US-India Cross-Border Tax and Regulatory Compliance in 2026

Five regulatory updates. Two countries. One unmistakable message: cross-border compliance is becoming far less forgiving.

Enterprises with an operational or financial nexus to both the United States and India are again subject to a materially changed regulatory landscape. Authorities in both jurisdictions promulgated changes affecting cross-border fund movement, income reporting, workforce sponsorship, and tax credit availability in a compressed window in mid-2026.

None of these developments individually got a lot of international coverage. However, taken in the aggregate, they point to a consistent trend: cross-border tax compliance between the United States and India is becoming stricter, more data-driven, and materially less tolerant of error.

This briefing provides an overview of the most significant developments and, in each case, identifies the substantive change, the compliance implications and remedial action to be taken. The analysis is generally applicable to a number of structures, including early-stage companies hiring Indian development teams, U.S. subsidiaries of Indian parent companies, and IT services companies dependent on H-1B labor.

The developments discussed are also equally relevant to Chartered Accountants (CA) and Certified Public Accountants (CPA) advising clients on cross-border structuring, reporting obligations and treaty positions, to the extent the developments discussed materially impact existing advisory frameworks and disclosure practices.

Why United States-India Compliance Is Intensifying in 2026

For an extended period, cross-border principals operated on the premise that timely filing and full payment of liabilities were sufficient, with residual matters resolving themselves. That premise is no longer tenable.

Three factors are driving this shift:

•  Automatic exchange of information. Revenue authorities now exchange financial account data across jurisdictions under FATCA intergovernmental agreements and the OECD Common Reporting Standard. One jurisdiction increasingly reconciles positions reported there against records held by the other.
•  Intensified enforcement. Agencies are transitioning from passive examination to active investigation, issuance of subpoenas, and listed-transaction designations.
• Transparency mandates. Regulators now require substantiation of the commercial rationale, beneficial ownership, and audit trail of funds underlying each cross-border transaction.

The end result is a regulatory framework where real-time documentation serves as real security rather than a mere administrative formality. What follows is an examination of each major advancement.

India: Expanded Reporting Obligations on Outbound Capital and Foreign Assets

Reserve Bank of India: Heightened Scrutiny of Overseas Direct Investment

The Reserve Bank of India (RBI) has intensified surveillance of overseas direct investment (ODI) undertaken under the Foreign Exchange Management Act, 1999 (FEMA) and the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022. Resident entities making outbound investments are now required to disclose substantially more than transaction value;

specifically, they must substantiate the following:

•  The commercial rationale underlying the investment;
•  The governance structure and beneficial ownership of the foreign counterparty;
•  The anti-money-laundering (AML) procedures and due diligence conducted;
•  The intended application of funds.

This follows an increase in ODI outflows. The RBI’s objective is transparency, specifically the prevention of fund diversion and opaque holding structures. Practical implication: structures that route U.S. investment through a resident Indian entity should anticipate expanded regulatory inquiry within the authorized dealer (AD) bank and the Form FC / Annual Performance Report reporting channel, together with extended approval timelines. Inadequate documentation now constitutes a material compliance exposure.

Integration of Foreign Financial Account Data into Form 26AS

The Central Board of Direct Taxes (CBDT) has directed that foreign financial account information received from international authorities, principally through FATCA intergovernmental agreements and CRS exchange, be integrated into Form 26AS, the consolidated annual tax statement maintained under Section 285BB of the Income Tax Act, 1961, and Rule 114-I.

Consequently, the taxpayer’s Indian record will reflect foreign income and account data alongside domestic information. While this procedure helps compliant taxpayers report accurately, it also allows the tax administration to identify discrepancies between amounts self-reported and amounts reported by foreign authorities in near real time.

Illustration: A non-resident Indian (NRI) principal holds a U.S. brokerage account. Under the revised integration, that account data may appear in Form 26AS; if the Indian return omits it, the resulting discrepancy will be apparent immediately.

SEBI: Denomination of FPI Fees in Indian Rupee

The Securities and Exchange Board of India (SEBI) has amended the framework under the SEBI (Foreign Portfolio Investors) Regulations, 2019 such that Foreign Portfolio Investors (FPIs) remit registration and renewal fees in Indian Rupees rather than U.S. dollars, with payments effected through Designated Depository Participants (DDPs).

The amendment simplifies operations and reduces foreign-exchange friction. For U.S.-domiciled funds with Indian exposure, this constitutes a limited but tangible operational adjustment requiring corresponding updates to treasury and payment workflows.

Continuity of Approvals Under the Income-tax Act, 2025

Concerns had arisen that the Income Tax Act, 2025, would extinguish approvals granted under the Income Tax Act, 1961. The CBDT has clarified that it will not.

Existing approvals, certificates, registrations, exemptions, deductions, and tax benefits, including nil or lower withholding (TDS) certificates issued under Section 197 of the 1961 Act, remain valid unless specifically withdrawn and continue under the corresponding provisions of the 2025 Act.

Practical implication: a lower-withholding certificate does not lapse automatically. Nevertheless, practitioners should confirm that each certificate maps cleanly to the corresponding provision of the 2025 Act before continued reliance.

Goods and Services Tax: Statutory Protection of Recipient Input Tax Credit Against Supplier Default

The Law Committee of the GST Council has approved a proposal to protect a recipient’s Input Tax Credit (ITC) where a supplier fails to remit GST.

Under the prevailing position, a compliant recipient could forfeit their Input Tax Credit (ITC) solely because the supplier did not deposit the tax, as reflected in Section 16(2)(c) of the CGST Act, 2017, and the reversal mechanism in Rule 37A. Under the approved change, the recipient retains the credit where

•   The supplier has reported the invoice
•   Payment was effected through legitimate banking channels.

The tax administration would then recover the unremitted GST directly from the defaulting supplier rather than from the bona fide recipient.

Recommended action: Maintain complete records of tax invoices and bank-traceable payments; these now constitute the primary evidentiary defense.

The United States: Relief, Enforcement, and Immigration Uncertainty

Internal Revenue Service: Automatic Penalty Relief

The Internal Revenue Service (IRS) has introduced an automatic penalty relief mechanism for qualifying taxpayers. Eligible taxpayers are no longer required to submit a separate abatement request; the IRS identifies qualifying accounts and applies relief systemically.

This reduces administrative burden and processing delay. Material caveat: the underlying filing and payment obligations remain due in full. The relief abates certain additions to tax, for example, failure-to-file and failure-to-pay penalties under IRC Section 6651, not the underlying tax liability.

Treasury and IRS: Designation of Trust-Based Avoidance Arrangements

The U.S. Department of the Treasury and the IRS have designated certain Charitable Remainder Annuity Trust (CRAT) transactions under IRC Section 664, specifically those paired with single-premium immediate annuities (SPIAs), as listed transactions.

Designation as a listed transaction carries significant consequences. It triggers heightened disclosure obligations for participants under Treasury Regulation Section 1.6011-4, material advisor obligations under IRC Sections 6111 and 6112, and corresponding recordkeeping duties, with penalties under IRC Section 6707A for noncompliance and elevated enforcement exposure. When these arrangements are used in an estate or philanthropic structure, it is necessary to consult with qualified counsel right away.

Data Security: The 2026 “Protect Your Clients; Protect Yourself” Campaign

The IRS, in conjunction with the Security Summit, has launched the 2026 “Protect Your Clients; Protect Yourself” campaign. The five-week series addresses IRS-impersonation schemes, phishing, and credential theft.

For finance functions and advisory practices, the operative point is that cross-border data constitutes a high-value target. Robust security controls, staff training, and a documented incident-response plan are baseline expectations. For practitioners, these obligations are formalized in the written information security plan (WISP) required under the FTC Safeguards Rule (16 CFR Part 314) and IRS Publication 4557.

Department of Labor: Investigations into the H-1B and PERM Programs

The U.S. Department of Labor (DOL) has opened investigations into alleged fraud in the H-1B visa and PERM permanent-labor-certification (green-card) programs, following whistleblower complaints. Federal subpoenas have been issued, and at least one major IT services firm has been named.

The investigation examines suspected fraudulent applications, worker exploitation, and program misuse. Practical implication: Indian nationals receive approximately 70% of H-1B visas annually; accordingly, any tightening disproportionately affects Indian IT companies and their U.S. clients. Accurate, well-substantiated labor filings, namely the Labor Condition Application (Form ETA-9035) and the PERM application (Form ETA-9089), are essential.

Immigration Uncertainty for F-1 Students and H-1B Workers

The U.S. administration is considering more stringent measures across the F-1 student and H-1B nonimmigrant categories. Proposed changes include narrower eligibility criteria, additional verification, and expanded compliance review.

Indian applicants, who constitute a substantial proportion of all U.S. visa applicants, may encounter extended processing, increased documentation requirements, and greater approval uncertainty. Sponsoring entities should develop workforce contingency plans and avoid concentration risk arising from dependence on a single visa category.

Capital Flows: Return of Foreign Portfolio Investment to Indian Equities

Following four consecutive months of outflows, foreign portfolio investors were net purchasers of Indian equities in July 2026. The reversal followed renewed debt-market interest in June.

Improved macroeconomic indicators, rupee stability, and constructive global risk sentiment drove the reversal. For cross-border investors, the indicator is one of renewed confidence; however, the tightened SEBI and RBI requirements addressed above mean that such confidence must be accompanied by more rigorous compliance.

Summary of Impact by Development

Common Deficiencies in United States-India Cross-Border Compliance

•   Assuming the two filings never reconcile. Given Form 26AS integration and automatic exchange of information, they do; positions must be reported consistently across both jurisdictions.
•   Treating documentation as discretionary. The RBI and the DOL now expect a clear evidentiary trail; inadequate files invite examination.
•   Disregarding the DTAA. Many taxpayers overpay by failing to claim relief under the India-U.S. Double Taxation Avoidance Agreement or the associated foreign tax credit.
•   Relying on a single visa category. Concentrated H-1B exposure now constitutes a business-continuity risk.
•   Conflating penalty relief with abatement of tax. The IRS may abate a penalty but not the underlying liability.
•   Awaiting a notice. Once a discrepancy notice issues, available remedies narrow; reconciliation should be undertaken proactively.

Recommended Practices for Cross-Border Tax and Compliance

•   Establish a single source of truth. Maintain one reconciled ledger of U.S. and Indian income, accounts, and filings.
•   Document the commercial rationale. Contemporaneously record the business purpose supporting every cross-border transfer and investment.
•   Map certificates to the 2025 Act. Confirm that nil or lower TDS certificates (Section 197) and exemption certificates continue validly under the Income Tax Act, 2025.
•   Maintain bank-traceable payment trails. These now protect the recipient’s GST input tax credit under the approved amendment.
•   Audit immigration filings annually. Subject H-1B and PERM documentation to the same rigor as a financial audit.
•   Harden data security. Adopt the IRS Security Summit controls, namely staff training, multi-factor authentication, and a documented incident-response plan, consistent with WISP requirements under the FTC Safeguards Rule.
•   Review structures with a dual-qualified advisor. A combined CPA (USA) and CA (India) perspective identifies gaps that a single-jurisdiction advisor may overlook.

Frequently Asked Questions (FAQ)