Foreign Tax Credit Calculator (Form 1116)
See how much of the Indian tax you paid on NRO interest, rent, dividends or gains offsets your US tax this year, and how much carries forward, using the Form 1116 limitation.
What this Form 1116 calculator works out
This tool applies the foreign tax credit limitation in IRC section 904, the way Form 1116 does, to the Indian income a US tax resident reports on Form 1040. You enter your US income, your Indian passive income (NRO interest, dividends, rent, capital gains) with the Indian tax paid on it, and optionally Indian salary or consulting income. It converts the rupees, apportions your deduction to the Indian income, computes your US tax before credits, and returns three numbers: the Form 1116 limit, the credit you can use this year, and the excess that carries forward for up to 10 years.
It is the domestic law view, one layer deeper than the treaty view. The DTAA tax calculator tells you what rate India may charge; this one tells you how much of that Indian tax the IRS will actually let you credit. It uses tax year 2025 rates and the standard deduction as raised by the OBBBA by default (returns filed in 2026), with a 2024 option for a late or amended return.
How to use the foreign tax credit calculator
Step 1: Pick your filing status
Tap Single, Married filing jointly, Married filing separately or Head of household. The status sets the bracket table, the standard deduction ($31,500 joint, $15,750 single for 2025) and the $300 or $600 threshold for skipping the form.
Step 2: Enter your US income before deductions
Use your W-2 wages plus interest, dividends and other US income. This is the larger half of your worldwide income and it drives both your US tax and the ratio that caps the credit.
Step 3: Enter Indian passive income and the tax paid on it
Add up NRO interest, dividends, rent and capital gains in rupees, then the Indian income tax on that income including TDS, surcharge and cess. Form 26AS and the AIS are the fastest source. NRE interest is exempt in India, so leave it out of the tax figure.
Step 4: Add Indian salary or consulting income if any
Salary and self-employment income sit in the general category and get their own Form 1116. When you enter an amount, a field for the Indian tax on it appears.
Step 5: Open More options only if they apply
Switch to tax year 2024, edit the exchange rate, enter itemized deductions if they beat the standard deduction, mark anyone 65 or older, and enter unused passive credit from earlier years. Then select Calculate My Credit.
How the Form 1116 limitation is calculated
Form 1116 Part III computes, for each category of income, a limit equal to your US tax before credits (line 20) multiplied by the ratio of net foreign source taxable income (line 15) to worldwide taxable income (line 18), rounded to four decimals on line 19. The credit on line 22 is the smaller of the foreign tax available (line 9) and the limit (line 21). Tax above the limit carries back one year and forward ten years under section 904(c).
The subtle part is line 15. Your standard deduction is not definitely related to any income, so a share of it is allocated to the Indian income in proportion to gross income, which shrinks both the numerator and the denominator. The worked example below is the one the engine is tested against.
| Form 1116 line | Input or step | Amount |
|---|---|---|
| Part I, line 1a | NRO interest ₹4,00,000 + rent ₹6,00,000 at 83 | $12,048 |
| Part II | Indian tax ₹1,20,000 + ₹1,20,000 at 83 | $2,892 |
| Part I, line 3e to 3g | $31,500 standard deduction x 0.0627 (12,048 / 192,048) | $1,975 |
| Part III, line 15 | Net foreign source taxable income | $10,073 |
| Part III, line 18 | Worldwide taxable income ($192,048 less $31,500) | $160,548 |
| Part III, line 19 | Ratio, 10,073 / 160,548 | 0.0627 |
| Part III, line 20 | US tax before credits, 2025 joint brackets | $25,149 |
| Part III, line 21 | Limit, $25,149 x 0.0627 | $1,577 |
| Part III, line 22 | Credit, smaller of $2,892 and $1,577 | $1,577 |
| Schedule B | Carryover, $2,892 less $1,577 (back to 2024, forward to 2035) | $1,315 |
The couple paid an effective 24% in India against a 22% US marginal rate on the same income, so only 55% of the Indian tax is usable this year. That gap, not the treaty, is why NRIs feel taxed twice.
Passive vs general category income for NRIs
Form 1116 is filed once per category, and credit in one category cannot offset US tax on another. Most NRI income is passive. The table maps the common Indian income types to the category the calculator uses and the Indian tax you will typically see on Form 26AS.
| Indian income | Form 1116 category | Typical Indian tax |
|---|---|---|
| NRO savings and FD interest | Passive | 30% TDS plus 4% cess under section 195 |
| NRE interest | Passive, but zero credit | Exempt in India, no TDS |
| Rent from Indian property | Passive | Slab rate; tenant withholds 30% plus cess (Form 15CA/15CB if remitted) |
| Dividends from Indian shares | Passive | 20% TDS, or 25% treaty rate on the return |
| Capital gains on property, shares, mutual funds | Passive | 12.5% LTCG or 20% STCG on listed equity; 12.5% LTCG on property (FY 2025-26) |
| Indian salary, consulting, freelance | General | Slab rate, up to 30% plus cess |
| Passive income taxed above 37% in India | Moved to general (high-tax kick-out) | Rare for NRIs; the tool flags it |
Indian mutual funds and ULIPs raise a separate problem: they are usually PFICs, and Form 8621 rules can strand Indian capital gains tax in a year with little US tax. Run the PFIC calculator before you count on that credit.
When you can skip Form 1116 ($300/$600 election)
Section 904(j) lets you claim the credit directly on Schedule 3 without Form 1116 if all your foreign income is passive, it and the foreign tax are reported to you on a payee statement such as a Form 1099-INT, 1099-DIV or Schedule K-1, and your total creditable foreign tax is $300 or less ($600 married filing jointly). The calculator shows this as an alternative outcome when the dollar test is met. The election ignores the limitation, so in a limited year it can give you more credit than Form 1116 would, but you forfeit any carryback or carryforward for that year.
The catch for NRIs is the payee statement condition. An Indian bank interest certificate or Form 16A is not a US payee statement, so many CPAs file Form 1116 for NRO interest even under $600 rather than rely on the election. Ask before you skip the form.
What to do with your result (carryover, Schedule B, exchange rate)
If the credit equals the Indian tax paid, file Form 1116 for the passive category with your 2025 return by April 15, 2026 (October 15, 2026 on extension) and carry line 22 to Schedule 3, line 1. If the credit is limited, attach Schedule B (Form 1116) so the carryover is on record; it can be carried back to 2024 by amending that return, or forward through tax year 2035. Carryover is only useful in a year with US tax and Indian income in the same category, so plan NRO deposit maturities, property sales and large US deductions together.
Document the exchange rate. Publication 514 says cash basis taxpayers use the rate on the date the tax was paid or withheld, while the yearly average is accepted for taxes that accrue across the year. Apply it consistently and keep Form 26AS and the TDS certificates with your return. If you arrived in or left the US partway through the year, run the substantial presence test first, because a dual-status year changes what counts as worldwide income. And read the US-India treaty mistake most NRIs make before you assume Article 25 removes the limitation. It does not.
Common Form 1116 mistakes NRIs make
- Crediting tax that was never paid: NRE interest is exempt in India, so entering it as taxed income inflates the credit and invites a notice.
- Putting Indian salary and NRO interest on one Form 1116. They are separate categories with separate limits.
- Skipping the deduction apportionment on line 3e. Gross Indian income over gross worldwide income overstates the ratio and the limit.
- Forgetting last year's carryover. Excess credit is only used if you reconcile it on Schedule B; it does not appear on its own.
- Claiming refunded TDS. If India refunds part of the TDS after your Indian return, the creditable tax is the net amount and a later refund needs a corrected Form 1116.
- Assuming the treaty removes the limit. Article 25 obliges the US to give a credit, but only under US law, which means Form 1116.
For the form itself, line by line, read our Form 1116 guide.
Frequently Asked Questions
How to calculate foreign tax credit?
Under IRC section 904 the credit is the smaller of the foreign income tax you paid and a limit. The limit is your US tax before credits multiplied by the ratio of your net foreign source taxable income to your worldwide taxable income, worked separately for each category on Form 1116 Part III. Net foreign income means the Indian income after a ratable share of your standard or itemized deduction. Any Indian tax above the limit is not lost: it carries back one year and forward ten years. This calculator runs that computation for the passive and general categories with 2025 or 2024 rates.
Is it worth claiming foreign tax credit?
Almost always, yes. The credit reduces your US tax dollar for dollar, while deducting the same Indian tax on Schedule A only saves your marginal rate on it and only if you itemize. On $2,892 of Indian tax at a 22% marginal rate, the deduction is worth about $636 and the credit is worth up to $2,892. The only reasons to hesitate are cost of preparation for very small amounts, which the $300/$600 election solves, and years when the limit is zero because you owe no US tax, in which case the credit is still worth recording as carryover.
What is the foreign tax credit and how does it work?
The foreign tax credit is a US domestic law credit under IRC sections 901 and 904 for income tax paid to another country on income the US also taxes. As a US tax resident you report your Indian NRO interest, rent, dividends and gains on Form 1040; India has usually already withheld TDS under section 195. Form 1116 converts that Indian tax to dollars, limits it to the US tax attributable to the Indian income, and flows the allowed amount to Schedule 3, line 1. It is not the same as the foreign earned income exclusion (FEIE), which excludes wages earned abroad rather than crediting tax paid.
How do you calculate foreign tax credit relief?
On the US side, relief is the Form 1116 credit described above: US tax before credits multiplied by the foreign income ratio, capped at the Indian tax actually paid. If you file in India as well, the mirror image applies there under Rule 128 and Form 67 (Form 44 from 1 April 2026): India credits US tax on income it also taxes, again capped at the Indian tax on that income. Article 25 of the US-India treaty confirms both countries give relief, but each does the arithmetic under its own law. Use this tool for the US side and the DTAA tax calculator for the treaty rates.
Can I claim a credit for Indian TDS on NRE interest?
No, because there is none. Interest on NRE savings and fixed deposits is exempt from Indian income tax under section 10(4)(ii), so no TDS is deducted and there is no foreign tax to credit. The interest is still fully taxable in the US and must be reported on Schedule B, and the account may need FBAR and Form 8938 reporting. NRO interest is different: it is taxed in India, TDS is normally withheld at 30% plus cess under section 195, and that tax is creditable on Form 1116 in the passive category.
Is the credit or the deduction better?
The credit, in nearly every case. A credit cuts your US tax by the full creditable amount, up to the Form 1116 limit, and any excess carries forward for ten years. A deduction only lowers taxable income, so it saves your marginal rate on the Indian tax, and it is useless if you take the standard deduction. The deduction can win only in unusual years, for example when the limit is zero and you expect no Indian income for a decade, or when the Indian tax is not a creditable income tax. You must pick one method for all foreign taxes in a year.
Paying tax twice on Indian income? Get every dollar of credit you are owed.
An NRI tax advisor based in the US prepares Form 1116, the passive/general split, and the carryover schedule so nothing is left on the table.