US to India · Expat tax residency
Tax Residency for US Expats in India: Treaty and Credits
Prepared by S U and Company's CA-led advisory team · Published 26 October 2026 · About S U and Company
A US citizen sent to work in India is, in principle, taxed by both countries on the same income: India on the basis of where the income arises or where the person is resident, and the US on the basis of citizenship alone, regardless of where the person actually lives. Relief exists on both sides, but it is not automatic — it depends on correctly working out Indian residency, choosing between the US foreign tax credit and the foreign earned income exclusion, and, where both countries claim residency, applying the treaty tie-breaker.
Quick answer
How is a US expat's tax residency determined between India and the US?
Indian residency turns mainly on days of physical presence: 182 days or more in the tax year, or 60 days plus 365 days across the preceding four years, with some exceptions. The US taxes its citizens and residents on worldwide income regardless of where they live. Where someone is resident in both countries, the treaty's Article 4 tie-breaker decides which country is the treaty residence, and double taxation is otherwise relieved through the US foreign tax credit or foreign earned income exclusion.
1. Indian residency, in brief
An individual is resident in India if present for 182 days or more in the tax year, or for 60 days or more in the tax year together with 365 days or more across the four preceding years. Some individuals — Indian citizens and persons of Indian origin visiting India among them — get a longer threshold under specific provisions. A resident who was non-resident in most recent years may qualify as resident but not ordinarily resident, which narrows the income actually taxed in India. Residents are taxed in India on worldwide income; non-residents only on income received, accrued or arising in India. Days are counted by physical presence, so board meetings, project visits and long business trips all count toward the threshold — keep a travel log for every expat and frequent visitor, not just the people formally assigned to India.
2. How the US taxes citizens working abroad
The US taxes its citizens and green card holders on worldwide income no matter where they live. An American working in India still files a US return and reports the Indian salary on it. The US then relieves the resulting double taxation mainly through two mechanisms:
| Tool | How it works | Notes |
|---|---|---|
| Foreign tax credit (Form 1116) | Credit for Indian income tax paid, against US tax on the same foreign income | Limited to the US tax on that income; unused credit may carry over under US rules |
| Foreign earned income exclusion (Form 2555) | Excludes foreign earned income up to an annual limit from US tax | Needs the bona fide residence or physical presence test; the limit is set each year by the IRS |
| Foreign housing exclusion or deduction | Relief for qualifying housing costs incurred abroad | Subject to its own limits |
3. Where the treaty helps an individual
- Tie-breaker. If someone is a resident of both countries under their respective domestic laws, Article 4 of the treaty decides which country is the treaty residence, through a sequence running from permanent home to centre of vital interests to habitual abode to nationality.
- Employment income. The treaty's dependent personal services article can exempt short stays by an employee of a non-resident employer, subject to conditions including a days test and who actually bears the cost of the employment.
- Relief mechanism. Article 25 provides the foreign tax credit that underlies relief in the country of residence.
- Saving clause. The US retains the right to tax its own citizens regardless of the treaty, so for American citizens specifically, the treaty mostly operates through credits and a narrow set of exceptions rather than a full exemption.
4. Short business trips are not automatically risk-free
A US employee visiting India for meetings is often outside the Indian tax net if the treaty's conditions are met, but the same visit can still create permanent establishment risk for the parent company and separate reporting duties that the individual-level treaty exemption does not touch. Track days, the activities actually performed, and who bears the cost — see our guides on permanent establishment risk and sending a US executive to India.
5. What an expat should do every year
- Keep a day-by-day travel log covering both India and the US.
- Confirm Indian tax residency status at the end of each tax year, not retrospectively years later.
- File the Indian return and settle or claim Indian tax, backed by employer withholding records.
- File the US return and choose between the credit and the exclusion with a US adviser, recomputing each year rather than repeating the prior year's choice by default.
- Report foreign accounts to the US where the relevant thresholds are met — see our US parent reporting guide.
6. What this means for a US parent
- Tax equalization or hypothetical tax policies need both an Indian and a US computation run side by side. Agree in advance who runs each before the assignment starts, not once the first payroll cycle is already underway.
- Employer withholding tax on Indian salary is a monthly obligation, so the first month of an assignment already needs a working plan in place.
7. Mistakes worth avoiding
- Counting only the days on the work permit, rather than the actual days spent in India.
- Assuming the foreign earned income exclusion removes the US filing obligation entirely — it reduces taxable income, not the requirement to file.
- Forgetting that the treaty's saving clause limits how far relief actually goes for a US citizen specifically.
- Not filing an Indian return on the assumption that tax was already fully deducted at source.
Frequently asked questions
How is a US citizen working in India taxed?
In principle, twice: India taxes income earned or received in India, and residents on worldwide income, while the US taxes its citizens on worldwide income regardless of where they live. Relief comes through the US foreign tax credit or the foreign earned income exclusion, and, where the person is resident in both countries, through the treaty tie-breaker.
When does a foreign national become tax resident in India?
Generally on being present in India for 182 days or more in the tax year, or for 60 days or more in the tax year together with 365 days or more across the preceding four years, subject to specific exceptions for certain categories of individuals.
What is the treaty tie-breaker test?
A sequence of tests in Article 4 of the India-US treaty — permanent home, centre of vital interests, habitual abode, nationality, and finally agreement between the two tax authorities — used to decide which country is the treaty residence when a person is resident in both under domestic law.
Can a US expat use the foreign earned income exclusion?
Possibly, if the person passes either the bona fide residence test or the physical presence test, and the exclusion is capped at an annual limit set each year by the IRS. A US tax adviser should confirm eligibility and compare it against the foreign tax credit before either is claimed.
Is the foreign tax credit always better than the exclusion?
Not necessarily. The better outcome depends on the person’s income level, the Indian tax already paid, and their family and filing situation, and genuinely needs a side-by-side computation rather than a general rule of thumb.
Does the treaty exempt short business trips to India?
It can, for a short-stay employee of a non-resident employer who meets the conditions in the treaty’s dependent personal services article, but the same trip can still create permanent establishment risk for the US parent and its own reporting duties, which the treaty exemption for the individual does not remove.
Do green card holders count as US citizens for worldwide taxation?
For US worldwide taxation purposes, yes — US residents, including green card holders, are taxed on worldwide income in the same way as citizens. Treaty residence rules can differ from this, so a green card holder’s position should be checked separately.
How S U and Company can help
We handle expat payroll, Indian tax return filing and residency analysis for US nationals working in India, and coordinate with your US CPA on the credit-versus-exclusion decision. See our related guides on social security for US expats in India and sending a US executive to India, or explore the US-to-India entry guides.
Sources and further reading
- Income Tax Department — Indian residency rules and tax treaties.
- Internal Revenue Service — tax treaties A to Z.