Green Card Holders Returning to India: Key Tax, Financial, and Legal Considerations

 For many Indian-origin individuals living in the United States, the dream of returning home often resurfaces after years abroad. Whether driven by family, career changes, or a desire to retire in familiar surroundings, Green Card Holders returning to India must navigate a complex web of tax, legal, and financial implications before making the move.

Relocation isn’t just about booking a flight—it involves careful planning to ensure a smooth transition from U.S. residency to life back in India. Understanding the U.S. exit requirements, Indian residency rules, and cross-border taxation is crucial to protecting your wealth and avoiding legal complications.

1. Understanding Your U.S. Residency Status

The first step for Green Card Holders Returning to India is determining how to legally and financially end U.S. tax residency. Merely leaving the U.S. does not automatically terminate your tax obligations.

You are considered a U.S. tax resident until you formally surrender your Green Card through Form I-407 (Record of Abandonment of Lawful Permanent Resident Status). Without filing this form, you may continue to be treated as a U.S. resident for tax purposes—liable to pay tax on worldwide income.

If you have held your Green Card for eight years or more, surrendering it may also trigger the U.S. Exit Tax, which applies to long-term residents. Therefore, expatriation planning is vital to avoid unexpected tax liabilities.

2. The U.S. Exit Tax: A Crucial Consideration

Before leaving the U.S., long-term Green Card holders must assess whether they qualify as “covered expatriates” under the Internal Revenue Code Section 877A.

You are a covered expatriate if any of the following apply:

• Your net worth exceeds $2 million,

• Your average annual income tax liability for the past five years exceeds about $201,000 (for 2025), or

• You fail to certify five years of tax compliance using Form 8854.

Covered expatriates are subject to the Exit Tax, which deems that all your assets were sold the day before expatriation, and capital gains are taxed accordingly.

To avoid this, ensure your tax filings are up to date and explore strategies to bring your net worth or tax exposure below the required thresholds before surrendering your Green Card.

3. Repatriating Assets to India

When Green Card Holders return to India, transferring financial assets can be complicated. Some key points include:

• Bank Accounts: U.S. bank accounts can remain open, but future earnings on those accounts may be taxable in India once you become a tax resident there.

• Investments: Mutual funds, brokerage accounts, and retirement plans like 401(k) or IRA require strategic planning. Withdrawals from retirement accounts are often taxed in the U.S., and you may need to declare them again in India, depending on the Double Taxation Avoidance Agreement (DTAA) between the two countries.

• Property Sale Proceeds: Selling U.S. property before moving can simplify tax reporting, but it might trigger U.S. capital gains tax. Alternatively, rental income from U.S. property after returning to India must be declared in both countries.

Consulting an international tax advisor can help determine the most efficient way to repatriate funds while minimizing taxes.

4. Determining Your Indian Tax Residency

Once you move back, your Indian tax residency status is determined by the number of days you spend in India during a financial year (April–March).

• Resident and Ordinarily Resident (ROR): Taxable on global income.

• Resident but Not Ordinarily Resident (RNOR): Taxable only on income earned in India and foreign income received in India.

• Non-Resident (NR): Taxable only on Indian-sourced income.

Most returning Green Card Holders initially qualify as RNOR for up to two financial years, which provides significant relief from global income taxation. This transitional period is ideal for reorganizing overseas assets and investments.

5. Double Taxation Avoidance Agreement (DTAA)

India and the United States have a DTAA in place to prevent individuals from being taxed twice on the same income.

For Green Card Holders returning to India, the DTAA allows:

• Tax credits for taxes paid in one country against liabilities in the other,

• Clear rules on where income from interest, dividends, and capital gains is taxable, and

• Prevention of double taxation on salary or pension income.

Proper use of DTAA provisions can save you from excessive taxation and simplify filing requirements in both countries.

6. Managing U.S. Retirement Accounts

Many returning residents have retirement savings in 401(k), IRA, or Roth IRA accounts. The U.S. taxes withdrawals from these accounts, even after you return to India.

To optimize returns and reduce taxes:

• Evaluate whether to withdraw or retain the accounts.

• Plan withdrawals strategically to minimize tax brackets.

• Understand how India taxes such income under its laws and the DTAA.

Professional advice can help align withdrawals with your income and residency status for maximum benefit.

7. Compliance and Reporting Obligations in India

After settling in India, you must comply with Indian financial regulations, including:

• Foreign Asset Reporting (Schedule FA): Mandatory for Indian residents holding overseas assets or bank accounts.

• FEMA and RBI Rules: Repatriation of funds must follow Foreign Exchange Management Act (FEMA) guidelines.

• PAN and Aadhar Requirements: Ensure all financial records and bank accounts are updated with Indian identification documents.

Non-compliance with reporting norms may attract penalties under Indian tax laws.

8. Financial Planning for a Smooth Transition

Returning to India offers a chance to rebuild your financial base. Here are a few steps to consider:

• Consolidate and repatriate assets legally.

• Update your estate plan and wills to reflect both U.S. and Indian laws.

• Review insurance policies, investment portfolios, and retirement strategies.

• Work with both Indian and U.S. tax professionals for dual compliance.

Strategic planning ensures financial stability and peace of mind during your return.

Conclusion

For Green Card Holders returning to India, the journey home involves more than just relocation—it requires meticulous financial and tax planning. Understanding U.S. exit formalities, Indian tax residency rules, and cross-border compliance is essential to making your return stress-free and financially sound.

Whether you are moving back permanently or for the long term, careful preparation ensures that your wealth remains protected and compliant with both countries’ regulations.

If you are planning to return to India and need assistance with taxation, compliance, and asset repatriation, the expert team at Dinesh Aarjav & Associates can help you make the transition seamless and legally compliant.