NRIs returning to India: what to do with your US portfolio

Few financial transitions are more consequential than moving from "Non-Resident Indian (NRI)" to "Resident Indian." Your tax base shifts from US-only to global. Your US assets become subject to Indian capital gains tax. Schedule FA becomes a recurring obligation. And there's a small window — sometimes a few months — when you can do things that are impossible afterward.

This post is for NRIs planning a return to India in the next 12–36 months. We'll walk through the residency rules, what changes tax-wise, the pre-return optimizations, and what to do with each type of US account.

The residency change: when it actually happens

Indian tax residency is determined by the number of days spent in India in a financial year, defined by Section 6 of the Income Tax Act:

Days in India in FY	Residency status
< 60 days	NRI
60–181 days, with conditions	NRI (if income from foreign sources < ₹15 lakh)
60–181 days, with conditions	Resident-but-not-Ordinarily-Resident (RNOR)
≥ 182 days	Resident (or RNOR depending on history)

The RNOR (Resident but Not Ordinarily Resident) status is the bridge state. You get RNOR status for 2 years if you've been an NRI for at least 9 of the previous 10 financial years. RNOR is the magic window — your foreign-source income is mostly not taxable in India during this period.

What this means in practice

Suppose you're an NRI in the US, planning to move back to India in October 2026.

FY	Days in India	Status
2025–26 (April 2025–March 2026)	Mostly NRI year	NRI
2026–27 (April 2026–March 2027)	~181 days (Oct 2026 onward)	NRI or RNOR depending on history
2027–28 (full year in India)	365 days	RNOR (likely)
2028–29 (full year in India)	365 days	RNOR (likely)
2029–30 (full year in India)	365 days	Resident (Ordinarily Resident)

So you have approximately 2 years of RNOR after returning, then full Indian residency kicks in.

Why RNOR matters

During RNOR status:

• Foreign-source income is NOT taxable in India (unless it's accrued from a business/profession in India).
• Foreign assets do NOT need to be disclosed in Schedule FA (this is a major simplification).
• Capital gains on foreign assets sold during RNOR are NOT taxable in India.
• You can rebalance or liquidate US assets during this window without Indian tax.

This is the planning window.

Pre-return: actions to take 12 months before

If you have a fixed return date, here are the most valuable pre-return actions:

1. Roll over your 401(k) — or don't, depending on plan

A US 401(k) plan is tied to your employment. When you leave, you have options:

• Leave it in the 401(k) (if the plan allows for ex-employees with > $5k balance).
• Roll over to a Traditional IRA (preserves tax-deferred status).
• Cash out (taxable + 10% early withdrawal penalty if < 59.5).

For someone returning to India:

• Leaving in 401(k) is fine but the plan might charge fees, and managing it from India is awkward.
• Rolling to a Traditional IRA is generally the best move. IRAs are easier to manage from abroad and offer more investment options.
• Cash out is almost always wrong unless you have an immediate need, due to the early withdrawal penalty.

2. Sell low-cost-basis stocks during RNOR

You'll have ~2 years of RNOR after returning. If you have heavily-appreciated US stocks (RSUs that vested at $50 and are now $300, for example), selling during RNOR avoids Indian capital gains tax on those gains.

Plan: delay selling until after you become an RNOR, but before you become an Ordinarily Resident.

Worked example: 100 shares of company X bought at $50 (or vested at $50), now $300.

• Sell while NRI in the US: only US capital gains tax applies (at NRA rates, often favorable for non-residents).
• Sell while RNOR in India: no Indian tax, US capital gains tax may still apply.
• Sell while Ordinarily Resident: Indian LTCG (12.5%) on the full $25,000 gain in INR.

The Indian tax saved by selling during RNOR vs. Ordinarily Resident: ~₹3 lakh per ₹25 lakh of gain.

3. Roth conversions while still in low-tax US bracket

If you're returning during a low-income year (say, you're between jobs), and you have Traditional IRA money, converting some to Roth while you're still a US tax resident might be optimal. Roth conversion is taxed as ordinary income at US rates — but if you're in a low US bracket that year, the rate is low.

After conversion, the Roth grows tax-free even after you become an Indian resident (under the US-India treaty, Roth withdrawals after age 59.5 are not taxable in India either).

This is advanced planning; consult a CPA familiar with cross-border issues.

4. Maximize tax-free / tax-deferred contributions before leaving

If you have access to:

• HSA (Health Savings Account): triple tax advantage in the US, can be used as a stealth retirement account. Max out before leaving — withdrawals for qualified medical expenses are tax-free in both US and India.
• 401(k) catch-up contributions (if 50+): if you have wage income, max out.
• Backdoor Roth IRA: $7k/year (2024) tax-free growth forever.

Each of these compounds tax-free. The window to contribute closes when you leave US employment.

5. Capture US-side capital losses if any exist

US tax allows offsetting capital gains with capital losses. If you have a basket of stocks you've been holding and waiting to recover, selling losers in your last US tax year can offset gains.

After you leave, US-side losses become harder to use (you'll only be filing 1040-NR for US-source income, with limited loss offset).

What to do with each US account type after return

US brokerage account (taxable)

You can keep it open. As an NRI returning, your brokerage account stays open and accessible. The broker will need:

• Updated address (your Indian address).
• Updated W-8BEN reflecting Indian tax residency.
• Possibly some additional verification.

After return, you face Indian tax rules on this account:

• Capital gains in INR.
• Foreign equity classification (24-month LTCG threshold).
• Schedule FA disclosure.
• Form 67 for any dividend FTC.

Operating it from India: largely possible. Some brokers (especially smaller ones) restrict trading from non-US IPs. Major ones (IBKR, Schwab, Fidelity) generally allow it. Test before depending on it.

IRA / Roth IRA

You can keep it open. Most US IRA custodians allow non-US-resident accountholders, though they may restrict new contributions and certain transactions.

Tax in India:

• Traditional IRA: distributions are taxed as ordinary income in India at slab rate. Some treaty interpretations argue for treating them as pension income with possible favorable treatment, but this is contested. Conservative position: slab rate.
• Roth IRA: under most interpretations, qualified Roth distributions (after age 59.5, account at least 5 years old) are tax-free in India, if you can document them as being after-tax US contributions. This is a treaty/case-by-case question.

Operating from India: limited contributions, all withdrawals subject to Indian tax once you're Ordinarily Resident.

401(k)

You can leave it with the old employer's plan, roll to an IRA at a US custodian, or roll/cash out. We covered this above.

Once back in India, the 401(k) is foreign property — Schedule FA disclosure required.

RSUs from a previous US employer

If you have unvested RSUs from your previous employer that will continue vesting after your return:

• Vesting events become Indian taxable income (perquisite at vest).
• The stock is held abroad — Schedule FA.
• Once vested, treatment is the same as any US-equity holding.

Some US employers cancel unvested RSUs on departure. Some allow continued vesting. Check your equity plan documents.

HSA (Health Savings Account)

A unique animal. The US treats HSA distributions for qualified medical expenses as tax-free; India's treatment is unclear. Conservative position: tax HSA distributions in India as ordinary income unless used for clearly-qualified medical expenses.

Many returnees keep small HSAs invested for future medical needs. If you'll never use it for medical expenses, it might be best to drain before becoming an Ordinarily Resident.

ESPP shares from old employer

If you have employee-stock-purchase shares from a US employer:

• Cost basis: the FMV at purchase (already taxed as perquisite, US side).
• After return: capital gains under Indian foreign-equity rules.
• 24-month threshold from purchase date for LTCG.

Treat the same as RSU shares post-vest.

Tax filings during the transition

Last NRI year (likely FY 2025–26 in our scenario)

• File US 1040 (or 1040-NR depending on residency duration).
• File India ITR-2 (or ITR-1) declaring any Indian-source income only.

First year as RNOR (likely FY 2026–27)

• File US 1040 for the period you were US-resident (typically the partial year using "dual-status alien" rules).
• File Indian ITR-2 declaring all Indian-source income. Foreign-source income from this point typically NOT included for RNOR.

RNOR continuation year (FY 2027–28)

• Possibly no US filing if no US-source income generated.
• Indian ITR-2, RNOR position.

First Ordinarily Resident year (FY 2029–30)

• Full disclosure of all global income on Indian ITR-2.
• Schedule FA for all foreign assets.
• Form 67 for FTC on any foreign tax paid.

A multi-year planning timeline

For someone planning to return to India in October 2026:

Date	Action
Oct 2025 (1 year before)	Begin planning. Identify all US accounts, holdings, cost bases.
Dec 2025	Roth conversions if in a low-tax year.
Jan–Sep 2026	Continue building emergency fund. Pre-pay any deductible US tax obligations.
Sep 2026	Sell appreciated stocks if you want to use US-side rates (still NRI/dual-status).
Oct 2026	Move back. RNOR status begins (with conditions).
Oct 2026 – Sep 2028	RNOR window. Sell appreciated foreign assets if it makes sense. No Schedule FA.
Apr 2028	Possibly transition to Ordinarily Resident depending on day count.
Apr 2029	Likely Ordinarily Resident. Schedule FA reporting begins.

The biggest mistakes

Mistake 1: Selling all US assets right before return

Common pattern: NRIs sell everything in panic before leaving. The result: large US capital gains tax bill, all in one year, sometimes pushing them into higher brackets.

Better: stagger sales, plan for tax efficiency. Some sales can be deferred until RNOR.

Mistake 2: Cashing out the 401(k)

10% penalty + ordinary income tax on the entire balance. Often hundreds of thousands of dollars of avoidable tax.

Better: roll to an IRA. Manage it from India.

Mistake 3: Missing the RNOR window for selling

Some returnees become Ordinarily Resident and then realize they should have sold their appreciated foreign stocks during RNOR. Once you're Ordinarily Resident, you owe Indian tax on the gains.

Calculate ahead.

Mistake 4: Not updating addresses

Banks, brokers, employers — if your old US address is on file at any of these, post-return correspondence gets lost. Update everything within 30 days of your move.

Mistake 5: Forgetting US continued obligations

Even after returning to India, you may have ongoing US obligations:

• Annual 1040-NR for any US-source income (dividends, capital gains realized while NRI of US).
• IRA distributions if you take them.
• Potentially state tax filings if you had unbilled state tax obligations.

Hire a US-India CPA for the first 1–2 post-return years.

A note on US citizenship

If you're a US citizen returning to India (vs. an NRI on H-1B/green card), the rules are entirely different. US citizens are taxed on worldwide income regardless of where they live. You'll continue to file US tax returns annually for the rest of your life unless you renounce citizenship.

This post assumes you're an Indian citizen or non-US-citizen NRI returning. If you're a US citizen, talk to a CPA who specializes in US-citizen-abroad taxation.

The summary

Returning to India after years as a US NRI is a multi-year project, not a single event:

1. 12+ months out: Plan account-by-account.
2. Last year as NRI: Optimize US-side actions (Roth conversions, deferred losses, maxing out tax-advantaged accounts).
3. Return date: Update addresses, transition residency.
4. RNOR window (~2 years): Sell appreciated foreign assets if needed, no Schedule FA yet.
5. Ordinarily Resident: Full Indian tax compliance kicks in.

Done thoughtfully, this transition can save lakhs in unnecessary tax. Done sloppily, the same lakhs go to the tax authorities. Plan ahead.