Keeping your US brokerage account after returning to India: PFIC trap, Schedule FA, and what to sell

You have $150,000 in a Schwab account: VTI, VXUS, SGOV, and three individual tech stocks. You're returning to India. What happens to this portfolio?

The short answer: most of it is fine. But there are specific things to clean up before you leave, and a specific ongoing reporting obligation. Here's what to do.

Can you keep the US brokerage account?

Schwab: Schwab converted non-US client accounts to Schwab International Account when it acquired TD Ameritrade. Schwab International continues to support Indian residents for existing accounts. Trading of US-listed ETFs and stocks is allowed. Check your account agreement — restrictions vary.

Fidelity: Fidelity is more conservative. Existing Indian resident accounts are often maintained but new account openings for Indian addresses are restricted. Mutual fund purchases may be blocked for non-US residents. ETF and stock trading is typically allowed.

Interactive Brokers (IBKR): the most reliable option for Indian residents. IBKR explicitly supports international clients, has a dedicated India entity (IBKR India), and allows Indian residents to trade US-listed securities. If your current broker is becoming restrictive, consider consolidating to IBKR.

What to do before returning:

1. Contact your broker and update your address to your India address
2. Update your W-8BEN (Certificate of Foreign Status) — this tells the broker you are not a US person, affecting withholding
3. Ask explicitly whether your account type supports continued trading from India
4. If there are restrictions, initiate an ACATS transfer to IBKR before you leave

The W-8BEN update

Once you are an Indian resident, you are no longer a US person for tax purposes (unless you are a US citizen or green card holder — those rules are different and beyond this guide's scope).

Filing W-8BEN with your broker:

• Identifies you as a non-US person
• Allows your broker to apply 0% or reduced withholding on dividends under the India-US tax treaty (Article 10: dividend withholding at 15% or 25% depending on ownership percentage)
• Prevents backup withholding (28%) on account proceeds

W-8BEN is valid for 3 years. You'll need to refile periodically.

The PFIC problem: US mutual funds vs US ETFs

This is the most important distinction for returning NRIs to understand.

ETFs (Exchange-Traded Funds):

• Listed on a US exchange (NYSE, NASDAQ)
• Structured as a US investment company
• Buy and sell like stocks — intraday pricing
• Examples: VTI, VXUS, QQQ, SGOV, BIL, IEF, TLT, SPY

US Mutual Funds:

• Not exchange-listed, priced once daily (NAV)
• Purchased directly through the fund company
• Examples: Vanguard 500 Index Fund Investor Shares (VFINX), Fidelity Contrafund (FCNTX), Schwab Total Stock Market Index Fund

The PFIC concern for Indian residents:

From India's tax perspective, US mutual funds held by Indian residents may be treated as interests in foreign companies with passive income — creating complex tax treatment. The US PFIC rules (Section 1291–1298 of the US Internal Revenue Code) also apply if a US fund is classified as PFIC from the US side.

In practice: US ETFs (VTI, VXUS, etc.) are structured as regulated investment companies under US law and are listed equity — India taxes them as foreign equity capital gains. US open-end mutual funds create additional complexity. The safe move: before returning to India, sell US mutual fund holdings and replace with the equivalent ETF.

Direct comparison of common swaps:

The ETF versions track nearly identical indices, have equal or lower expense ratios, and are unambiguously exchange-traded equity — clean treatment in India.

When to make this swap: before you return to India, while you are still a US resident. This avoids Indian capital gains tax on the sale proceeds (as a US resident, you pay US capital gains tax; as an Indian resident, you would pay Indian tax too). If you are already back, sell as early as possible — the sooner you exit US mutual funds, the simpler your future tax filings.

India tax on US equity holdings

Once you are an Indian resident (RNOR or ROR), gains on US securities are taxable in India:

During RNOR: foreign-source capital gains are not taxable in India. US equity gains during RNOR years = India tax-free (US tax still applies).

After ROR: all gains taxable in India at the rates above, with DTAA credit for US taxes paid.

Implication: if you have highly appreciated US stock positions (low cost basis), consider harvesting some gains during RNOR years — India tax free, US tax is still due but you're paying only one country.

Schedule FA disclosure for US brokerage

Every year as an Indian resident, you must disclose your US brokerage account in Schedule FA of your ITR:

Table A2 (Foreign financial interest): the brokerage account itself, plus individual securities or ETF positions

December 31 snapshot: the value of your portfolio on December 31 of the calendar year falling within the financial year is what you report

Individual positions vs aggregate: the form asks for each security separately — ticker, number of units, value. For a diversified ETF portfolio (VTI, VXUS, SGOV), this is manageable. For a large portfolio of 30+ individual stocks, this becomes significant work. Consider simplification.

See the Schedule FA complete guide for full details.

New investments from India via LRS

If you want to continue investing in US markets after returning, you can do so via the Liberalised Remittance Scheme (LRS):

• Annual limit: ₹25 lakh per financial year (approximately $30,000 at ₹83/USD)
• TCS: 20% collected at source on the remitted amount (credited against your ITR tax liability — not an extra cost, but a cash-flow consideration)
• Where to invest: your existing IBKR or Schwab account

Practical LRS flow:

1. Open a dedicated forex/LRS facility at your Indian bank (most banks: HDFC, ICICI, Axis support this)
2. Specify purpose: capital account transaction for equity investment
3. Remit to your US brokerage account
4. Bank collects 20% TCS on the amount — this appears on your Form 26AS
5. Claim TCS as advance tax credit in your ITR — reduces your final tax payable

LRS limitation: ₹25 lakh/year at current rates allows approximately $28,000/year in new US investment. For large US portfolios, this limit is the binding constraint on new deployment from India. The existing portfolio is unaffected — LRS limits apply to new remittances, not to the value of what you already hold.

The portfolio simplification checklist

Before returning to India (or as soon as possible after):

• Sell all US open-end mutual funds; replace with equivalent ETFs
• Consolidate brokerage accounts — if you have Schwab + Fidelity + IBKR, pick two maximum
• Update W-8BEN at all brokers
• Download year-end statements for the last 5 years (useful for Schedule FA and Section 89A)
• Verify broker's policy on Indian resident accounts
• List every security with cost basis — you'll need this for Schedule FA and capital gains computation

Related: The returning NRI master guide · Schedule FA: disclosing your foreign assets in your Indian ITR · Section 89A and your 401k/IRA after returning to India