Moving between India and the United States can create an unexpected tax challenge—dual tax residency. Many NRIs assume they only need to pay tax in the country where they currently live. However, under the tax laws of India and the US, it is possible to be treated as a tax resident in both countries during the same year.

The good news is that being a dual tax resident does not necessarily mean paying tax twice. The India-US Double Taxation Avoidance Agreement (DTAA), Foreign Tax Credit (FTC) provisions, and proper tax planning can help you avoid double taxation while remaining compliant in both countries.

Whether you are relocating to the US, returning to India, holding a US Green Card, or spending significant time in both countries, understanding your tax residency status is essential.

What is Dual Tax Residency?

Dual Tax Residency occurs when an individual qualifies as a tax resident under the domestic tax laws of both India and the United States during the same tax year.

This situation commonly arises when:

• You move from India to the US during the year.
• You return to India after working in the US.
• You hold a US Green Card while qualifying as an Indian tax resident.
• You satisfy the US Substantial Presence Test (SPT).
• You spend considerable time in both countries during the same year.

Since both countries generally tax residents on their worldwide income, understanding your residency position is critical to avoid double taxation.

Common Situations Where NRIs Face Dual Tax Residency

Dual tax residency is common in the following situations:

• Moving from India to the US for employment mid-year.
• Returning permanently to India after working abroad.
• Holding a US Green Card while living in India.
• Spending enough days in the US to meet the Substantial Presence Test.
• Frequently travelling between India and the US for business.
• Working remotely while maintaining financial ties in both countries.
• Returning to India but continuing to receive US salary, RSUs, stock compensation, rental income, or retirement benefits

When Can Dual Tax Residency Arise?

How India Determines Tax Residency

Your residential status in India depends primarily on the number of days you stay in India during the financial year.

You may be classified as:

• Non-Resident (NR)
• Resident but Not Ordinarily Resident (RNOR)
• Resident and Ordinarily Resident (ROR)

RNOR status often provides significant tax advantages for returning NRIs because certain foreign income may continue to remain outside the scope of Indian taxation for a limited period.

Determining your correct residential status is the first step before analysing any DTAA benefits.

How India Determines Tax Residency

The United States determines tax residency based primarily on:

1. Green Card Test

If you hold a valid US Green Card, you are generally treated as a US tax resident.

2. Substantial Presence Test (SPT)

You generally become a US tax resident if:

• You are present in the US for at least 31 days during the current calendar year, and
• Your weighted stay equals 183 days or more using the following formula:

Current Year Days

• 1/3 × Previous Year Days
• 1/6 × Second Previous Year Days

If the total equals or exceeds 183 days, you are generally considered a US tax resident.

Why Dual Tax Residency Can Be a Problem

• Salary
• Rental income
• Capital gains
• Interest income
• Dividend income
• Business income
• ESOPs and RSUs
• Retirement income
• Pension
• Social Security benefits
• 401(k) withdrawals

Without proper planning, this could lead to double taxation.

How the India-US DTAA Helps

The DTAA includes Tie-Breaker Rules, which determine your tax residency when both countries consider you a resident.

The tie-breaker rules are applied in the following order:

1. Permanent Home

Where do you maintain a permanent home?

2. Centre of Vital Interests

Which country has your stronger personal and economic ties?

3. Habitual Abode

In which country do you spend more time?

4. Nationality

If the previous tests do not resolve residency, nationality may determine your residence.

5. Mutual Agreement Procedure

If residency is still unclear, the tax authorities of both countries may jointly determine your tax residency.

Foreign Tax Credit (FTC)

Even if income is taxed in both countries, relief is generally available through Foreign Tax Credit (FTC).

For example:

• Tax paid in the US may be claimed as a credit in India (subject to Indian tax laws).
• Tax paid in India may be claimed in the US using the applicable foreign tax credit provisions.

Proper documentation is essential to claim these benefits.

Important Tax Forms

India

• Income Tax Return (ITR)
• Form 67 (Foreign Tax Credit)
• Form 10F (where applicable)
• Tax Residency Certificate (TRC)

United States

• Form 1040
• Form 1040-NR (where applicable)
• Form 1116 (Foreign Tax Credit)
• FBAR (FinCEN Form 114)
• Form 8938 (Specified Foreign Financial Assets)

Failure to file the required forms can result in penalties even if no additional tax is payable.

Practical Example

Example 1

Rahul moved from Bengaluru to California in July.

During the year he earned:

• Salary in India until June
• Salary in the US from July onwards
• Rental income from an apartment in India
• Interest from Indian bank accounts

Depending on his residential status in both countries, Rahul may qualify as a tax resident of both India and the US. The India-US DTAA and Foreign Tax Credit provisions help ensure the same income is not taxed twice.

Example 2

Anita returned to India permanently in September after working in Texas.

She received:

• US salary
• Restricted Stock Units (RSUs)
• Indian salary after returning
• Indian capital gains

Her tax treatment depends on her Indian residential status (NR, RNOR, or ROR), her US tax residency, and the applicable DTAA provisions.

Common Mistakes NRIs Make

Many NRIs unknowingly create tax issues by:

• Assuming citizenship determines tax residency.
• Ignoring the India-US DTAA.
• Not tracking the number of days spent in each country.
• Forgetting to claim Foreign Tax Credit.
• Missing Form 67 or Form 1116.
• Ignoring FBAR or Form 8938 reporting.
• Confusing RNOR status with Non-Resident status.
• Assuming Green Card holders are exempt from Indian tax rules.

Professional tax planning can help avoid these costly mistakes.

How Dinesh Aarjav & Associates Can Help

Dual Tax Residency requires careful analysis of both Indian and US tax laws. Every individual’s situation is different, and incorrect residency determination can result in unnecessary taxes, penalties, or compliance issues.

At Dinesh Aarjav & Associates, our cross-border tax specialists help NRIs with:

• Determining tax residency in India and the US
• India-US DTAA advisory
• Foreign Tax Credit planning
• US tax return preparation
• Indian income tax return filing
• FBAR and Form 8938 compliance
• RNOR planning for returning NRIs
• Cross-border tax planning for globally mobile professional

Conclusion

Dual Tax Residency is one of the most important aspects of international taxation for NRIs. Whether you are moving to the United States, returning to India, or maintaining financial ties in both countries, understanding your tax residency status is essential for avoiding double taxation and remaining compliant.

With proper planning, correct application of the India-US DTAA, accurate determination of residency, and timely filing of the required tax forms, most dual residency issues can be effectively managed.

If you are unsure about your tax residency or need assistance with India-US tax compliance, consult an experienced cross-border tax advisor to ensure you remain compliant while minimizing your global tax liability.

Also Read: 

• US Social Security Taxation for NRIs Returning to India
• ESPP Taxation for NRIs in 2026: The Definitive India-US Tax Guide for Employee Stock Purchase Plans
• Are Returning NRIs Losing US–India DTAA Benefits?
• DTAA Between India and the USA: Comprehensive Guide for NRIs