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General information only. Not investment, tax or legal advice. Naming a fund category is not a recommendation to buy, hold or sell anything. Prem Tax and Accounting Corp is a CPA firm, not a law firm. Rules differ by country and change often: confirm with the official source or a qualified adviser before you act. Read the full notice. Book a 10-minute call.
Mutual Funds in India

FBAR, Form 8938, the India treaty and tax credits

An Indian folio opens several U.S. reporting duties. Here is how the FBAR and Form 8938 work for folios, what the 1989 treaty does, and how Indian tax becomes a credit.

Prepared by Prem Tax and Accounting Corp. Last checked against official sources on November 5, 2026.

An Indian folio (your account with a fund house) opens three reporting doors for a U.S. taxpayer: the FBAR, Form 8938 and the return itself. Our Three-Door Reporting Walk keeps them apart. PFIC rules are in PFIC and Form 8621.

The short version
  • FBAR (FinCEN Form 114): filed online with FinCEN, and due once all foreign accounts added up to more than $10,000 at any time in the year.
  • Form 8938 goes with the return above set limits, over $50,000 at year end (single, living in the U.S.).
  • According to the IRS, foreign mutual funds belong on both forms. A timely Form 8621 takes a fund off the Form 8938 list, but never off the FBAR.

Slide show: Reporting an Indian folio in four slides

  1. Folios

    We read an open-ended Indian folio as a reportable account.

  2. Adding up

    Folios, demat (electronic share) accounts and NRE or NRO accounts count together toward the $10,000.

  3. Joint and power of attorney

    Each U.S. joint holder reports the full value. A power of attorney to redeem counts too.

  4. Value and rate

    Take the year's highest value and convert it with the Treasury rate for December 31, which was 89.854 rupees per dollar for 2025.

The numbers

ItemRuleTax year
FBAROver $10,000 combined; due April 15, 2026 or 2027 (October 15 automatic)2025, 2026
FBAR penaltyNon-willful: up to $16,536 for each report; willful: up to 50% of the balance or $165,353, whichever is greater2025 table; none yet for 2026
Form 8938, in the U.S.Over $50,000 year end or $75,000 any time; joint $100,000 and $150,0002025, 2026
Form 8938, abroadOver $200,000 or $300,000; joint $400,000 and $600,0002025, 2026
Form 8938 penalty$10,000, plus up to $50,000 after IRS noticeAll years
Illinois4.95% rate; no credit for foreign tax2025

Abroad: a foreign tax home plus a full year of residence there, or 330 full days abroad in 12 months. FinCEN usually updates its penalty table in January; Treasury posts its exchange rates each quarter.

Treaty and credits

  • The 1989 treaty has had no amending protocol. Article 13 lets each country tax gains under its own law, Article 25 gives a U.S. credit under U.S. rules, and a saving clause keeps U.S. tax on citizens and residents.
  • The foreign tax credit (Form 1116) counts only the final Indian bill; TDS (tax deducted at source) that a return can refund is not tax paid.
  • A gain on units sold by a person with a U.S. tax home is U.S.-source, so Indian tax on it may find no foreign income to offset.
  • The foreign tax credit cannot reduce the 3.8% net investment income tax. Illinois credits only tax paid to other U.S. states, D.C. and territories.
Not settled Whether IDCW (dividend-option payouts) is a treaty dividend, whether a gain can be re-sourced by treaty, and whether Indian tax offsets PFIC tax are all open.

Our checklist

The Three-Door Reporting Walk:

  • Door 1, FBAR: list each Indian account with its highest rupee value.
  • Door 2, Form 8938: add all foreign financial assets and compare with the limits.
  • Door 3, the return: record each payout, redemption and tax withheld, as our India tax guide explains.

Common questions

Is a joint folio with my parent reportable?

Every U.S. person named on the folio reports the whole value. A parent who lives in India and is not a U.S. person files nothing.

What if earlier FBARs were missed?

File as soon as possible through FinCEN's online system, with the reason. The IRS removed its separate late-FBAR page in mid-2026; the streamlined procedures remain.

Does the foreign tax credit reduce PFIC tax?

That is not settled. The code's PFIC credit rule is written for tax withheld on distributions. See our [treaty comparison](/indian-mutual-funds/countries/treaties-compared/) and [Indian CPA page](/indian-cpa/).

Official sources

Keep reading

Questions about how your Indian funds are reported on a U.S. return? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare the U.S. side (for example Form 8621, FBAR and Form 8938) and can work alongside your adviser in India, Canada or Europe. We do not sell, rate or recommend any investment. Book a 10-minute call or send us a message.

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