📋 NRI Tax · Step 5 of 5

FATCA · FBAR · PFIC — the US-side reporting maze every NRI in America must navigate

US tax residents must report Indian bank accounts (Form 8938 + FBAR) and avoid Indian mutual funds (PFIC trap). The penalties for non-compliance are severe — up to $100K per FBAR violation. The trap is that most US CPAs don't know NRI rules.

Amish says

I learned the PFIC rule the hard way. My SIP in an Indian equity fund became a tax nightmare when I was US-tax-resident. Sold them, switched to direct stocks via Indian demat. The lesson: anything Indian and pooled (MF, ULIP, NPS) is PFIC.

What is FATCA?

Foreign Account Tax Compliance Act — US law that requires US tax residents to report foreign financial accounts. India and the US signed an Inter-Governmental Agreement (IGA) so Indian banks now report your NRE/NRO/FD/MF accounts directly to the IRS.

What you need to file (US side)

Form 8938 (FATCA) — filed with your 1040 if foreign financial assets exceed $50K (single) / $100K (married) at year-end. Includes Indian bank accounts, mutual funds, EPF, PPF.
FBAR (FinCEN 114) — separate filing if any foreign account exceeds $10K at any point during the year. Aggregates across all accounts. Filed online with Treasury, NOT IRS.

Both are reporting forms (no tax owed if income is already reported), but penalties for non-filing are severe — up to $100K per FBAR violation.

PFIC trap · Indian mutual funds

Indian equity mutual funds, NPS, ULIPs are Passive Foreign Investment Companies (PFICs) in the US tax system. Holding them as a US tax resident triggers punitive PFIC rules:

Annual mark-to-market or QEF election (most NRIs don't have access)
Default treatment taxes any gain at the highest US ordinary income rate + interest charge for the holding period
Form 8621 must be filed for each PFIC each year

Practical move: US-resident NRIs should avoid Indian MFs. Direct Indian equity (via Indian demat, reported on Schedule B/D) is fine. ETFs avoid PFIC if listed on Indian exchanges.

UK · CRS reporting

UK doesn't have FATCA but uses Common Reporting Standard (CRS). India and UK exchange financial account info under CRS. UK tax residents declare foreign income on Self Assessment; FIG regime gives temporary relief if applicable.

Get a NRI-specialist CPA

Most US CPAs don't understand PFIC, FBAR, Form 8938, or US-India DTAA. Use a specialist. See vetted NRI tax CPAs (US-India specialists) →