This guide explores tax-efficient strategies to minimize lifetime taxes, maximize post-tax returns, and navigate US estate tax rules.

📚 Table of Contents

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• Which are the most common accounts in the US that will require conversion to Return to India?
• How can you minimise lifetime taxes on your US investments vs. bringing them to India?
• How does residency status impact your portfolio when returning to India from the US?
• What is the impact of US estate tax rules on NRI portfolios once they return to India?
• What is the impact of Rupee depreciation vs the USD on the plans of bringing US assets to India?
• Which market has higher returns between the US and India?
• How to deal with your US accounts when you return to India?
  • 401k, Traditional or Roth IRAs
  • Brokerage accounts
  • Social Security
  • 529 Education Savings Plans
  • Health Savings Accounts (HSAs)
  • US bank accounts and Certificates of Deposit
  • Loans in the US: mortgages, credit card debt, car and student loans
  • Life insurance policies
  • Real estate
• Will there be exit tax to be paid when you leave the US?
• What are the rules around holding foreign assets while in India?
• What benefits are available using Section 89A on US accounts?
• How to handle NRO and NRE accounts once you plan to return to India?
  • Phase 1: While Still NRI (Abroad)
  • Phase 2: Upon Return to India – RNOR Phase (up to 3 years)
  • Phase 3: After RNOR (Full Resident Status)

Which are the most common accounts in the US that will require conversion to Return to India?

• 401(k) or Other Employer-Sponsored Retirement Plans: these are standard retirement plans offered by US employers.
• Individual Retirement Accounts (IRAs): Including both traditional and Roth IRAs, these are used for investing for retirement beyond employer-sponsored plans.
• Brokerage Accounts: This includes accounts for investing in shares, ETFs, and mutual funds beyond the retirement accounts.
• Secured and Unsecured Loans: Mortgage, Credit card, Car and Educational loans come under this category.
• Checking and Savings Accounts: For day-to-day financial transactions.
• 529 Education Savings Plans: Common among NRIs with children, for future education expenses.
• Health Savings Accounts (HSAs): These are used to save for medical expenses in a tax-free manner
• Certificates of Deposit (CDs): Fixed-term investments offered by most banks like Fixed Deposits (FDs) in India
• Life insurance policies: Includes both term and those policies led with cash value like whole life, universal life, or variable life
• Real Estate: Real estate, though not a financial account, is considered here since it is a significant part of wealth

Apart from these, we will also explore the options of dealing with Social Security and Real Estate when returning to India.

We will measure the effect of these accounts on the following considerations:

• Minimise lifetime taxes (as per known tax laws) in both India and the US.
• Maximise post-tax lifetime returns on the portfolio (including social security payments and real estate)
• Explore the options of withdrawing fully, partially, over time or not at all when coming back to India
• Look at the impact of residency status: H1B holder (or equivalent), Green Card holder or US Citizen at the time of returning
• Impact of IRS estate tax laws on total assets depending on residency status
• Effect of INR depreciation vs. the USD over the next few decades
• Whether there are goals to be funded in USD (e.g., Ivy League college degree for children) or all goals are in INR (retirement, real estate, travel, and lifestyle in India)
• Change of tax status since India starts taxing worldwide income as soon as your status changes from Resident but Not Ordinarily Resident (RNOR) to Resident and Ordinarily Resident (ROR)

In the absence of a crystal ball, we need to set up some thumb rules based on what we know today and extend that based on reasonable expectations based on past trends.

How can you minimise lifetime taxes on your US investments vs. bringing them to India?

The cornerstone of minimising taxes on future US and Indian income is the India-U.S. DTAA.

The next input on understanding taxes is future tax slabs and rates at the time of withdrawal in either country. In general,

• Capital gains are taxed differently compared to normal income
• Tax slabs are progressive with higher incomes being taxed at increasing rates (and vice versa)

Currently, capital gains are taxed at 12.5% and onwards in India and are generally favourable to normal income tax rates for investors in the highest slab rates (30% or more). However, the New Tax Regime in India allows tax-free income up to ₹12 lakhs (for non-salaried) which implies that even ordinary incomes, say via FD interest and dividends can be tax-free for significant capital amounts.

Given that tax rates in the US are progressive, future withdrawals from say a 401k can happen at lower rates vs current slab rates at the point of returning to India. While we don’t know what the tax rates will be in the future in either country, these are reasonable assumptions based on what we know today.

How does residency status impact your portfolio when returning to India from the US?

We will cover these three main groups:

• H1B/equivalent: H1B holders returning to India may still be subject to US tax on worldwide income if they meet the Substantial Presence Test (SPT). If an H1B holder spends 183+ days in the US in a year, they may be classified as US tax residents, even after returning to India
• Green card holders are, from the taxation perspective, the same as US residents. This is also true if you pass the Substantial Presence Test even if you do not hold a green card
• US Citizens, irrespective of their country of birth and present location, are taxed on their worldwide income

What is the impact of US estate tax rules on NRI portfolios once they return to India?

Here it is important to understand the nuance of domicile vs residency.

• residency is relevant to income tax
• domicile applies to estate tax

Domicile status depends on factors such as the amount of time spent in the US vs elsewhere, intentions regarding staying in the US vs leaving and other factors.

An NRI who has come back to India has to apply the above table to their circumstances to understand the estate tax applicable to them. The calculator below shows the effect of the federal estate tax on your US-situs assets.

What is the impact of Rupee depreciation vs the USD on the plans of bringing US assets to India?

Apart from the tax considerations discussed so far, there is also the question of the impact of currency movements on the returns on various investments based on their location.

For example, from 2005 to 2025, the Indian Rupee has gone from ₹43/$ to ₹86/$ or around 3.6% depreciation per year. If we assume even half that depreciation rate on an average, the rupee will reach around ₹100+/$ in another ten years.

For all things remaining equal, every additional $1,000 deferred while bringing back to India is therefore worth more in rupees. We cannot assume that returns in the US in different asset classes will be comparable to the same asset classes in India. Even if we assume that the stock market in India gives higher returns than that in the US, after factoring in the rupee depreciation, the returns will be lower than expected.

Which market has higher returns between the US and India?

Rupee depreciation over this period is around 3.07% a year on an average.

These are point-to-point average returns from 2015-2024 for:

• India: Equity - MSCI India, Debt - Gilts, Gold - INR gold price, Real estate - NHB Residex
• USA: Equity - S&P 500, Debt - iShares 7-10 Year Treasury Bond Index, Gold - USD gold price, Real estate - Case-Shiller U.S. National Home Price Index

We need to keep in mind that these are average returns. There will always be pockets (e.g. in Real Estate) where returns will be dramatically higher (or lower). But if you aggregate the returns from say 10,000 investors, they will converge to the numbers above.

Equities have been a clear winner in India at an asset class level. The case for equity investments in India using mutual funds is extremely straight-forward in India as shown below for SIP investments:

How to deal with your US accounts when you return to India?

It is important to correctly plan withdrawals from your US accounts not only to minimise taxes but also to know how much assets exist in India vs. outside India so that you can plan your investments in India as per that. Here is a case study for such a returning NRI: Barista FIRE Calculator for NRI Returning to India: Can $1 million be enough for this NRI returning to India in 5 years for early-retirement?

401k, Traditional or Roth IRAs

Remember:

India starts taxing worldwide income as soon as your status changes from Resident but Not Ordinarily Resident (RNOR) to Resident and Ordinarily Resident (ROR)

There are three options for dealing with a 401k:

• Full withdrawal before 59½: this will be taxed in the US first (ordinary income tax plus 10% penalty for early withdrawal) and then in India (with DTAA-supported foreign income tax credit). Ensure that you file your tax return in the US whether or not taxes have been withheld (like a TDS) before crediting you the amount.
• No withdrawal until 59½: taxed as ordinary income in the US without 10% penalty. If your employer does not support you continuing, then you need to either rollover into an IRA (Traditional or Roth) or withdraw
• Rollover: Find a traditional IRA provider who supports investing outside the US and roll over to them. Otherwise, you find a similar Roth IRA provider, pay tax (since a Roth is funded with post-tax dollars) and roll the 401k into it. In the future, you can withdraw from the Roth tax-free (up to the contributions made into it) and pay tax on the rest on withdrawal presumably at lower future tax brackets in the US

Note: Monthly pension after 59½ is taxed in the US first with a foreign tax credit available under DTAA when filing ITR in India. Be wary of estate tax whenever leaving large amounts behind in the US.

When dealing with Roth IRAs, which don’t get the tax-free status in India, remember the twin 5-year rules:

• each conversion into Roth can avoid the 10% early withdrawal penalty only if 5 years (from 1st January of the year of conversion) have passed
• tax and penalty-free withdrawals are possible only if the Roth account itself is at least 5 years old (same 1st Jan rule) and you are more than 59½

You can only withdraw the Roth-IRA contributions tax-free (in both US and India) if you withdraw before moving to India. Earnings are taxed and penalized (10%) if withdrawn before age 59½ and before 5 years. If you withdraw after moving to India from your Roth, then you do pay tax in the US but none in India only if you strategically complete the withdrawal in the RNOR stage. When you are ROR in India, at least the income part of the Roth will be taxable in India when you withdraw.

For a Traditional IRA, keeping it intact until 59½ to avoid the 10% penalty, resetting the basis for India on the date of RNOR to ROR conversion in India and filing Form 10-EE under Section 89A can be a good option to maximise the benefits from this account and minimising the tax. For this it is best if the IRA funds are in not in dividend paying funds since the value of growth or accumulating funds will be higher than distributing funds thereby reaching a higher value at the time of the reset of basis.

If you have a Roth 401(k), then it has pro-rata taxation before 59½ for withdrawals. You should get that rolled into a Roth before your status changes to ROR in India.

Here is a numerical example on pro-rata taxation

If you are prioritising contributions to these accounts with an eventual view to return to India, then contributions should go to your 401k (up to the employer match) and then to taxable brokerage accounts first. Adding money to a Roth leads to unnecessary complications for withdrawal-related taxation that a brokerage account will not have. Similarly, if you are following the Backdoor Roth IRA & Mega Backdoor Roth 401(k) strategies, you should stop if you plan to leave the US.

Brokerage accounts

Unless you plan to sell off all the contents in your brokerage account and pay the requisite tax, you can keep some of the contents.

Give Form W-8 BEN to the withholding agent or payer if you are a foreign person and you are the beneficial owner of an amount subject to withholding - IRS website.

Once you leave the US, it is important to inform your broker about the change in your residency status via Form W-8 BEN and provide your new India address. Some brokers do not support foreign nationals to hold a US brokerage account while those like Fidelity, Interactive Brokers and Schwab do allow (it is a good idea to check with customer support of these brokerages first). Here you can use Automated Customer Account Transfer Service (ACATS) transfer to move these securities to the new account.

If you are selling off some of the stocks, it is important to sell off any positions with losses and offset those against profitable positions. This strategy is called tax harvesting.

If you are choosing between a investing in a brokerage account and a Roth IRA, the brokerage is better from a return-to-India view.

Social Security

It is possible for Indian citizens with the required accumulated 40 credits to get Social Security sitting out of India. You can create an account on the SSA website to check your eligibility. You can choose to defer payouts until age 70 to get the maximum benefits.

529 Education Savings Plans

529 plans are tax-free as long as they can be used for qualifying educational expenses either in the US or in eligible foreign institutions (which participate in US Federal Aid programs). Also, money in 529 plans do not count towards the estate of the investor and therefore reduces estate tax liability.

However, if used for purposes apart from college expenses might lead to the removal of tax benefits with a 10% additional penalty. If there are any plans for children going for higher education in the US, then 529 plans should be left as is. If not, there is a high chance of the withdrawal being treated as non-qualifying and requiring the tax plus 10% penalty.

If you are starting a 529 plan and have plans to return to India in the near future, then remember that withdrawals from a traditional IRA for qualifying educational expenses do not trigger tax and penalty.

Health Savings Accounts (HSAs)

HSAs exist when your insurance premiums are so high that you are forced to take up High Deductible Health Plan (HDHP) and then can save for future medical expenses in the HSA to fund that high deductible.

Just like the 529 plan, HSAs can be used tax-free if a withdrawal is needed to fund a qualified medical expense even when outside the US. It is just that you can no longer contribute if you are no longer in the HDHP plan which would be the case when you leave your US employment. Early withdrawals are taxed as ordinary income in the US with a 20% penalty.

If you are planning to return to India, you should lower your HSA contributions unless you have found a qualified hospital in India for HSA-eligible expenses.

Note: All the tax discussion so far is about Federal taxes in the US. Some US states might have their own taxes on withdrawal which would vary from state to state.

US bank accounts and Certificates of Deposit

It is easier to keep on bank account in the US if you plan to receive dividends from brokerage accounts, rental income or pension payments. You need to of course fund a low-cost bank which supports non-resident customers and online transactions. Any US bank accounts must of course be reported both in your US and Indian tax returns.

Loans in the US: mortgages, credit card debt, car and student loans

Being legal obligations, you cannot walk away from loans. Therefore, you need to either pay them off before leaving the US. This might require finding a bank in India which allows you to negotiate foreign exchange rates for such recurring payments.

Life insurance policies

We will cover both types of life insurance: term and non-term with cash value:

• term insurance pays out if the covered person dies during the coverage period. A good usage of this policy is to settle estate taxes
• policies with a cash value (like whole life, universal life, or variable life) grow tax-deferred in the US. However, surrendering or withdrawals exceeding cost-basis is taxable first in the US and then in India (for ROR only with DTAA benefit)

Death benefits are tax-free while the cash value on maturity might be taxable in the US (including estate tax) and in India for ROR.

Real estate

NRIs who have been in the US for sometime are very likely to have a primary residence along with investment properties given attractive rental yields. There are three cases here:

• sell the properties before leaving the US: capital gains are subject to US federal and state income tax and Section 121 exclusion ($250,000 for single filers) might apply (for the primary residence) thereby reducing your tax liability to some extent. Being US tax resident, there is no tax in India
• sell the properties after leaving the US while either RNOR or ROR in India: Here the sale is governed by the Foreign Investment in Real Property Tax Act (FIRPTA) withholding rules of 15% above $300,000 of the sale price and some other considerations. Tax on the sale in the US will depend on the location (for state tax), holding period (less than one year is short-term with tax at income tax rates). Taxation in India will be zero if RNOR or non-zero (for ROR with DTAA benefits) depending on your tax status at the time of the sale
• retain the properties for some time: rental income is taxed with deductions available due to mortgage, property tax, property management and maintenance costs. Future sales will be governed by FIRPTA rules. Taxation in India will be based on status of RNOR or ROR. Being an US-situs asset, estate tax rules apply here.

Will there be exit tax to be paid when you leave the US?

If you have either a Green Card or hold US Citizenship, then you might have to pay exit-tax, called Expatriation tax, when leaving the US permanently. Exit tax applies to the following assets:

US Exit tax rules can be complicated. Use our simple calculator to estimate how much exit tax might be due when you leave the US:

What are the rules around holding foreign assets while in India?

Failure to disclose foreign assets and income can attract stringent penalties and prosecutions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Source: https://www.incometax.gov.in/iec/foportal/sites/default/files/2024-11/Enhancing%20Tax%20Transparency%20on%20Foreign%20Assets%20and%20Income.pdf

While NRIs can hold foreign assets when they are back in India, without RBI permission in general, it is important to declare these holding while filing tax return in India in their Income Tax Return (ITR) in India:

• Schedule FA (Foreign Assets): reporting foreign assets (all of the items mentioned in this guide including real estate)
• Schedule FSI (Foreign Source Income): reporting income from foreign sources (dividends, interest, rental income etc.)
• Schedule TR (Tax Relief): claim tax relief on taxes paid abroad (like under DTAA)

Under FATCA and CRS, foreign countries share information on assets held there to India. Not disclosing these assets in the ITR can lead to a ₹10 lakh fine or even jail-time. If you have missed reporting these details in your ITR, then you can either rectify or file a belated return by 31st December.

What benefits are available using Section 89A on US accounts?

As per Finance Act 2021, Section 89A offers tax exemption and relief for NRIs who have come back from the US, Canada and UK who need to file Form 10-EE (under rule 21AAA) in India while filing income tax return.

A good example for using 89A exemption is deferring the yearly tax due in India on 401k accounts and making the tax treatment the same as the tax-deferral offered in the US for these accounts. 89A benefits are not applicable to 529 plans and their annual growth, on MTM or accrual basis, is taxable in India.

How to handle NRO and NRE accounts once you plan to return to India?

Action Timeline: Pre-Return ➝ RNOR ➝ Resident

Phase 1: While Still NRI (Abroad)

• ✅ Open/maintain NRE and NRO accounts (if not already)
• ✅ Send foreign funds only into NRE (maximum tax efficiency, repatriable)
• ❌ Avoid sending funds into NRO unless it’s unavoidable

Phase 2: Upon Return to India – RNOR Phase (up to 3 years)

Phase 3: After RNOR (Full Resident Status)