Relocating to India? Here's What You Need to Know About NRI Taxation

Relocating from the US to India triggers tax obligations in both countries. In the US, your status shifts from resident alien to non-resident alien, and you must file Form 1040-NR for US-sourced income. In India, your tax status is determined by physical presence: 182+ days makes you a full resident (taxable on global income); 120 to 181 days with ?15 lakh or more in Indian income makes you RNOR (from April 1, 2026). A new deemed residency rule taxes Indian citizens earning ?15 lakh or more from India as deemed residents under RNOR status, even with zero days in India, if they live in tax-free jurisdictions. The US-India DTAA helps prevent double taxation.

Key Summary

• When are you a tax resident in India for FY 2026-27? If you spend 182+ days in India, or 60+ days in the current year and 365+ days in the preceding four years.
• What changed for NRIs from April 1, 2026? The 60-day rule threshold for high-income NRIs (?15 lakh+ Indian income) has been replaced by the 120-day rule under the Income Tax Bill 2025.
• What is the ITR filing deadline for NRIs? July 31, 2026 for FY 2025-26 (unless extended).
• How can NRIs avoid double taxation? By claiming relief under the US-India Double Taxation Avoidance Agreement (DTAA).

As a self-employed individual, independent contractor, sole proprietor, or business partner, understanding and managing your tax obligations is crucial for maintaining financial health and avoiding penalties. Before diving into the specifics, it is essential to understand the full scope of your obligations in both the US and India when you make the move.

Tax Obligations as a Resident in the US

Determining your tax residency status in the United States is the first step in understanding your tax obligations. The IRS uses two primary tests to determine residency for tax purposes.

1. Substantial Presence Test

The substantial presence test considers the number of days you have been physically present in the United States over a three-year period. You meet this test if:

• You were present in the United States for at least 31 days during the current tax year, and
• The weighted sum of days equals or exceeds 183: all days in the current year, plus 1/3 of days in the previous year, plus 1/6 of days two years prior

Tax implication: You are considered a resident alien for tax purposes.

2. Green Card Test

If you hold a valid green card at any point during the tax year, you automatically meet this test regardless of how many days you spent in the US.

Tax implication: You are classified as a resident alien for tax purposes.

Resident Alien vs. Nonresident Alien

Resident Alien: If you meet either test above, you are taxed the same as a US citizen on your worldwide income. You must file Form 1040 and report all global income.

Nonresident Alien: If you meet neither test, you are taxed only on US-sourced income and must file Form 1040-NR (Form 1040-NR is now the standard form for all nonresident alien filers; Form 1040NR-EZ has been discontinued).

Your residential status affects your tax liability, reporting requirements, and eligible deductions. In addition to federal taxes, you may also be liable for state income taxes depending on where you resided or earned income.

Tax Obligations as a Non-Resident in the US (After Moving Back to India)

Once you have moved back to India, your US tax residency status may change to non-resident alien. As a non-resident alien, you must file Form 1040-NR to report and pay taxes on US-sourced income, including:

• Employment income earned while working in the US
• Investment income from US-based assets
• Rental income from US real estate
• Capital gains from the sale of US investments or property

The tax treatment of US-sourced income as a non-resident may differ from your time as a resident. Certain income types may be subject to a flat withholding rate, while others follow non-resident tax brackets. The US-India DTAA can reduce or eliminate double taxation on many income categories.

Tax Obligations in India After Returning

Upon your return to India, your residential status is determined by physical presence during the tax year (April 1 to March 31).

1. Physical Presence in India

Resident and Ordinarily Resident (ROR)

You are ROR if:

• You are present in India for at least 182 days in the tax year, or
• You are present for at least 60 days in the tax year and at least 365 days over the preceding four tax years

Tax implication: You are taxed on your global income, including income earned outside India.

Resident but Not Ordinarily Resident (RNOR)

Updated from April 1, 2026, under the Income Tax Bill 2025, you are RNOR if:

• You have been a non-resident in India in 9 out of the 10 preceding tax years, or
• You are an NRI with Indian income exceeding ?15 lakh, your presence in the current tax year is 120 days or more but less than 182 days, and you have spent at least 365 days in India in the preceding four years

This replaces the earlier 60-day threshold for high-income NRIs. High-income NRIs can now spend up to twice as many days in India before being classified as full residents.

Tax implication: You are taxed on Indian income and income earned outside India that is derived from an Indian business or profession. Foreign income from non-Indian sources remains exempt.

Non-Resident (NR)

If you do not meet the criteria for ROR or RNOR, you are a non-resident.

Tax implication: You are taxed only on Indian-sourced income.

New for 2026: Deemed Residency Rule

Under the Income Tax Bill 2025, effective April 1, 2026, Indian citizens earning ?15 lakh or more from Indian sources who are not taxable in any other country, such as those living in tax-free jurisdictions like the UAE, Monaco, or Bermuda, will be treated as deemed residents of India under RNOR status. Their Indian income is fully taxable, but foreign income from non-Indian sources remains exempt. This rule is designed to prevent high-income individuals from using tax-haven residency to escape Indian taxation on India-sourced earnings.

ITR Filing Deadline for NRIs

The basic exemption limit for NRIs is:

• Old tax regime: ?2.5 lakh
• New tax regime (default): ?4 lakh

Note: Section 87A rebate is not available to NRIs under either regime. The ITR filing deadline is July 31, 2026, for FY 2025-26 (unless extended by the government).

Retirement Account Treatment Across Borders

401(k) and IRA accounts held in the US continue to grow tax-deferred after your move. You can no longer contribute once you leave US employment, but early withdrawals before age 59½ attract a 10% penalty plus ordinary US income tax. Under the US-India DTAA, 401(k) and IRA distributions are generally taxable only in the US for Indian residents, but this position should be confirmed with a tax professional before taking distributions. Rolling a 401(k) into an IRA before leaving the US gives more flexibility and preserves tax-deferred status.

NPS (National Pension System) is available to returning residents. Contributions are deductible under Section 80CCD up to ?50,000 over and above the Section 80C limit, making it a useful vehicle for reducing Indian taxable income in the year of return.

Stock Options and RSUs

If you held unvested stock options or RSUs from a US employer at the time of your move, the tax treatment depends on when vesting occurs relative to your residency status:

• Pre-move vesting: Taxable in the US as ordinary compensation income
• Post-move vesting: May be taxable in India as salary income if you are an Indian resident at vesting
• Split-year vesting: Income is apportioned between the US and India based on workdays in each country during the vesting period

Maintain detailed records of your work-day split across both countries to support any apportionment calculation.

Cryptocurrency Holdings

In India: Cryptocurrency gains are taxed at a flat 30% regardless of holding period, with no deductions permitted except the cost of acquisition. A 1% TDS applies to transactions above specified thresholds, and losses cannot be offset against other income.

In the US: The IRS treats cryptocurrency as property. Every disposal, including selling, trading, or using crypto to purchase goods, is a taxable event subject to capital gains tax. Crypto held on foreign exchanges may be reportable on FBAR if the exchange qualifies as a foreign financial institution and aggregate balances exceed $10,000.

Maintain a detailed transaction log with acquisition dates, cost basis in USD, and disposal proceeds recorded before and after your move date.

Inheritance and Gift Tax

India has no dedicated inheritance or estate tax as of 2026. Gifts received from non-relatives exceeding ?50,000 in a financial year are taxable as income in the recipient's hands. Gifts from specified relatives (spouse, siblings, parents, lineal ascendants) are fully exempt regardless of amount.

In the US, gifts received from a foreign person exceeding $100,000 in a year must be reported on IRS Form 3520, though no US gift tax is owed by the recipient. The US estate tax applies to the worldwide assets of US citizens and long-term residents, with the 2026 exemption at $13.99 million per individual.

Business Owners: LLC or Corporation With India Residency

If you own a US LLC or corporation and become an Indian tax resident, the same business income that flows to your US return may also be taxable in India. Indian tax law's place of effective management (POEM) rules can deem a foreign company to be an Indian resident if key management decisions are made from India.

Key steps for returning business owners:

• Document that major decisions are made from the US (board meetings, signed resolutions, communication records)
• Assess whether Indian transfer pricing rules apply to transactions between the US entity and any Indian operations
• Review Form 5471 (corporations) or Form 8858 (disregarded entities) filing obligations with your US advisor

Remote Work: US Job While Living in India

If you work remotely for a US employer while based in India:

US tax: If you remain a US person (citizen or green card holder), your salary is taxable in the US regardless of where the work is performed.

Indian tax: Once you qualify as an Indian tax resident, your salary for services rendered in India is also taxable in India, even if paid in USD to a US account. The US-India DTAA foreign tax credit mechanism prevents double taxation, but you must actively claim it on your Indian ITR.

Employer risk: Your US employer may face Indian Permanent Establishment (PE) risk if you are seen as creating a taxable presence in India on the employer's behalf. Discuss this with your HR and tax teams before committing to a long-term remote arrangement.

Special Situations

OCI Cardholders

An OCI (Overseas Citizen of India) cardholder is a foreign national of Indian origin holding a lifetime visa to visit, reside, and work in India. OCI cardholders are not Indian citizens and are not NRIs in the traditional sense. For tax purposes, the same physical presence rules apply: 182+ days in India in a financial year makes an OCI holder a tax resident, triggering global income taxation in India.

Key distinctions from NRIs:

• OCI holders hold a foreign passport (typically US); NRIs hold an Indian passport
• OCI holders who are also US citizens remain subject to US worldwide income taxation, regardless of their India residency status
• For Indian capital gains purposes, OCI holders are taxed at the same rates as NRIs on Indian-sourced income
• OCI holders cannot hold agricultural land in India and face specific restrictions on certain financial instruments available to NRIs

Track your days carefully. Crossing 182 days converts you to an Indian resident for that financial year, and your global income becomes taxable in India.

H-1B Visa Holders Returning to India

H-1B holders returning to India face a distinct set of issues:

401(k) and IRA: You can no longer contribute once you leave US employment. Options include leaving funds invested (no penalty until age 59½), rolling the 401(k) into a traditional IRA for more flexibility, or withdrawing early with a 10% penalty plus income tax. The US-India DTAA generally protects distributions from double taxation, but treaty positions must be explicitly claimed on your Indian ITR.

Social Security: H-1B holders who contributed to US Social Security can claim benefits at retirement age if they accumulated sufficient work credits (typically 40 credits). India and the US do not have a totalization agreement, so Indian contributions do not count toward US credits.

Departure year filing: In the year you leave the US, you are a dual-status alien. You must file a dual-status return combining Form 1040 for the resident period and Form 1040-NR for the non-resident period. This is among the most complex individual filings in US tax law; professional assistance is strongly recommended.

Dual Citizens: US Citizens Moving to India

US citizens moving to India face the most complex tax situation of any returnee category. The US taxes its citizens on worldwide income regardless of where they live. Moving to India does not end your US filing obligation. You must:

• Continue filing Form 1040 annually, reporting global income including Indian salary, rental income, and investment returns
• Report Indian accounts (NRE, NRO, PPF, Indian brokerage) on FBAR if aggregate balances exceed $10,000 at any point during the year
• File Form 8938 (FATCA) if Indian financial assets exceed $200,000 at year-end or $300,000 at any point (for single filers abroad)
• Claim the Foreign Tax Credit (Form 1116) or Foreign Earned Income Exclusion (Form 2555) to offset US tax on Indian income

The US-India DTAA does not eliminate the US filing obligation. It provides relief mechanisms to prevent double taxation, which must be actively claimed.

FBAR and FATCA: Reporting Indian Accounts

US persons with Indian financial accounts carry two parallel reporting obligations:

FBAR (FinCEN Form 114): Required if aggregate foreign account balances exceeded $10,000 at any point during the calendar year. Reportable Indian accounts include NRE accounts, NRO accounts, fixed deposits, PPF, Indian brokerage accounts, and certain mutual fund accounts. Filed separately at FinCEN.gov, due April 15 with an automatic extension to October 15.

FATCA (Form 8938): Filed with Form 1040. For US persons living abroad, reporting is required if foreign financial assets exceed $200,000 at year-end or $300,000 at any point during the year.

NRE vs. NRO accounts: NRE account interest is tax-free in India while you maintain NRI status. Once you become ROR, NRE interest becomes fully taxable in India, and the account should be reclassified. Both NRE and NRO accounts remain FBAR-reportable as long as you are a US person.

Penalties for FBAR non-compliance are among the harshest in US tax law: up to $16,536 per account per year for non-willful violations, and up to $165,353 or 50% of the account balance per year for willful violations.

Green Card Abandonment

Surrendering a green card has significant and often irreversible US tax consequences.

Formal abandonment: A green card is formally abandoned by filing Form I-407 with USCIS or notifying a US consular officer abroad. Simply leaving the US without filing Form I-407 does not end your green card status, and the IRS may continue to treat you as a US tax resident.

Exit tax (Form 8854): If you held your green card for at least 8 of the last 15 years, you are a long-term resident and must file Form 8854. You will be treated as a covered expatriate and subject to exit tax if any of the following apply:

• Your average annual net income tax for the five years before abandonment exceeds the 2026 threshold
• Your net worth is $2 million or more on the day before abandonment
• You cannot certify five years of full US federal tax compliance

Exit tax mechanics: Covered expatriates are treated as having sold all worldwide assets at fair market value on the day before expatriation. Any gain above the annual exclusion amount is subject to US capital gains tax. Retirement accounts may also be subject to immediate taxation.

Planning note: Green card holders who have been in the US for fewer than 8 years are not subject to the exit tax and can abandon the card more cleanly. Timing your abandonment relative to that 8-year threshold can have a material impact on your tax exposure.

Strategies and Tips

1. Maintain Proper Documentation and Record-Keeping

Accurate documentation is essential for compliance in both countries. Keep detailed records of income sources, investments, expenses, and tax payments in both the US and India. Organize records by income type and retain them for the prescribed period required by each country's tax authorities. This is especially important for cryptocurrency transaction logs, RSU vesting schedules, and business entity decisions.

2. Seek Professional Tax Advice and Filing Assistance

Tax laws in both the US and India are complex and constantly evolving. Engaging qualified professionals, such as CPAs and CAs with cross-border expertise, ensures you benefit from treaty provisions, foreign tax credits, and available deductions in both countries. Professional advisors can also guide you through nuances like dual-status returns, FBAR filings, and POEM compliance.

3. Plan Your Taxes in Advance

Maximizing contributions to tax-advantaged accounts reduces your taxable income in both countries. In the US, the 2026 contribution limits are $24,500 for 401(k)s and $7,500 for IRAs. In India, NPS contributions offer additional deductions beyond the Section 80C limit. Other strategies include timing the realization of capital gains or losses, using tax-efficient investment vehicles, and taking advantage of available deductions and credits in each country.

4. Leverage Tax Equalization Agreements

If your employer offers tax equalization agreements, these ensure your overall tax liability remains consistent regardless of where you reside. Your employer covers any additional tax costs incurred due to international relocation, neutralizing the impact of differing tax rates. Key benefits include:

• Consistent tax liability regardless of work location
• Employer covers additional tax costs from international assignments
• Simplified compliance and reduced personal tax burden
• Financial stability during the transition period

Conclusion

Moving back to India after working in the United States presents unique challenges from a tax perspective. Navigating obligations in both countries requires a thorough understanding of applicable laws, residency rules, reporting requirements, and treaty provisions. Every individual's situation is unique, and seeking personalized advice from professional CPAs is crucial to address your specific circumstances effectively.

NSKT Global offers comprehensive cross-border tax services for returning NRIs, OCI holders, dual citizens, and H-1B visa holders. Our team helps you determine your residency status in both countries, structure your compliance across FBAR, FATCA, ITR, and Form 1040 filings, and maximize available treaty benefits. Whether you are planning your move or already back in India, NSKT Global is here to support a smooth, compliant transition.

The information provided here is for general informational purposes only and should not be construed as professional advice. The tax-related content on this blog is based on our understanding of tax laws as of the date of publication and may be subject to change.

Frequently Asked Questions

Q: If I move to India mid-year, do I file as a resident or non-resident in the US for that year?
In the year of departure, you are typically a dual-status alien: a US resident for the portion of the year before you left and a non-resident for the remainder. You must file a dual-status return, generally Form 1040 for the resident period with Form 1040-NR attached for the non-resident period. Professional assistance is strongly recommended for this filing.

Q: Are NRE account interest earnings taxable in India?
NRE account interest is tax-free in India as long as you maintain NRI status. Once you become a Resident and an Ordinarily Resident (ROR), NRE interest becomes fully taxable, and your bank should reclassify the account. The transition year requires careful attention to when your status changes.

Q: Do I need to file both FBAR and Form 8938 for Indian accounts?
These are separate requirements with different thresholds filed with different agencies. FBAR is filed with FinCEN and triggers at $10,000 aggregate across all foreign accounts at any point during the year. Form 8938 is filed with the IRS as part of Form 1040 and applies at higher thresholds. An account reportable on Form 8938 is almost always also reportable on FBAR, but not vice versa.

Q: Does the US-India DTAA eliminate my tax liability in one country?
No. The DTAA does not eliminate your filing obligation in either country. It prevents the same income from being taxed twice by allocating primary taxing rights and providing foreign tax credit mechanisms. You will still need to file in both countries and actively claim treaty benefits.

Q: Can I contribute to both a US IRA and Indian NPS in the same year?
Yes, if you have eligible US earned income to support IRA contributions. Traditional and Roth IRA contributions require US earned income, which you may not have after returning to India. NPS contributions require Indian residency or NRI status and are made in INR. There is no prohibition against holding both accounts simultaneously.