Retirement Accounts on Each Side

An Indian household in the US usually holds retirement money on both sides: a 401(k), IRA or Roth account here, and a Public Provident Fund (PPF), Employees' Provident Fund (EPF) or National Pension System (NPS) account there. Each country has built its rules around its own accounts. Neither fully recognizes the other's. The result is a set of questions with answers that are only partly settled: how the US treats the Indian accounts, how India treats the US ones, and which choices depend on where you expect to retire. This chapter separates what is written down from what practitioners disagree about, and says so each time. The withdrawal mechanics of 401(k)s and Roth accounts when you leave the US are in volume 3 of this shelf and in the visa shelf chapters on leaving with a 401(k) and Roth or traditional if you might leave.

US accounts, seen from India

While you are a non-resident of India, a US retirement account is outside the Indian tax net. India taxes a non-resident on income received or accruing in India, and a US account's growth and withdrawals are neither. The question arrives when you become resident, and it has two parts.

A relief section exists. Section 158 of the Income-tax Act, 2025 (formerly section 89A of the 1961 Act) says income accrued in a "specified account" in a notified country is taxed "in such manner and in such tax year, as may be prescribed". A specified account is a retirement account in a notified country whose income that country taxes at withdrawal, not as it accrues. The person must be resident in India and must have opened the account while non-resident in India and resident in that country. Which countries and which accounts are notified, and how the prescribed rule taxes a withdrawal, are set outside the Act. They were not available to read for this edition. Secondary reports say a 2022 notification of the 1961 Act named the United States, the United Kingdom and Canada; whether that carries over to the 2025 Act was not confirmed, so check with a Chartered Accountant before you rely on it.

Practitioners disagree on the rest. Practitioners have given opposite answers in public on whether a resident and ordinarily resident person is taxed on the whole of a 401(k) or IRA withdrawal or only on the growth, and how a Roth account is treated. The Act does not settle it. Do not take a single online answer as the rule.

What is clear is the order of events. The RNOR window (volume 3, and the RNOR timeline calculator) is a stretch of years in which India taxes mainly income received or accruing in India, and income from abroad only if it comes from a business controlled in India or a profession set up there (section 5(1)(c)). How that applies to a US withdrawal taken in the window is a point to settle with a Chartered Accountant before you take it, not after.

The US side still applies. A withdrawal is US-source income. A non-resident alien is withheld at 30% by default and owes 10% more before 59½. The India-US treaty, Article 20(1), says a pension or annuity derived by a resident of one country from sources in the other may be taxed only in the country of residence. The treaty defines a pension as a periodic payment for past services (Article 20(3)), so whether a one-time lump sum from a 401(k) counts is open; the visa shelf chapters explain how to read it. A US citizen or green card holder who moves to India stays taxable in the US on the withdrawal, and India may tax it too.

Indian accounts, seen from the US

The IRS has published nothing specific to PPF, EPF or NPS that this edition could find. That leaves four questions, with the following status.

1. Is the interest taxable in the US each year? The US does not recognize the Indian tax-free status, and the India-US treaty has no article written for these schemes. The cautious position is to report the interest as it is credited. Some argue the accounts defer tax in the way a US retirement plan does, but this edition found no published guidance that supports it. Ask your preparer which position they take, and keep it the same each year.
2. Does the account go on Form 8938? The instructions for Form 8938 say an interest in a foreign pension plan is reported in Part VI, and that "the foreign social security equivalent" is not a specified foreign financial asset. They also say that equivalent does not include an interest in a foreign pension plan. Whether PPF, EPF and NPS are "pension plans" or something else, the thresholds ($50,000 at year end, or $75,000 at any time in the year, for an unmarried filer living in the US; higher for joint filers) decide whether any of this matters for you.
3. Does it go on the FBAR? The FBAR counts foreign financial accounts. FinCEN has not said that PPF, EPF or NPS are or are not within that definition, and the regulation's exception for retirement plans names only plans under Internal Revenue Code sections 401(a), 403(a) and 403(b) and IRAs (31 CFR 1010.350(g)). Practitioners differ: some report them because they hold money at a financial institution in your name, and others treat EPF and NPS as pension arrangements outside the definition. The FBAR threshold is $10,000 in total at any time in the year. The answer which Indian accounts go on the FBAR sets out the cases.
4. Is it a foreign trust (Form 3520 and 3520-A)? The Form 8938 instructions refer to a revenue procedure (Rev. Proc. 2020-17) that exempts certain tax-favored foreign retirement trusts from those forms. Whether an Indian scheme meets its conditions is a question for a preparer.

If the yearly interest is taxable in the US, an account that Indian law treats as tax-free grows more slowly than its advertised rate. The illustration uses a rate of 7.0%, an assumption and not a published rate: $20,000 grows to $55,181 over 15 years with no tax, and to $43,520 when each year's interest is taxed at the 24.0% bracket, ignoring state tax. The gap is 5.3% against the full rate, applied year after year. The point is the direction of the effect, not the figure.

What is known about the Indian schemes

Only the following is stated here, and it comes from secondary sources, to be confirmed with a Chartered Accountant: under the Public Provident Fund Scheme, 2019 new PPF accounts are not open to NRIs, an existing account held by someone who later becomes an NRI can continue to maturity on a non-repatriable basis, and the scheme's rules do not allow an extension after maturity for an NRI. EPF and NPS rules for NRIs, including what happens to EPF interest after a person becomes non-resident and whether NPS withdrawals can be sent abroad, were not verified for this edition and are left out rather than guessed. Ask the scheme administrator or a Chartered Accountant.

Choices that depend on where you will retire

The following questions come out of the sections above. They are prompts, not advice.

• If you expect to retire in the US. Indian accounts are a smaller part of the picture. The decisions are mainly about reporting them consistently, and about whether to leave an old PPF or EPF to run on.
• If you expect to retire in India. The US accounts become the larger piece. The timing of withdrawals relative to the RNOR window and the US dual-status year, the Roth question, and the US withholding all matter, and are covered in volume 3. The decision about whether to contribute to a Roth or a traditional account turns on the same facts.
• If you do not know. Decide the amount to leave in each system, and write down what would make you change it. The 401(k) withdrawal calculator shows the US tax and withholding of a cash-out; the Roth or traditional calculator compares the two when part of the later tax is outside your control.
• If you hold US citizenship or a green card. The US keeps taxing you wherever you live, so the Indian side cannot replace it. Both sets of rules apply, and the foreign tax credit is how they are reconciled.