Returning to India Tax Checklist: What H-1B Holders Must Do

Leaving the U.S. after years on H-1B triggers a cascade of U.S. and Indian tax obligations that most people discover too late. This checklist covers every step — from the pre-departure broker update to the final U.S. tax return, 401(k) decisions, and what to expect when India taxes your worldwide income as a returning resident.

Pre-Departure Checklist: Before You Leave

Complete these steps before your last day in the U.S.:

• Notify your U.S. brokerage of your NRA status. Once you establish a foreign address, your broker is required to treat you as a nonresident alien. This affects withholding on dividends (typically 30% NRA withholding, which may be reduced to 15% under the India-U.S. treaty) and access to certain investment products. Submit the required W-8BEN form to each brokerage.
• Determine your last day of U.S. residency. For tax purposes, your residency terminates on the date you leave the U.S. with no intention of returning, or on the date the IRS determines is your "residency termination date." Having a clear departure date is essential for income allocation on the dual-status return.
• Close or convert U.S. bank accounts appropriately.You can keep U.S. bank accounts as a nonresident, but interest earned becomes subject to NRA withholding rules. Consider whether to keep accounts for any ongoing U.S. income (rental, brokerage) or close them.
• Convert NRE/NRO accounts to resident accounts in India.Once you become an Indian tax resident, your NRE account should be converted to a regular resident savings account and your NRO account re-designated accordingly. NRE accounts maintained as a resident are technically non-compliant under FEMA.
• Obtain your Social Security Statement (SSA-7004).Request your Social Security earnings record before you leave. If you accumulate enough U.S. work credits, you may be entitled to Social Security benefits in retirement, even as a non-citizen living abroad. See our Social Security for H-1B holders guide.

Final Tax Return: Dual-Status in the Departure Year

The year you leave the U.S. is a dual-status year if you were a resident alien on January 1 and become a nonresident alien after departure. Your departure-year return structure:

Key rules for the departure-year dual-status return:

• No standard deduction — you must itemize or claim no deduction at all
• Cannot file Married Filing Jointly (unless your spouse also makes a full-year resident election)
• FBAR and FATCA still required for the year, covering account values during the entire calendar year (including post-departure months)
• Any pension lump-sum distributions or 401(k) cashouts during the NRA period are subject to 30% NRA withholding (reduced to 15% under the India-U.S. treaty for periodic payments — but lump sums get 30%)

See the full FBAR guide for final-year reporting obligations.

401(k) and IRA Options: Leave, Roll, or Cash Out

This is typically the largest financial decision when returning to India. You have three options for your U.S. retirement accounts:

• Leave it in place: Your 401(k) remains at your former employer's plan administrator (or you roll it to a Traditional IRA). The account grows tax-deferred. You pay no U.S. tax until you take distributions — which can begin at age 59½ without penalty. Distributions received as a nonresident alien are subject to 30% NRA withholding (potentially reduced to 15% under the India-U.S. treaty for periodic payments). This is often the most tax-efficient option for large balances.
• Roll to a Traditional IRA: Rolling your 401(k) to a Traditional IRA gives you more investment flexibility and keeps the account tax-deferred. Same NRA withholding rules apply to future distributions. Roth conversions are possible but complex for NRAs.
• Cash out (early withdrawal): If you are under 59½, cashing out triggers (1) ordinary income tax on the full amount, (2) an additional 10% early withdrawal penalty, and (3) mandatory 20% federal withholding (or 30% if you are already an NRA). The combined effective loss can exceed 40% of the balance. This option is rarely advisable for large accounts.

The India-U.S. tax treaty (Article 20) provides some relief on pension income: periodic pension payments may be taxable only in India (not the U.S.) or at a reduced U.S. withholding rate. However, lump-sum distributions from 401(k) plans are generally treated as U.S.-source income subject to full NRA withholding. Consult a cross-border tax advisor before taking any distribution.

FBAR and FATCA Obligation End

Once you are no longer a U.S. person for tax purposes, your FBAR and FATCA obligations end — but not until after you file the returns for your final year of U.S. residency.

• FBAR for the departure year: You must still file FinCEN 114 for the departure year. The FBAR covers the maximum aggregate balance of foreign accounts at any point during the calendar year — including months after you left the U.S. The filing deadline is April 15 with an automatic extension to October 15.
• FATCA (Form 8938) for the departure year: Included in your final Form 1040 (the dual-status statement). Report all specified foreign financial assets above threshold as of your last day of U.S. residency. Once you are no longer a U.S. resident, Form 8938 is not required for subsequent years.
• No FBAR or FATCA in subsequent years: After your final U.S. tax return, you are not required to file FBAR or FATCA solely because you have Indian accounts. However, if you maintain U.S.-source income (dividends, rental), you may still need to file Form 1040-NR for those years. FBAR is a U.S. person obligation — once you are no longer a U.S. person, it does not apply.

India Re-Entry Tax: Worldwide Income as a Resident

This is the part most returning H-1B holders do not anticipate: once you become an Indian tax resident, India taxes your worldwide income — including U.S. brokerage dividends, U.S. rental income, and 401(k) distributions.

Your Indian residency status for tax purposes is determined by the number of days present in India during the financial year (April 1 – March 31). The three categories are:

• Resident and Ordinarily Resident (ROR): Present in India for 182+ days in the FY, or 60+ days in the FY and 365+ days in the preceding 4 FYs. As ROR, you are taxed on worldwide income.
• Resident but Not Ordinarily Resident (RNOR): A special category for recent returnees (those who were NRIs for 9 of the preceding 10 FYs, or were in India for 729 days or fewer in the preceding 7 FYs). As RNOR, you are taxed on Indian-source income and income received in India, but NOT on foreign-source income. This RNOR window typically lasts 2–3 years after return, providing significant tax relief.
• Non-Resident Indian (NRI): Present in India for fewer than 182 days (or fewer than 60 days if the expanded rule applies). If you return late in the fiscal year, you may remain NRI status for that year.

The RNOR status is a significant opportunity: if you time your return carefully and qualify, your U.S. brokerage income and 401(k) distributions may not be taxable in India for 2–3 years. The India-U.S. tax treaty also provides double-taxation relief through the foreign tax credit mechanism in both countries.

Post-Departure U.S. Tax Obligations

Even after leaving, you may still have annual U.S. tax filing obligations:

• Form 1040-NR each year: If you have U.S.-source income (brokerage dividends, rental income from U.S. property, 401(k) distributions), you must file Form 1040-NR annually for that income.
• EIN for rental property: If you own U.S. rental property and have a property manager, consider electing to file on a net basis (Form 1040-NR with Schedule E). The default NRA treatment is 30% gross withholding on rental income — net basis election is almost always better.
• 401(k) required minimum distributions (RMDs): Beginning at age 73, RMDs are mandatory from traditional 401(k) and IRA accounts. These are U.S.-source income taxable to NRAs, subject to 30% withholding (potentially reduced by treaty).