Comparison of Income Tax filing in India and the US

Written by : Knowledge Centre Team

2025-12-26

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The government of every country is entrusted with the responsibility of providing adequate resources and facilities for its citizens to thrive. In return, the citizens are liable to pay a portion of their annual income - that is, taxes - to the country’s government to ensure that its operations run smoothly. However, not all countries function the same way and therefore, no two tax systems are alike.

In order to understand how tax systems can differ from country to country, let us take a closer look at our own tax system and compare it with that of another - the United States of America. Here are some of the major differences between tax systems, tax filing and tax saving in India and the US.

Key Takeaways

India's tax year runs from April 1 to March 31, while the U.S. follows the calendar year January 1 to December 31
Salary earners in India file taxes through Form 16, while it is Form W-2 in America
India provides standard deductions and exemptions; the U.S. offers standard or itemised deductions depending on taxpayer preference
India follows a centralised tax system; the U.S. has federal and state income taxes, with
variations depending on states
India has taxes deducted at source (TDS); the U.S. has employers withholding taxes on the basis of employee statements

India vs. U.S. Tax Rates

In order to understand the difference between the indian and U.S. taxation systems, we must first understand how their tax rates are determined. In this context, both India and the U.S employ a progressive tax system. Progressive tax systems are those under which the applicable tax rate for an individual increases with their taxable income. Therefore, lower-income individuals are charged a lower tax rate while high-income individuals are charged taxes at higher rates.

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India vs. U.S.: Tax Slabs

To understand the difference between Indian tax and U.S tax, you must familiarise yourself with how the tax rates are divided into categories.

In the Indian tax system, these categories are referred to as ‘tax slabs’. They specify tax rates as they apply to specific ranges of taxable income. Moreover, they differ based on the age of the individual being taxed. These categories are split into:

Individuals up to age 60
Senior Citizen - of age more than 60 but less than 80
Super Senior Citizen - of age more than 80

In the American tax system, these categories are known as ‘tax brackets’ and unlike the Indian tax system, are not determined by age. Instead, they are mainly split based on marital status. The tax brackets for the tax system in the US are as follows:

Single - For unmarried or divorced individuals.
Married Filing Jointly - For married couples who wish to combine their incomes.
Married Filing Separately - this is for married couples who do not wish to combine their incomes and thereby lower their individual income.
Head of Household - For unmarried individuals who pay at least half the amount of money required to keep a home for a Qualifying Person (that is, a dependent).
Qualifying Widow/Widower - For surviving spouses who have dependents, such as children.

Did You Know?

More than 86 million income tax returns were submitted in India for the 2024 assessment year, with estimates of over 91 million for 2025.

Source: Statista

India vs. U.S.: Forms

There is considerable similarity in the type of standard forms required to file taxes in both India and the US. If you are a salaried employee in India, the standard form you require to file your IT returns is the Form 16. The same function is served in the American tax system by the W-2 form.

So, in short, Form 16 is the W-2 equivalent in India.

The Indian tax system also provides forms such as ITR-2 and ITR-4 for other sources of income. Meanwhile, the American tax system has a series of 1099 forms, such as the 1099-R for annuities, 1099-G for unemployment compensation, and 1099-MISC for miscellaneous sources of income.

India vs. U.S.: Deductions

Now, let us closely explore the difference between the Indian tax and the U.S tax savings , by means of tax deductions.

Under the Indian tax system, an annual taxable income under ₹4 lakh is considered exempt from tax. This means that an income ranging from ₹0 to ₹4 lakh will be levied 0% tax. Even if your income is above this threshold, you can lower your taxable income by availing the standard deduction of ₹50,000 under the old regime and ₹75,000 under the new regime if you are a salaried individual or various other tax deductions such as Section 80C, 80CCD and 80E. Please note that most of the popular deductions/exemptions (80C, 80D, HRA, LTA, etc.) are not allowed under the new tax regime.

Under the American tax system, there is no threshold that is exempt from tax. The minimal tax that must be levied on a taxable income, even if it is $0, is 10%.

However, the tax system in the US does provide all its taxpaying citizens with the option of availing a standard deduction. If you opt for the standard deduction as a US taxpayer, that amount is deducted from your taxable income. The applicable tax rates are then levied on the resulting amount.

Alternatively, you can choose not to go for the standard deduction and instead personally itemise your tax returns. With this option, you can choose your own specific deductions as they apply to you. As a US taxpayer, you can choose whichever one of these options results in the lowest taxable income for you.

Tax System Comparison India vs. U.S- At a Glance

Feature	India (FY 2025-26 / New & Old Regime)	United States (Federal, 2025 / Single Filer baseline)
Tax system type	Progressive slabs (“tax slabs” or “regimes”)- individuals can choose between “Old Regime” (with deductions/exemptions) or “New Regime” (simpler slabs & fewer deductions)	Progressive brackets (same system regardless of deductions, but taxable income after standard or itemised deduction)
Basic (zero-tax) threshold	New Regime: ₹ 0–₹ 4,00,000 → Nil tax Old Regime: ₹ 0–₹ 2,50,000 → Nil tax	No built-in “zero-tax slab”- lowest federal rate starts at 10% (for taxable income from $0 upward)
Standard deduction / basic deduction	Under the New Regime: ₹ 75,000 standard deduction allowed for salaried individuals. Under the Old Regime: standard deduction ₹50,000, plus other exemptions/deductions allowed.	For 2025, the standard deduction is US$15,750 for single filers (adjusted annually)
Deductions, exemptions & additional allowances	Old Regime: Allows multiple deductions & exemptions- e.g. investments under certain sections (like 80C, 80D), home-loan interest, HRA, etc. New Regime: only limited deductions allowed (standard deduction ₹ 75,000 + few specific ones)- many older exemptions/disallowed.	Taxpayers can either use the standard deduction or itemise deductions (for expenses like mortgage interest, medical, charitable donations, etc.), whichever is more beneficial.
Tax on low income / entry-level taxpayers	Under the New Regime, income up to ₹4 L is tax-free. Under the Old Regime, up to ₹2.5 L is tax-free.	Even lowest income is taxed (10%), unless standard deduction brings taxable income to $0- effectively low earners may pay little or no tax after deduction.
Complexity / flexibility (regime choice / deductions)	Offers a choice (New vs Old), allowing some flexibility depending on deductions- but if you choose New Regime, you lose many exemptions.	Flexible: you choose standard deduction or itemise deductions- can optimise depending on personal expenses (mortgage, medical, charity, etc.).

Conclusion

At the end of the day, examining the differences in tax filing and tax saving in India and the U.S. helps shed light on how every process can have its own pros and cons. Yet, when it comes to filing your taxes, both countries share considerable similarities today.

Tax returns in both India and the U.S. can be filed manually, entirely online or with the aid of tax filing software programs. Alternatively, you can hire a professional, such as a financial consultant or a CA, to help you out with your tax filings.

In any case, it is recommended that you make optimal tax-saving investments that can help you save considerably for years to come. To that end, an excellent option is the various term plans that we offer from Canara HSBC Life Insurance. These term plans not only offer high life cover at an affordable premium, but also provide tax benefits under Sections 80C and 10(10D) of the Income Tax Act, 1961. By locking in long-term protection, you also secure disciplined savings in the form of lower premiums when purchased early. In effect, a smart term plan can help reduce your tax burden while building financial security for your family at a minimal cost.

Glossary

Form 16: Indian employers' certificate stating TDS and salary details.
Form W-2: A U.S. employer form showing wages and withholdings on taxes.
Standard Deduction: An amount of fixed money subtracted from income prior to the calculation of taxes.
Itemised Deduction: Particular expenses are shown itemised in order to minimise taxable income.
Tax Withholding: The amount of income withheld by employers as tax to cover for the workers.

FAQs

In India, the tax year runs from 1 April to 31 March of the next year. Whereas, in the U.S., the tax year follows the calendar year, 1 January to 31 December.

They use the following:

1. India: Salaried employees receive Form 16 from the employer and usually file returns using ITR-1 or ITR-2.

2. U.S.: Employees receive Form W-2 and file returns using Form 1040.

No, there is no state income tax on individual salary income; only the central government levies income tax.

India uses slabs based on income levels; rates can also vary by age group (regular, senior, super-senior citizens). In the U.S., tax brackets are based on income and filing status (single, married filing jointly, etc.), not age.

They should keep the following in mind:

1. Tax residency rules differ, and each country may tax global income based on residency.

2. The tax years don’t match, so reporting periods must be aligned carefully.

3. Double taxation can occur unless benefits under the India-U.S. tax treaty are properly claimed.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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India vs. U.S.: Tax Slabs

Did You Know?

India vs. U.S.: Forms

India vs. U.S.: Deductions

Tax System Comparison India vs. U.S- At a Glance

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