Schedule B for H-1B Holders: Reporting Indian Interest and Dividends

If you earn more than $1,500 in interest or dividends — including from Indian bank accounts — you must file Schedule B. Part III of this form asks about foreign accounts, and your answer triggers cross-checks against FBAR and FATCA filings.

What Is Schedule B?

Schedule B is an attachment to Form 1040 that itemizes your interest and ordinary dividend income. It has three parts:

• Part I — Interest: List each payer and the amount of interest received. Required if your total interest income exceeds $1,500.
• Part II — Ordinary Dividends: List each payer and the dividend amount. Required if total ordinary dividends exceed $1,500.
• Part III — Foreign Accounts and Trusts: Two questions about whether you had a financial interest in or signature authority over a foreign financial account, and whether you received a distribution from a foreign trust. This section is required regardless of the $1,500 threshold if you have foreign accounts.

For most H-1B holders from India, the answer to Part III Question 7a is "Yes" — you have Indian bank accounts, EPF, PPF, or investment accounts. This answer does not by itself trigger additional tax, but it tells the IRS to expect corresponding FBAR and FATCA filings from you.

Indian Interest Sources You Must Report

Every dollar of interest earned from Indian accounts must be reported on your U.S. return, converted to USD. Here are the most common sources:

INR to USD Conversion

All amounts on Schedule B must be in U.S. dollars. Convert Indian rupee amounts using the IRS yearly average exchange rate for the tax year. For 2026, the IRS publishes this rate in early 2027. Do not use the spot rate on the day interest was credited — the IRS requires the annual average rate for consistency.

Part III: The Foreign Account Question

Part III, Line 7a asks: "At any time during [the tax year], did you have a financial interest in or a signature or other authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?"

If you have any Indian bank account — NRE, NRO, savings, FD, demat, EPF, PPF, NPS, or mutual fund account — the answer is "Yes." You must then indicate the country (India) and whether you are required to file FinCEN Form 114 (FBAR).

This is where the IRS creates a cross-reference. If you answer "Yes" on Part III but do not file an FBAR, or if you file an FBAR but answer "No" on Part III, the mismatch is automatically flagged. The same logic applies to FATCA (Form 8938) — your Schedule B answer should be consistent with your other foreign account filings.

Common Mistakes

• Not reporting NRE interest: Since NRE interest is tax-free in India, many H-1B holders assume it is also tax-free in the U.S. It is not. Every dollar of NRE interest is taxable U.S. income.
• Forgetting EPF interest: EPF interest is credited annually but most people never check their EPF passbook. The interest is still taxable in the year it is credited, whether you noticed it or not.
• Reporting net-of-TDS amounts: Schedule B requires the gross interest amount, before any Indian tax was deducted. If your NRO account earned $5,000 gross and India withheld $1,500 TDS, report $5,000 on Schedule B (not $3,500). Claim the $1,500 TDS as FTC on Form 1116.
• Answering "No" to Part III: If you have any Indian financial account, the answer must be "Yes." Answering "No" creates an inconsistency with your FBAR and FATCA filings that the IRS matching system will catch.
• Using wrong exchange rates: The IRS requires the annual average rate, not the spot rate on the date of receipt. Using inconsistent rates across different forms raises questions during processing.

How Our Platform Handles This

H1B TaxFile builds Schedule B automatically from the income data you enter:

• Indian interest and dividend amounts are converted from INR to USD at the IRS yearly average exchange rate, applied consistently across all forms.
• Gross interest amounts are placed on Schedule B, and the corresponding TDS amounts flow to Form 1116 for the Foreign Tax Credit — no manual coordination needed.
• Part III is answered automatically based on whether you reported any Indian financial accounts. If you did, we answer "Yes" and indicate India as the country.
• We provide a post-filing FBAR reminder if your account data suggests you meet the $10,000 aggregate threshold, ensuring consistency between your Schedule B answer and your FBAR filing status.