Returning NRI US Tax Guide: 401k, Exit Tax, RNOR, and What You Must Do Before You Leave
Complete guide for NRIs moving back to India. Covers dual-status return, 401(k)/Roth IRA strategies, RNOR window, green card exit tax, selling US property, NRE/NRO restructuring, FBAR obligations, Social Security from India, and ongoing US filing requirements.
The year you permanently leave, you file a dual-status tax return — resident alien from January 1 through departure, nonresident alien from the day after through December 31.
| Period | Tax Treatment |
|---|---|
| Jan 1 through departure | Resident alien — worldwide income taxable |
| After departure through Dec 31 | Nonresident alien — only US-source income taxable |
File Form 1040 for the resident portion with a statement for the 1040-NR computation.
- Cannot claim standard deduction for full year
- Cannot file jointly (unless elect full-year resident under IRC §6013(g))
- Residency termination date = last day physically present
File Form 8854 if abandoning green card. Keep boarding pass, lease termination, utility disconnection records.
RNOR (Resident but Not Ordinarily Resident) status exempts foreign-source income from Indian tax for 2-3 years.
During RNOR, foreign income staying outside India is not taxable:
- 401(k)/IRA distributions in a US account may not be taxable in India
- US stock gains may escape Indian tax
- Roth withdrawals may avoid Indian taxation entirely
Eligibility (meet either):
| Test | Requirement |
|---|---|
| Test 1 | NRI for 9 out of 10 preceding financial years |
| Test 2 | Present in India 729 days or fewer in 7 preceding financial years |
Most NRIs who lived in the US 8+ years qualify. Calculate eligibility before departure and time major financial events within the window.
Three options:
Leave in US: Grows tax-deferred. RMDs at 73. Withdrawals: 30% NRA withholding. India taxes unless RNOR.
Roll to Traditional IRA: No tax at rollover. More flexibility. Same withdrawal rules.
Withdraw full amount: Taxable as ordinary income. 10% penalty if under 59½. 30% NRA withholding. Almost always the worst option.
DTAA Article 20: Both countries may tax; Foreign Tax Credit prevents double taxation.
| Strategy | US Tax | India Tax | Best For |
|---|---|---|---|
| Leave, withdraw during RNOR | 30% withholding (file 1040-NR) | Exempt if not remitted | Most returning NRIs |
| Lump-sum before departure | 10-37% ordinary rates | Taxable unless RNOR | Almost nobody |
| Gradual over years | Lower brackets | RNOR exemption initially | Long-term planning |
Problem: India doesn't recognize Roth tax-free status. Withdrawals treated as taxable income.
Solution: Convert Traditional IRA/401(k) to Roth before departure:
- Convert in low-income departure year
- Pay known US tax rate
- Roth grows tax-free — no RMDs
- Withdraw during RNOR, don't remit to India
| Scenario | US Tax | India Tax |
|---|---|---|
| Convert $100K at 22% bracket | $22,000 | $0 (still US resident) |
| Withdraw Roth during RNOR | $0 | $0 (not remitted) |
| Total | $22,000 | $0 |
Vs. Traditional IRA withdrawal after full Indian residency: US 30% + India 30%+.
Conversion must happen before residency termination date.
Surrender green card → file Form I-407 (USCIS) + Form 8854 (IRS).
Covered Expatriate Test (held GC 8+ of 15 years):
| Test | Threshold (2025) |
|---|---|
| Net worth | >$2,000,000 |
| Tax liability | Avg annual >$206,000 (prior 5 years) |
| Compliance | Cannot certify 5-year compliance |
Meet any one = covered expatriate.
If covered: Mark-to-market deemed sale on all worldwide assets. Gain above $886,000 exclusion taxed at capital gains rates. Deferred compensation (401(k)/IRA): 30% withholding on distributions instead.
Penalty for not filing Form 8854: $10,000.
Before departure (Section 121): Exclude $250K (single) / $500K (MFJ) gain if lived in home 2 of last 5 years. Potentially zero tax.
After departure (FIRPTA):
| Sale Price | Withholding |
|---|---|
| ≤$300K (buyer's residence) | 0% |
| $300K-$1M (buyer's residence) | 10% of sale price |
| >$1M or non-residence | 15% of sale price |
Withholding on gross price, not gain. Refund via 1040-NR takes 6-12 months.
Recommendation: Sell before departure whenever possible.
RBI requires restructuring:
| Account | Action | Timeline |
|---|---|---|
| NRE Savings | Redesignate to RFC or regular savings | 3-6 months |
| NRE FDs | Continue until maturity, then convert | At maturity |
| NRO Savings | Continues as regular savings | 3-6 months |
| FCNR Deposits | Continue until maturity | At maturity |
- While US resident: NRE interest was US-taxable (though India-exempt)
- After returning: NRE/RFC interest becomes India-taxable
- RFC accounts allow limited repatriation for ongoing US obligations
FBAR: Yes for departure year. Required if US person any part of year AND foreign accounts >$10,000.
After departure:
- H-1B/L-1 (not citizens/GC): FBAR ends after departure year
- US citizens: FBAR indefinitely
- Green card holders: file for year of abandonment
FATCA: Same — departure year only. After NRA status, no longer applies.
Common mistake: Missing departure year FBAR. If Indian accounts >$10,000, due April 15 (auto-extended Oct 15).
Missed prior years? IRS Streamlined Filing Compliance Procedures may allow compliance without standard penalties.
With 40 credits (~10 years work), collect from India.
| Factor | Detail |
|---|---|
| Minimum credits | 40 quarters |
| Totalization with India | Does not exist |
| NRA withholding | 25.5% (85% x 30%) |
| Reduce? | File 1040-NR |
| India tax | May be taxable |
DTAA Article 20: taxable in residence country, but US retains right via saving clause. Use Foreign Tax Credit in India.
Documents:
- W-2 (partial year)
- 1099-B from brokerages
- 1099-INT/DIV from US accounts
- India bank statements (FBAR)
- Form 8854 (if green card)
- Property sale closing statement
- 401(k)/IRA statements
- Passport with departure stamp
- Lease/utility termination records
- Prior year return
Deadlines:
| Deadline | Due |
|---|---|
| April 15, 2026 | Dual-status return |
| April 15, 2026 | FBAR for departure year |
| April 15, 2026 | Form 8854 (if GC abandoned) |
| June 15, 2026 | Extended deadline for NRAs |
| Income Type | Form | Rate |
|---|---|---|
| US dividends | 1040-NR | 25% (treaty) or 30% |
| US rental income | 1040-NR | Graduated or 30% flat |
| US property gains | 1040-NR | Graduated |
| Social Security | 1040-NR | Graduated (optional) |
| US bank interest | Generally NRA-exempt | N/A |
After departure:
- File W-8BEN with all US brokers/banks
- Update IRS address (Form 8822)
- Continue 1040-NR if US-source income above threshold
- Cancel US tax software that auto-files Form 1040
Still pay US taxes after moving?
Only on US-source income via Form 1040-NR.
What about my 401(k)?
Stays in US. Leave invested, withdraw gradually during RNOR. Lump-sum is worst option.
Roth IRA taxable in India?
Potentially. RNOR withdrawals not remitted may be exempt. Convert before departure.
FBAR after leaving?
Departure year yes. After that, ends for non-citizens/non-GC holders.
What is RNOR?
2-3 year Indian tax status exempting foreign income. Qualify if NRI 9/10 preceding years or present in India ≤729 days in preceding 7 years.
Social Security from India?
Yes with 40+ credits. US withholds ~25.5%. No Totalization Agreement.
Exit tax on green card?
Only if covered expatriate (held 8+ years, meet net worth/tax/compliance test).
Roth conversion before leaving?
Yes — pay known US rate, grow tax-free, withdraw during RNOR. Must convert before departure date.