Moving back to India? What NRIs need to know about US tax obligations

An Indian professional spends years in the United States, leaves the job, sells or leases the house, packs up and flies back home. They assume the American story is closed. But physically leaving the US may not always mean their US tax residency ends, and that misunder standing leads to some expensive mis takes returning non-resident Indians (NRIs) make.

Leaving the US is often treated as a simple immigration decision, when in reality the US tax residency does not necessarily end when NRIs leave the country, and the fact that an immigra tion status has expired or that a person has physically relocated to India does not by itself answer the tax question.

Where residency ends

The first thing to understand is that immigration status and tax residency are two separate concepts, and they often overlap but they are governed by different rules; the distinction becomes particularly important when someone leaves the US permanently. For citi zens, the rule is simple but long-lasting. “US citizens are taxed on global income and assets for income and estate tax purposes, regardless of where they reside, until they formally cease to be US citizens,” says Gautami Gavankar, President at Kotak Mahindra Bank.


Green card holders occupy the most difficult middle ground. Sidhant Agarwal, Co founder of India for NRI, a cross-border legal and taxation consulting firm, explains, “For a green card holder, residency continues un til the card is formally surrendered (Form I-407) or revoked.” Merely letting the card lapse does not work. Gavankar adds a warn ing that matters especially for the wealthy: “Complex rules apply to US citizens who renounce their US citizenship and long-term permanent residents ( e.g., green card hold er) who relinquish their status formally af ter holding the green card for any part of the 8 of the past 15 years. If an individual is con sidered a ‘covered expatriate’ he/she will be deemed, among other things, to have sold all their assets at a fair market value. Further any subsequent gifts or bequest from a cov ered expatriate to a US person will be subject to inheritance/estate tax. Professional tax and immigration advice should always be sought prior to obtaining or relinquishing a green card.” US could impose an expatria tion tax on such individuals.

With respect to those on H-1B, L-1 or H-4 visas, Sonam Chandwani, Managing Partner at law firm KS Legal & Associates, says, “The visa itself does not determine whether the person is a US tax resident. The substantial presence test becomes important.”

Ankur Punj, MD and Business Head, Equirus Wealth, explains that the test “gen erally requires at least 31 days in the current year and at least 183 weighted days over the current year and the two preceding years.”

The year of departure is where people make most mistakes, because they have one foot in each country. “The individual may have earned salary in the US for part of the year, received a bonus later, had RSUs (restricted stock units) vest after depar ture, continued to receive dividends from American investments, retained a US bank account and simultaneously started earning income in India. All of that has to be mapped against the person’s residency status for the relevant period,” Chandwani explains.

That mess translates into a specific filing shape. “A green card holder gener ally files a dual-status return: Form 1040 for the resident portion of the year, Form 1040-NR for the non-resident portion,” says Sandeep Bhalla, Partner, Dhruva Advisors. Determining the correct residency termina tion date is critical.

And there is also a trap in where taxpay ers focus their attention. “In practice, I find that people worry too much about filing the basic income tax return and too little about information returns. That is backwards,” says Chandwani. “A person may have little or no additional tax payable and still face significant reporting obligations.”

Your American money

Once filing is clear, the harder question is: what of the wealth left behind? On bank and brokerage accounts, experts unanimously agree wholesale closure is not the answer.

Chandwani says, “There’s no need to close every American bank or brokerage account before moving. There are legitimate reasons to retain them.” The real task is reclassifica tion, she adds. “A person who has become a non-resident alien should not continue rep resenting himself to a financial institution as a US person merely because the account was opened while he was living in the US.”

Bhalla frames this task plainly: “They can generally be retained, but the financial in stitution should be informed of the change in tax residency and appropriate tax documen tation should be provided where applicable.”

The same caution applies to US-listed stocks and exchange-traded funds (ETFs). Nobody recommends selling everything on the way out. “A former US resident can in many circumstances continue to hold US se curities, although the brokerage firm’s own rules and the applicable tax documentation need to be considered,” notes Chandwani.

Timing a sale, though, is a genuine plan ning lever. If one has accumulated substan tial unrealised appreciation in US shares, selling immediately before leaving and sell ing after becoming a non-resident can pro duce very different US tax consequences.

The answer depends on the person’s residency date, Indian tax residency, treaty position, nature of the security and the indi vidual’s broader portfolio. Capital gains on US stocks/ETFs held by a non-resident are typically not subject to US tax at all.

“But I would strongly resist giving a blan ket instruction to ‘sell before/or after leav ing’,” says Chandwani.

Bhalla points to the Indian side of the same coin: “Upon becoming a resident, it is imperative to make appropriate disclosures as required under Indian income tax laws to safeguard from potential penalties framed around non-disclosure of foreign assets.”

There’s also a twist for citizens and contin uing green card holders. “After relocating, Indian accounts become ‘foreign’ accounts reportable on FBAR/Form 8938 by US per sons,” says Gavankar. You can leave America and still owe it reporting on the money you now hold in India or anywhere in the world.

RSUs and retirement

Some assets require attention before de parture, not after. Stock compensation is the clear example. “RSUs do not become tax neutral merely because they vest after the employee has moved to India,” explains Chandwani. “Someone who worked in the US for several years and then relocated to India may therefore have an RSU event after departure that still requires careful US analysis. The date of vesting is only one part of the story.”

Bhalla makes a practical point:“RSUs and stock options require particular atten tion because taxation can depend on where services were performed during the vesting period. Grant, vesting and payroll records should therefore be preserved.”

Once a person becomes a non-resident, only the portion of vesting-period income sourced to US workdays stays US-taxable. The rest is sourced to wherever they were actually working.

Retirement accounts, too, must not be handled on impulse. Chandwani says, “A 401(k) or IRA doesn’t necessarily have to be liquidated merely because the owner moved to India.” You can generally leave the money in your former employer’s plan, roll it into a new employer’s plan if permitted, or trans fer it to an Individual Retirement Account (IRA). Rolling it into an IRA can provide a wider range of investment choices and may offer different distribution options, but it is not automatically the better choice. Before deciding, compare the fees, investment op tions, withdrawal and distribution rules, and tax implications of the 401(k) and IRA.

A retained US house has its own processes. Bhalla notes, “US rental income generally remains taxable in the US. On a subsequent sale, a non-resident owner may be subject to tax withholding in the source country.”

US rental income generally remains taxable in the US. Gavankar notes that when a foreign person sells US real estate, the transaction is generally subject to the Foreign Investment in Real Property Tax Act (FIRPTA). Under these rules, the buyer is typically required to withhold 15% of the amount realised and remit it to the IRS on the seller’s behalf.

Returning to India? Your US tax obligations don’t end at the airport

Your obligations depend on your citizenship, green card or visa status, and when your US tax residency actually ends.
1.When does your US tax residency end?
US citizen: Moving to India does not end the US filing obligation. It generally continues until citizenship is formally relinquished.
Green card holder: Tax residency generally continues until the green card is formally surrendered through Form I-407 or otherwise terminated.
H-1B / L-1 / H-4 holders: Tax residency depends primarily on the Substan tial Presence Test, not simply the date the visa expires.
2.The departure year
If US residency ends during the year, you may have:
Resident period:Income earned while still a US tax resident
Non-resident period:Income after residency ends
Possible filings
Form 1040 / 1040-NR
Dual-status return
FBAR
Form 8938
Form 8854
Form 8840, where applicable
The biggest mistake:assuming that leaving the US means there is no final US filing.
3.After you move to India
What income does the US still tax?
US citizen
Worldwide income: Indian salary + Indian investments + US investments gUS reporting can continue
Unsurrendered green card Worldwide income while US tax residency continues
Former H-1B / L-1
Once genuinely a non-resident: US-source income remains taxable in the US.
Foreign income earned after be coming a non-resident generally falls outside US taxation.
4.What happens to your US wealth?
Stocks and brokerage
US stocks can generally be retained, but:
*Check whether your broker accepts an Indian address
*Update your tax status
*Submit W-8BEN, where applicable
*Review the tax impact before selling
Timing matters: Capital gains on US stocks/ETFs held by a non-resident are typically not subject to US tax at all.
RSUs
Taxation depends on where ser vices were performed during the vesting period.
The US tax treatment can depend on:
Where you worked during the vesting period Keep:
*Grant records
*Vesting history
*Payroll records
*Work-location records
401(k) / IRA
*Existing account can remain
*Contributions usually stop after US employment
*Withdrawals can trigger US withholding
*Don’t liquidate simply be cause you are moving.
US property
You can keep, rent or sell it.
But:
Rental income
Continues to have US tax implications
Sale
Can trigger FIRPTA withholding
5.US estate tax
Leaving the US does not automatically eliminate estate-tax exposure.
For a genuine non-domiciled non resident alien: $60,000
Expert-cited exemption for US-situs assets
US-situs assets can include:
US stocks | US real estate | Certain retirement assets
6.Before you board the flight checklist
Tax
*Establish your US tax-residency end date
*Check final/dual-status return
*Review Form 8854 requirements
*Check state-tax obligations

Investments
*Download brokerage statements
*Preserve cost-basis records
*Review stocks/ETFs
*Review RSUs/ESPPs
*Review 401(k)/IRA
Banking
*Check foreign-address restrictions
*Update tax status
*Complete W-8BEN,where applicable
Property
*Review rental-tax obligations
*Understand FIRPTA before a future sale
Records
Tax returns
FBARs
Brokerage records RSU/ESPP documents Retirement statements Immigration records I-407 confirmation (if applicable)

The exit tax

For long-term green card holders with sub stantial assets, one section stands apart. Surrendering the card can be far more con sequential than an immigration formality. Section 877A puts certain long-term green card holders and citizens under a mark-to market regime on exit. The trigger date isn’t the day you move to India—it’s the day be fore you formally surrender the green card (Form I-407) or renounce citizenship. On that date, all your unrealised gains are treated as though the assets were sold, whether or not anything was actually sold. So if US stocks bought for $200,000 are worth $800,000 on that day, tax is computed on the $600,000 gain — even if you never sell a single share.

This isn’t collected at the airport: the tax is reported and paid with the return for the year of expatriation, and there’s no exit-visa system that stops departure over an unpaid bill. “Section 877A is not a provision that should be discovered after the green card has been surrendered or citizenship has been relinquished,” says Chandwani.

That is why filing I-407 and boarding the flight is not, on its own, a plan. Two docu ments anchor the exit. Form 8854 requires certification of compliance with US federal tax obligations for the preceding five years — and getting it wrong carries a real cost, with the IRS able to impose a $10,000 penalty for failing to file it when required, subject to reasonable cause rules.

Old compliance gaps matter more here than people expect. “A person may believe that an old omitted FBAR or information return is a minor his torical problem,” Chandwani says. “It may become much more significant when the person is trying to establish that the five preceding years of US tax obligations have been complied with for expatriation purposes.”

The gaps aren’t necessarily irre versible, though — Agarwal notes that missed forms can generally be correct ed “through IRS voluntary disclosure or streamlined filing programs,” the process and cost depend on how many years and how much was missed.

Estate and state

Two obligations get routinely ignored. The first is estate tax — not income tax, but the tax the US can levy on your US-based assets when you die, regard less of where you were living or which country you’d become a tax resident of by then. It’s a separate regime from an ything discussed so far, and it doesn’t switch off just because you’ve moved. “A US citizen does not escape the US estate tax regime merely by moving to India. A non-citizen who becomes a non-resident for income tax purposes can also have US estate tax exposure in relation to US situated assets,” says Chandwani, noting that income tax residence and estate tax domicile are separate determinations. The gap is stark: US citizens and domiciled green card holders have a roughly $15 million estate exemption in 2026, while, as Agarwal notes, “a genuine non-domiciled non-resident alien gets only $60,000, on US-situs assets like US stocks, real estate, and retirement accounts — with no India-US treaty relief cushioning that gap.”

The second is the state left behind. “Someone may have stopped being a federal US resident and still have a continuing relationship with a particular state,” says Chandwani. Agarwal is blunt about who pursues it: “States like California take an ag gressive view of domicile and can keep treating someone as a resident taxpay er years after physical departure.”

The categories carry different bur dens, and the experts converge on who should worry most.

The highest potential exit-tax expo sure generally arises for US citizens who relinquish citizenship and certain long-term green card holders who meet the covered-expatriate rules. Returning to India should be treated as a tax-res idency transition, not merely an im migration event. That is the difference between simply leaving the US and actually exiting the US tax system.