Moving Back to India ? — a Guide on Taxes

This document covers

1. USA Taxation when leaving USA
2. India Taxation when migrating to India

1. USA Taxation when leaving USA

1. Tax Residency Status:

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   If a person is leaving USA, tax residency plays a important role in determining his tax impact in USA

   • If a person is US Citizen or green card holder: He needs to pay taxes on his global income even after leaving USA and file tax returns every year unless he surrenders the green card or renounce USA Citizenship. However there are thresholds for tax filing in USA and the person can claim Foreign tax credit as per DTAA.
   • If a person is Non-Immigrant: If a person is on work visa and leave USA permanently, USA taxation depends on substantial presence test (SPT). If a person is NRI as per SPT, he is required to file taxes only on his USA income.

2. Taxation of different income sources when migrating:

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   The people who are migrating from USA to India are required to pay taxes on the following incomes in USA along depending on residential status and tax rules in USA

   • Salary & Wages
   • US stocks, bonds, real estate, and other investments
   • Rental Income from US Property
   • 401(k) & IRA Withdrawals
   • Social Security Benefits
   • Dividends & Interest
   • Any other income

2. India Taxation when migrating to India

If someone is migrating to India, they need to manage their taxation in India

1. Filing all returns in USA and Securing all tax records for future purpose:

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   • If any person wants to migrate to India from USA, it is recommended to file all pending returns and pay pending taxes in USA
   • Also it is recommended to secure all your tax records for future purposes as these documents can be served as valid proof if they get any notice in future from US Tax department or Indian tax department.

2. Take a Tax Consultation on Indian Tax laws:

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   when you are returning to India after long time, it is recommended to take a tax consultation on Indian tax laws and how it is going to impact from the taxation perspective. You can take a decision based on positives and negatives

3. Filing Previous financial year income tax returns in India:

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   • Most of the Non-Resident Indian's think that they are not required to file income tax returns in India as they are not living in India and don't have any taxable income in India.
   • But filing income tax returns in India serves the proof of their residential status and establishes a financial identity in India.
   • It also helps the Non residents in minimizing the chances of notices from Income Tax department.
   • Hence it is recommended for NRI’s to file upto previous 3 years income tax returns in India if they are thinking to migrate to India or have plans in future.

4. Checking Residential Status in India in the year of migrating and subsequent years:

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   • Taxation in India depends on residential status under Section 6 of the Income Tax Act, 1961
     
     
     1. Resident & Ordinarily Resident (ROR) - Global income is taxable in India.
     2. Resident but Not Ordinarily Resident (RNOR) - Only Indian income and foreign income earned from India related business is taxable.
     3. Non-Resident (NR) - Only Indian income is taxable.
   • NRI's who want to return to India must plan their return strategically to maintain NRI status in the migrating year and RNOR status for at least 2-3 subsequent years. If any NRI's want to dispose the assets in USA, this can be done during RNOR period because it is not taxable during that period.

   Refer Tax Residential Status Calculator and NRI Income Tax Help Center for more information

5. Closure of NRO or NRE accounts:

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   If any person has returned to India for unlimited time and don’t have any intention to go back to USA, he needs to close NRO or NRE accounts

   Refer Living abroad? Know more on NRO vs NRE accounts for more information

6. Taxation of global income in India:

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   The income in USA is taxable depending on residential status in India.

   Type of Income	During NRI period	During RNOR period	During ROR period
   Salary earned in USA	Not Taxable	Not Taxable	Taxable
   Rental income from a property in USA	Not Taxable	Not Taxable	Taxable
   Capital gains from assets in USA	Not Taxable	Not Taxable	Taxable
   Interest/Dividend	Not Taxable	Not Taxable	Taxable
   Remittances from USA	Not Taxable as it is not an income	Not Taxable as it is not an income	Not Taxable as it is not an income

   NOTE-1

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If any income is received in Indian account during RNOR/NRI period, it is then taxable in India

7. Claiming Foreign tax credit in India and DTAA:

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   If any person who has migrated to India has already paid taxes on foreign income in USA, he can claim foreign tax credit in India by filing form 67 as per DTAA. This is allowed when he is resident of India and needs to pay taxes on same income in both USA and India.