Taxing Indian EPF & PPF in the US: 2025–2026 Reporting Guide

Indian EPF & PPF: The “Tax-Free” Growth Myth in the US

The Public Provident Fund (PPF) and Employee Provident Fund (EPF) are the gold standards of retirement saving in India. They offer “EEE” status: Exempt at contribution, Exempt during growth, and Exempt at withdrawal.

However, once you pass the Substantial Presence Test in the U.S., that “Exempt” status disappears. For the 2025 tax year, the IRS treats these as foreign financial assets, and the reporting is non-negotiable.

1. The Annual Income Trap: Accrued Interest

In India, you only think about these accounts when you withdraw. In the U.S., you must report the annual interest earned in 2025, even if it stays inside the account in India.

• EPF: Both your contribution interest and the employer’s contribution interest are generally taxable annually on Schedule B.
• PPF: Even though NRIs can no longer open new PPF accounts, existing ones still earn interest. This interest is taxable in the U.S. every year.

Important 2025 Update: As of October 2024, the Indian government stopped NRI interest accrual on certain PPF accounts. At KKCA, we help you reconcile your final 2025 interest statements to ensure you aren’t overpaying the IRS.

2. The FBAR & FATCA Requirement

EPF and PPF accounts are “Foreign Financial Accounts.”

• FBAR (FinCEN 114): If the aggregate value of all your Indian accounts (Savings, NRO, PPF, EPF) crossed $10,000 at any point in 2025, they must be listed on your FBAR.
• Form 8938 (FATCA): If you meet the thresholds for expats ($200k+), these accounts must also be disclosed on your tax return.

3. The “Foreign Trust” Controversy: Form 3520

A major debate in 2025 was whether an EPF or PPF should be classified as a Foreign Trust.

• Why it matters: If the IRS views your EPF/PPF as a foreign trust, you must file Form 3520 (for contributions/distributions) and Form 3520-A (for ownership).
• The KKCA Position: While some practitioners view EPF as “Social Security” (which would be exempt under the U.S.-India Treaty), the IRS has not issued a formal ruling. We take a conservative, disclosure-first approach to protect you from the $10,000 minimum penalty for missed trust forms.

4. Double Taxation? The Foreign Tax Credit

Since these accounts are tax-free in India, there is usually no Indian tax paid on the growth.

• The Result: You cannot claim a Foreign Tax Credit (Form 1116) against the U.S. tax on this interest because you paid $0 tax in India. You will owe U.S. tax at your ordinary income rate.

5. Summary Checklist for 2026 Filing

Before you meet with your KKCA consultant, gather the following:

1. Annual Statements: Your EPF passbook and PPF statement showing the balance on Dec 31, 2025.
2. Interest Earned: The total interest credited for the Indian financial year 2024-25 and 2025-26.
3. Peak Balances: The highest balance shown in each account during the 2025 calendar year.

The KKCA Advantage

Reporting Indian retirement accounts is one of the most technical areas of cross-border tax. We specialize in:

• Treaty-Based Positions: Evaluating if Article 20 of the U.S.-India Treaty can protect your pension distributions.
• Streamlined Catch-Up: If you’ve lived in the U.S. for years and never reported your PPF, we use the Streamlined Procedures to fix it with zero to minimal penalties.

Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.

Disclaimer

This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.