The First Two Years Back

The paperwork after landing is where good plans quietly go wrong: an account still labelled NRE, a foreign asset missing from the first Indian return, a US filing that carries on while the household assumes it has stopped. This chapter follows the first two years back in the order things come due: what to do with the bank accounts, what the Indian foreign-exchange rules let you keep and add abroad, what the Indian return asks once you are resident, and what the US still expects, which depends on whether you are a citizen or green card holder or neither.

The bank accounts, in order

Two sets of rules touch an Indian bank account, and they do not use the same test. The tax law has NR, RNOR and ROR. The foreign exchange law, FEMA, has "resident in India" and "resident outside India". The bank follows the second. RBI's Master Direction on Deposits and Accounts and its FAQs set the steps.

• NRE accounts. They should be designated as resident accounts, or the funds moved to a Resident Foreign Currency (RFC) account at your option, immediately on your return to take up employment or on a change in residential status (Master Direction, NRE account scheme, paragraph 4.9). Resident accounts are in rupees. An RFC account holds foreign currency.
• NRO accounts. They may be designated as resident accounts on your return to India for any purpose that shows you intend to stay for an uncertain period (paragraph 6.10).
• FCNR(B) deposits. On a change of status they may run to maturity at the contracted rate if you want, and the bank converts the deposit at maturity into a resident rupee deposit or an RFC account (RBI FAQ on accounts held by non-residents, 16 January 2025).
• The RFC account. A resident can open one out of foreign exchange received as a pension or benefit from an overseas employer, from converting assets acquired while a non-resident, or inherited or gifted by a non-resident. Its balance is free from all restrictions on use outside India, and NRE and FCNR(B) balances can be credited to it on the change of status (RBI Master Direction on deposits and accounts, RFC account, paragraph 3.2).

The NRE interest exemption (Schedule IV, serial 1 of the 2025 Act) is given to an individual who is "resident outside India" under FEMA, or who RBI has permitted to keep the account, and the entry does not mention RNOR. On its text it ends when you become resident under FEMA, even while you are RNOR for tax. Confirm that with your CA before you assume interest is exempt in your first year back.

Assets you hold abroad, and money you add

Section 6(4) of the Foreign Exchange Management Act, 1999 lets a person resident in India hold foreign currency, foreign securities and foreign property that they acquired, held or owned while resident outside India, or inherited from someone who was. RBI's circular of 9 January 2014 says such a person may freely use the income on those assets and the proceeds of selling them, including to make fresh investments abroad, provided the cost is met from those same funds. So your US brokerage, retirement accounts and house bought while you lived in the US stay yours as a resident, and you can reinvest their income and proceeds inside the US.

New money sent out of India is a different matter. A resident individual can remit up to $250,000 a year under the Liberalised Remittance Scheme (RBI FAQ), and that is the limit for fresh funding of a US account from rupee earnings.

The Indian return after you land

India's Income-tax Act, 2025 and the portal's return forms ask different things in different years.

• NR and RNOR years. The ITR-2 user manual on incometax.gov.in says Schedule FA, the schedule of foreign assets and foreign income, need not be filled if you are not ordinarily resident or are a non-resident. In those years the schedule is not required, though your Indian income still goes on the return.
• The first ROR year. Schedule FA applies, and a resident other than RNOR who holds a foreign asset must file a return even if the income is below the tax-free amount (section 263(1)(a)(ix) and (b)). Schedule FA asks for details of foreign assets and of income from any source outside India, which for this book's readers means US accounts, retirement plans, an HSA and any property. The Department's guide for returns under the 1961 Act says it looks at the calendar year ending 31 December, not the April to March year, and values assets at the State Bank of India's telegraphic transfer buying rate on the relevant date; check the first form issued under the 2025 Act. Schedule FSI and Schedule TR carry the foreign income and the tax relief claimed for foreign tax paid, and the guide says to file Form 67 for the credit under the 1961 Act's rules (the 2026 successor was not checked). If total income is above ₹50 lakh, Schedule AL also lists assets and liabilities.
• The penalty for omissions. Under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, a resident other than RNOR who files a return but leaves out or misstates a foreign asset or foreign-source income can be charged ten lakh rupees. Section 42 charges the same sum for not filing a return at all. Neither applies to assets other than immovable property whose total value is twenty lakh rupees or less, so a house abroad is always inside them. The Department's pages still refer to the 1961 Act, and how they sit beside the 2025 Act is for your CA.

Plan the first ROR year around the schedules: gather statements for every foreign account at the close of the calendar year and on the peak date, and the dividends, interest and gains for the year.

What the US still expects

A non-citizen who has left. You file the dual-status return for the departure year, as described in the Library's quick answer on leaving the US, and Form 1040-NR in later years while you have US-source income such as retirement payouts or rent. Give each US bank, broker and plan a Form W-8BEN.

A US citizen or green card holder. Nothing about the tax return ends. You file Form 1040 on worldwide income. The treaty's saving clause (Article 1(3)) lets the US tax its citizens and residents as if the treaty did not exist, so the treaty will not remove US tax from you. It does require relief for double tax: the US allows a credit for Indian income tax (Article 25(1)) and India allows a deduction for US tax (Article 25(2)). You claim the US credit on Form 1116 and the Indian relief through Schedules FSI and TR. A green card holder stays a US resident for tax until the status formally ends, and a long-term resident may face the expatriation tax when it does.

Foreign account reports. A US person living in India is still required to file the FBAR if all foreign accounts together were above $10,000 at any time in the year, and that includes the resident rupee account and the RFC account. Whether Indian provident fund and pension accounts such as PPF, EPF and NPS count is a point on which practitioners differ (see which Indian accounts go on the FBAR), so list them and put the question to your US preparer. Form 8938 has higher thresholds for someone living abroad: for an unmarried filer who meets the IRS's abroad test, $200,000 on the last day of the year or $300,000 at any time. A US account with a US broker or bank is not an FBAR account, but it goes on the Indian Schedule FA once you are ROR. The same account is reportable in one country and not in the other, which is why a single list of every account with its country, type and highest balance is the best working document of the two years.

A cash buffer in rupees

Moving back can mean a gap between jobs, joining costs and a first year of rupee bills, with the dollar savings sitting in the US. A buffer in rupees avoids selling investments in a hurry.

Essentials of $1,800 a month at the dated rate, with $9,000 set aside, covers 5.0 months. A target of 9 months is $16,200, so $7,200 is still to set aside. Keep the buffer where you can use it without a remittance or a sale, such as a resident or RFC account.