax-saving opportunities.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Tax laws and reporting requirements vary based on individual facts. Please consult a qualified tax advisor for personalized guidance.
Top 5 FAQs
1. Is interest on Indian FDs taxable in the U.S.?
Yes. As a U.S. resident, you must report global income, including Indian FDs.
2. Can I claim TDS paid in India against U.S. taxes?
Yes, via Form 1116, under the Foreign Tax Credit provision.
3. Do I need to file FBAR for Indian FDs?
Yes, if the total balance of all foreign accounts exceeds $10,000 at any time during the year.
4. What exchange rate should I use?
Use the year-end RBI or IRS rate to convert INR to USD.
5. What happens if I forget to report this?
You may face penalties or audits. You can use Streamlined Filing Procedures to fix past non-compliance