FBAR, FATCA, and the PFIC Trap: What Your Indian Accounts Owe the IRS

You kept your NRE account open “just in case.” You still hold the SIPs you started in college. Nobody at your company’s tax-prep vendor mentioned any of it. Here’s what the IRS actually wants to know about the money you still have back home — and what it costs to get it wrong.

The 60-second version

If you’re a US tax resident (most visa holders are, once you pass the substantial-presence test) and the combined value of your foreign accounts — NRE/NRO savings, fixed deposits, PPF, EPF, demat/brokerage, Indian mutual funds — tops $10,000 at any point in the year, you must file an FBAR (FinCEN Form 114), a separate filing from your tax return. If those same assets cross higher dollar thresholds, you may also owe a FATCA filing (Form 8938) attached to your 1040. And if any of it sits in Indian mutual funds, ULIPs, or ETFs, you likely owe a third filing — Form 8621 — for each fund, every year, because the IRS treats them as PFICs with punitive default tax rules. None of this is optional, none of it is about whether you owe US tax on the money, and none of it goes away just because the accounts are in rupees. The filings are reporting requirements, not a result of doing anything wrong — but skipping them has real penalties, and sorting it out gets harder the longer it waits.

What actually counts as a “foreign financial account”

Broader than most people assume. It includes NRE and NRO savings and fixed-deposit accounts, PPF, a demat or brokerage account holding Indian stocks or mutual funds, a life-insurance or ULIP policy with cash value, and your share of a joint account even if you never deposit into it yourself. EPF is a gray area some practitioners also report. It does not include directly-held real estate (a flat in Mumbai isn’t an “account”), though rental income from it is still reportable on your 1040. The common mistake is assuming small, dormant, or “just for parents” accounts don’t count — the FBAR threshold is aggregate and has no minimum per account, so three accounts with ₹3 lakh each can trip the wire even though each one looks trivial.

FBAR: the $10,000 trip wire

FinCEN Form 114 is filed online directly with the Treasury’s financial-crimes unit, not the IRS, and not alongside your tax return. The rule: if the combined highest balance of all your foreign accounts during the calendar year exceeded $10,000 at any single moment — even for one day — you must file, listing every account, even the ones that never got close to that number individually. It’s due when your tax return is due, with the same automatic extension to mid-October. There’s no tax owed with it; it’s pure disclosure. The penalty structure is what makes it worth taking seriously: a non-willful miss currently runs up to roughly $16,500 per violation (the exact inflation-adjusted figure moves most years — confirm the current number before relying on it), and a willful failure runs far higher, with real exposure to the greater of a six-figure sum or half your account balance. In practice, the IRS has a standing streamlined filing procedure for people who genuinely didn’t know — catching up voluntarily before you’re contacted is a materially better position than waiting.

FATCA: the second filing, with its own thresholds

Form 8938 is a different rule with different numbers, filed with your 1040 rather than separately. It only applies above thresholds that depend on your filing status and whether you count as living in the US or abroad for the year:

Filing status	Year-end threshold	Any-time-in-year threshold
Single or MFS, living in the US	$50,000	$75,000
Married filing jointly, living in the US	$100,000	$150,000
Single or MFS, living abroad	$200,000	$300,000
Married filing jointly, living abroad	$400,000	$600,000

Most H-1B and L-1 holders living in the US fall under the first two rows — thresholds most people clear faster than they expect once a home, mutual funds, and family accounts are added together. FBAR and FATCA overlap heavily but aren’t the same filing: you can owe both, either, or neither, and filing one doesn’t excuse the other.

The PFIC trap: why your Indian mutual funds are different

This is the one almost nobody warns you about. The US tax code treats most non-US mutual funds, index funds, ETFs, and ULIPs as Passive Foreign Investment Companies (PFICs) — a category built to discourage Americans from parking money in foreign pooled funds, with no idea that a salaried engineer on an H-1B with a SIP from college would ever be caught in it. Once you’re a US tax resident, every PFIC you hold generally needs its own Form 8621 filed every year, regardless of whether you sold anything, and the default tax treatment on any eventual gain or “excess distribution” is punitive: gains get spread over your holding period and taxed at the highest rate for each prior year, plus an interest charge, instead of normal capital-gains treatment. There is a narrow de minimis exception some filers may qualify for — roughly $25,000 total PFIC value for single filers or $50,000 for joint filers, with no sales or distributions that year — but the rules around it are specific enough that this is a line to confirm with a cross-border preparer rather than assume you clear. Preparation cost alone (often $100–$300 per fund, per year, when a professional handles it) is frequently the real reason people stop adding to Indian mutual funds once they’re on a US visa, separate from the tax owed.

A concrete example: you hold ₹8 lakh (roughly $9,600) across two Indian equity mutual funds you started before moving to the US, plus an NRE fixed deposit of ₹5 lakh and a PPF balance of ₹6 lakh. None of these individually looks large in dollars. Combined, you’re over the $10,000 FBAR trigger, likely under the FATCA threshold if you’re single, and you owe two separate 8621 filings for the mutual funds regardless of the dollar amount, because PFIC reporting has no account-size floor the way FBAR does.

What changes if you leave America

FBAR, FATCA, and PFIC reporting are consequences of being a US tax resident — not of your visa or your citizenship. Once you leave and stop meeting the substantial-presence test (and, for most H-1B/L-1 holders, once you’re neither a citizen nor a long-term green card holder), these filings generally end with your final dual-status or nonresident-transition tax year; you don’t keep filing FBARs from India for accounts you’ve always had. Two things complicate this. First, your departure year itself is often still a reporting year — if you crossed any threshold before you left, that year’s FBAR and FATCA filings are still due on the normal schedule, due the following spring, from wherever you’re living. Second, green card holders face a materially different exit: formally abandoning status (Form I-407) and, for some, an exit-tax regime (Form 8854) with its own net-worth and tax-liability tests — a much bigger topic than account reporting, and worth its own conversation with a cross-border CPA before you file your last US return. If you’re an H-1B holder with no green card in progress, the simpler path is common: your reporting obligations largely end with US tax residency, and the Indian accounts you kept just go back to being Indian accounts, taxed under Indian rules.

Common myths, quickly

• “It’s my parents’ account, not mine — it doesn’t count.” If you’re a signer or joint holder, it generally counts for FBAR, even if you never touch it.
• “I don’t owe any US tax on this money, so I don’t need to report it.” FBAR and FATCA are disclosure requirements, independent of whether any tax is owed.
• “My H-1B status means Indian accounts are none of the IRS’s business.” Tax residency, not visa status or citizenship, is what triggers these rules.
• “I’ll just report it next year when it’s bigger.” Thresholds are checked every year independently; a missed year doesn’t get easier by waiting, and penalties accrue per unfiled report.
• “PFIC rules are only for big investors.” Form 8621 has no dollar floor by default — a small SIP from before you moved can still require a filing.

---

Related reading: if the treaty math behind double taxation is unfamiliar, start with The US–India Tax Treaty, Translated into English. Planning an eventual return? The RNOR Playbook covers the transitional window many of these accounts matter most during. And if a green card is in your future, Green Card Money Moves covers the exit-tax exposure this guide only touched on. For one new guide like this a week, see the newsletter.