Moving Back to India from the US: Tax Checklist for 2026-27 (H-1B, Green Card Holders and US Citizens)

By Abhinav Chhabra, Ledger Brigade | 25 October 2026

Moving back to India after years in the US is a big decision, and the tax side is often left until the last week. That is a mistake: a few choices made before you leave (when to sell the house, what to do with the 401(k), how to end your green card) can be worth tens of thousands of dollars, and a few forms forgotten after you arrive can bring penalties in both countries.

This checklist covers the federal US rules and the Indian rules that apply when you move back in 2026-27. The rules differ sharply depending on your US status, so start there.

Which rules apply to you?

Part 1: Leaving the US

If you are on an H-1B or L-1 visa

• Your final year is usually a "dual-status" year: you are a US tax resident until you leave and a nonresident afterwards. You file a nonresident return for the year (Form 1040-NR) with a statement covering the resident part of the year. Married couples can sometimes elect to be treated as US residents for the whole year and file jointly, which can lower the tax: compare both options.
• Keep proof of the closer connection to India (your new job, home and family in India), because it supports ending your residency on your departure date.
• Departure clearance: some departing non-citizens must get a certificate of compliance (Form 1040-C or 2063, often called a "sailing permit") before leaving. Many employees whose wages had full withholding are exempt, but check whether it applies to you.

If you hold a green card

Moving to India does not, by itself, end your green card for tax purposes. You stay a US tax resident, taxed on worldwide income, until your permanent resident status formally ends, usually by filing Form I-407 with US Citizenship and Immigration Services.

If you held the green card in at least 8 of the last 15 years, you are a "long-term resident", and giving it up counts as expatriation:

• you must file Form 8854 with your final return;
• you are a "covered expatriate" (and face the exit tax) if, in 2026, any of these applies:
  • your average annual net US income tax over the previous five years was more than $211,000;
  • your worldwide net worth is $2 million or more on the date you expatriate;
  • you cannot certify on Form 8854 that you complied with all US tax obligations for the previous five years.
• The exit tax treats your worldwide assets as sold the day before you expatriate; for 2026, the first $910,000 of net gain is excluded. Retirement accounts and deferred compensation follow special rules.

A common trap: claiming to be a nonresident under the India-US tax treaty while still holding a green card can itself count as ending long-term residency. Take advice before filing that way.

If you are a US citizen

The US taxes its citizens on worldwide income wherever they live, so moving to India does not end your US filings:

• File Form 1040 every year. To avoid double tax, use either the foreign earned income exclusion (up to $132,900 of earned income for 2026) or foreign tax credits for Indian tax paid. Because Indian tax rates on salaries are often similar to or higher than US rates, foreign tax credits frequently work better; run both.
• Report foreign accounts: an FBAR if your foreign accounts together exceed $10,000 at any time in the year, and Form 8938 if your foreign financial assets exceed $200,000 at year-end or $300,000 at any time (single, living abroad; $400,000 and $600,000 for joint filers).
• The PFIC trap: Indian mutual funds (and many unit-linked insurance plans) are "passive foreign investment companies" under US rules, taxed punitively and reported on Form 8621. US citizens in India usually invest through Indian shares held directly, fixed deposits or other non-fund routes instead. Take advice before buying any Indian fund.
• Renouncing citizenship brings the same covered expatriate tests and exit tax described above.

For everyone leaving

Your state. Federal rules are only half the picture. Some states (California among them) keep taxing former residents who have not clearly cut ties. Close or move bank accounts, give up your driving licence or state ID where you can, and keep proof of your move.

Your US home. If you sell while still living there, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you owned and lived in the home for at least 2 of the last 5 years. If you sell after becoming a nonresident, the buyer must generally withhold 15% of the sale price under the FIRPTA rules (you can apply to reduce it), and the 2-out-of-5-years clock keeps running. Selling before you leave is usually simpler.

Your 401(k) and IRA. Most people are best served by leaving these invested:

• withdrawals before age 59½ usually bring a 10% penalty on top of income tax;
• payments to nonresidents face US withholding of 30% by default. Under Article 20 of the India-US tax treaty, a pension paid to a resident of India can be taxed only in India, but the treaty defines a pension as a periodic payment, so lump-sum or early withdrawals may not qualify, and US citizens and green card holders cannot use the article to avoid US tax. Claim the treaty with the plan on Form W-8BEN; whether the treaty also removes the 10% early withdrawal penalty is an open question, so take advice before withdrawing;
• many US brokers and plan administrators restrict or close accounts for India residents, so ask yours before you leave, update your address correctly, and consider consolidating into a provider that serves nonresidents;
• the Indian tax treatment is covered in Part 2.

US estate tax if you keep US assets. Once you are no longer a US citizen or US-domiciled, US estate tax can still apply to US-situated assets you own when you die, such as a US home or shares in US companies (ordinary US bank deposits are generally not counted), and for non-citizens the exemption is only about $60,000 (against $15 million for citizens in 2026), with rates up to 40%. India and the US have no estate tax treaty. If you keep substantial US assets, review how they are held.

Social Security. You need 40 credits (about ten years of work) to qualify for US retirement benefits. India and the US have no Social Security (totalisation) agreement in force, so years in India cannot be added to make up a shortfall. Check your record on ssa.gov before you leave.

Part 2: Arriving in India

Your residential status: the RNOR window

When you return, you will usually be "Resident but Not Ordinarily Resident" (RNOR) for your first one to three tax years. As an RNOR, your foreign income is generally not taxed in India (unless it comes from a business controlled or a profession set up in India), which makes these years the best time to sell US investments or receive US income.

Whether you qualify depends on your days in India over the previous years. Use our NRI residency checker to work out your status for tax year 2026-27 under the Income-tax Act, 2025.

Your bank accounts

• NRE and NRO accounts must be redesignated as resident accounts once you become a resident under FEMA (inform your bank promptly).
• FCNR deposits can continue until maturity.
• A Resident Foreign Currency (RFC) account lets you keep foreign currency you bring back, in foreign currency.
• Your US assets: under section 6(4) of FEMA, you can keep, hold and continue to own foreign assets you acquired while you were a non-resident, and the income from them.

Your 401(k) and IRA in Indian tax

Once you become an ordinary resident, India taxes your worldwide income, including growth inside a US retirement account, while the US taxes it only when you withdraw. To stop that mismatch, India gives timing relief for retirement accounts in notified countries, and the US is one of them (with the UK and Canada):

• up to tax year 2025-26 the relief was section 89A (Rule 21AAA, Form 10EE);
• from 1 April 2026, under the Income-tax Act, 2025, it is section 158, with Rule 74 and Form 40.

Electing the relief lets you pay Indian tax on the account's income in the year you withdraw, matching the US. Roth IRAs need separate advice: because qualified Roth withdrawals are not taxed in the US, the relief does not fit them neatly.

Disclosing your US assets

Once you are resident and ordinarily resident, you must report all foreign assets (US bank and brokerage accounts, 401(k)s, IRAs, a US home) in Schedule FA of your Indian return, even if they earn nothing. Leaving them out can bring a ₹10 lakh penalty under section 43 of the Black Money Act. If you have already missed this, read our guide to the FAST-DS 2026 foreign asset disclosure window for returning NRIs.

Avoiding double tax

Where the same income is taxed in both countries (for example, US-source dividends, or a US citizen's Indian salary), the India-US tax treaty and foreign tax credit rules decide who gives credit. In India, you claim the credit on a statement filed online: Form 44 under Rule 76 of the Income-tax Rules, 2026 for income from tax year 2026-27 (due within 12 months from the end of the tax year), and the old Form 67 for income up to FY 2025-26 (due by 31 March 2027 for that year).

Bringing your things home: customs

Under the Baggage Rules, 2026 (in force from 2 February 2026), if you have lived abroad for more than two years and are transferring your residence to India, you can bring used personal and household goods worth up to ₹7.5 lakh free of duty (up from ₹5 lakh), on conditions including limited short visits to India during those two years and not having used the concession in the previous three years. Separately, the general duty-free allowance is ₹75,000, and after more than a year abroad you can bring jewellery of up to 40 grams (women) or 20 grams (others) duty-free.

The numbers at a glance (2026)

Worked examples

Illustrative only; your facts will differ.

1. The H-1B family. Rahul works in Seattle on an H-1B; his wife Meera is on an H-4. They move to Pune in July 2026.

• US: 2026 is a dual-status year; they compare filing as nonresidents with the election to be treated as residents for the whole year and file jointly. They keep their 401(k)s invested with a provider that serves nonresidents.
• India: having been non-resident for many years, they are likely RNOR for 2026-27 and probably 2027-28, so US dividends and interest in those years are not taxed in India. They redesignate their NRE accounts and open an RFC account for the dollars they bring back.

2. The green card holder. Sunita has held a green card for nine years and is returning to Bengaluru to care for her parents.

• US: she is a long-term resident, so giving up the card (Form I-407) is an expatriation. Her net worth is $1.4 million, her average US tax was well under $211,000, and her filings are up to date, so she is not a covered expatriate and owes no exit tax, but she must still file Form 8854.
• India: she elects section 158 relief for her 401(k) once she becomes an ordinary resident, and reports it in Schedule FA every year.

3. The US citizen. Karan was born in the US to Indian parents and is moving to Delhi for a new job.

• US: he files Form 1040 every year, claims foreign tax credits for the Indian tax on his salary, and files an FBAR and Form 8938.
• India: he invests in Indian shares directly and in fixed deposits, not mutual funds, to stay clear of the PFIC rules.

Your action checklist

Before you leave the US

1. Confirm your US tax status and when your residency ends (or, for green card holders, plan the I-407 and check the 8-of-15-years rule).
2. Long-term green card holders and anyone renouncing: run the covered expatriate tests and value your assets.
3. Decide on the house: sell while you still qualify for the exclusion, or plan for FIRPTA withholding.
4. Ask your 401(k), IRA and brokerage providers whether they serve India residents; update addresses properly.
5. Check your Social Security credits.
6. Keep one US bank account and a US credit card, and plan how you will file US returns from India.

In your first months in India

7. Work out your residential status for the year with our residency checker.
8. Redesignate NRE and NRO accounts; open an RFC account if needed.
9. Clear customs under transfer of residence, with your inventory and passport records.
10. Update your PAN details and residential status with your bank and employer.

Every year after that

11. File your Indian return with Schedule FA once you are an ordinary resident, and the Form 40 election for your 401(k) if you use the relief.
12. US citizens: file Form 1040, the FBAR and Form 8938 on time, and avoid Indian funds.

Frequently asked questions

Do I have to close my 401(k) when I move back?
No. You can usually keep it invested. Withdrawing early brings a 10% penalty plus tax, and India's section 158 relief can line up the Indian tax with your eventual US withdrawals.

Does India tax my US income in my first years back?
Often not: as an RNOR, foreign income is generally outside Indian tax. Check your status for each year, because it changes.

I am a green card holder. Can I just stop filing US returns?
No. You stay a US tax resident until your status formally ends, usually with Form I-407. Long-term holders must also file Form 8854.

Can I invest in Indian mutual funds as a US citizen?
You can, but they are PFICs under US rules, with heavy tax and reporting. Most US citizens in India choose other investments.

Will I get US Social Security if I worked there for five years?
Not on those years alone: you need 40 credits (about ten years), and there is no India-US agreement to combine Indian and US work periods.

Talk to us

Moving back touches both tax systems at once. Ledger Brigade's team, which includes qualified US CPAs and Chartered Accountants, helps returning NRIs with Indian returns for foreign income (from ₹3,500), Schedule FA, section 158 elections and the US filings that follow you home. Email hello@ledgerbrigade.com or book a briefing.

What surprised you most about moving back? Tell us in the comments.

Important information. This article is general information about US federal and Indian tax, foreign exchange and customs rules for people moving from the US to India, stated as at 25 October 2026. It is not tax, legal, immigration or investment advice. State tax rules, treaty positions and personal circumstances vary widely, and some figures change every year. Take advice on your own situation before acting, especially before giving up a green card, renouncing citizenship or withdrawing retirement savings.

Sources

• Internal Revenue Code sections 877, 877A, 911, 121, 1445 and 7701(b); Rev. Proc. 2025-32 (2026 inflation adjustments: $211,000, $910,000, $132,900).
• IRS Publication 519 (US Tax Guide for Aliens: dual-status years, departure clearance); IRS Form 8854 instructions.
• Bank Secrecy Act FBAR rules (FinCEN Form 114); Form 8938 instructions.
• Income-tax Act, 2025, section 158 and Income-tax Rules, 2026, rule 74 and Form 40 (formerly section 89A, rule 21AAA and Form 10EE of the 1961 Act and Rules).
• Foreign Exchange Management Act, 1999, section 6(4); RBI rules on RFC accounts.
• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, section 43.
• India-US income tax treaty (1989), Article 20; IRC sections 2102, 2104 and 2105 (estate tax for nonresident non-citizens); Rev. Proc. 2025-32 (2026 basic exclusion of $15,000,000).
• CBDT Notification No. 25/2022 dated 4 April 2022 (notified countries for section 89A: Canada, the United Kingdom and the United States).
• Income-tax Rules, 2026, rule 76 and Form 44 (foreign tax credit; formerly rule 128 and Form 67).
• Baggage Rules, 2026 (Notification No. 14/2026-Customs (N.T.), in force from 2 February 2026).