US ETF investing for NRIs returning to India: Tax implications
Moving back to India after years in the U.S. is exciting. Your US ETF portfolio, however, needs careful planning before you board that flight. The change in residential status from NRI to Indian resident rewrites how every dollar of capital gains, dividends, and foreign assets is taxed.
This guide breaks down the tax impact of NRI on the resident transition. It covers capital gains rules, DTAA benefits, reporting deadlines, and account restructuring steps you must take in 2026.
Your residential status drives every tax outcome.
Indian tax law does not care when you land at the airport. It counts the days you spend in the country during a financial year. Under Section 6(1) of the Income Tax Act, you become a resident if you stay 182 days or more in India during a financial year. A second test also applies: 60 days in the current year plus 365 days in the preceding four years.
For Indian citizens returning from abroad, the 60-day rule gets relaxed to 182 days if your Indian income stays below ₹15 lakh. This means returning before October in any financial year almost guarantees resident status for that entire year.
The impact of a change in residential status goes beyond a label. It determines whether India can tax your worldwide income or only Indian-sourced earnings. As an NRI, India taxes only your Indian income. As a Resident and Ordinarily Resident (ROR), India taxes everything you earn globally — including US ETF gains.
The RNOR window is your biggest tax planning advantage
Between NRI and full resident status lies a powerful transitional category. Resident but Not Ordinarily Resident (RNOR) status applies if you were NRI in 9 out of the 10 preceding financial years. It also applies if you spent 729 days or fewer in India during the 7 preceding years.
For someone who lived abroad a decade or more, RNOR status typically lasts 2 to 3 financial years after returning. During this period, your foreign income — including capital gains from selling U.S. ETFs — remains entirely exempt from Indian tax. This is the single most valuable tool for tax planning NRI return strategies.
Time your return wisely. Arriving after October extends your effective RNOR window because you likely remain NRI for that partial financial year. Every additional year of RNOR status gives you more room to sell US ETF holdings without paying Indian capital gains tax.
How India taxes U.S. ETFs after you become a full resident
Once RNOR expires and you become ROR, any US ETF held upon your return to India is taxed under a specific framework. Indian tax law classifies U.S. ETFs as unlisted foreign securities rather than equity-oriented funds. This classification applies even to equity-heavy ETFs, such as VOO and QQQ, which do not meet the 65% domestic Indian equity requirement.
For FY 2025-26 onwards, the rates are clear. Short-term capital gains on holdings sold within 24 months get taxed at your income tax slab rate. Long-term capital gains on holdings sold after 24 months attract a flat 12.5% tax under Section 112. The ₹1.25 lakh LTCG exemption under Section 112A does not apply. Indexation benefits were removed by the Finance Act 2024.
Budget 2025 brought one positive change. It narrowed Section 50AA to apply only to funds investing over 65% in debt instruments. This released foreign equity ETFs from the harsh slab-rate-only taxation that had applied since 2023. The LTCG tax NRI-to-resident framework now offers a reasonable 12.5% flat rate for long-term capital gains.
Understanding how these rates interact with your RNOR window is essential.
For a detailed breakdown of current capital gains and dividend tax rates, read our guide on tax implications for Indian residents investing in the U.S. stock market.
Selling appreciated U.S. ETFs during RNOR years results in no Indian tax on those gains. Selling after RNOR expiry results in 12.5% LTCG or slab-rate STCG, depending on the holding period.
DTAA stops double taxation on dividends, but creates inefficiency
The India-US Double Taxation Avoidance Agreement prevents you from paying full tax twice. Capital U.S. gains on US ETFU.S.face no U.S. tax for non-resident aliens. India is the only country that taxes your gains. This makes the DTAA irrelevant for capital gains in most cases.
Dividends are a different sU.S.ry. The U.S. withholds 25% tax at source on dividends paid to Indian residents who file Form W-8BEN. Without this form, withholding jumps to 30%. India simultaneously taxes dividends as income from other sources at your slab rate.
The Foreign Tax Credit mechanism under Section 90 allows you to offset U.S. withholding taxes against your Indian tax liability. You claim this credit by filing Form 67 before or alongside your income tax return. The credit equals the lower of the U.S. tax paid or the Indian tax on that income. If your Indian slab rate falls below 25%, you permanently lose the U.S. excess U.S. withholding.
This creates a real cost for investors in lower tax brackets. Consider switching to growth-oriented U.S. ETFs that pay minimal dividends. Alternatively, Ireland-domiciled UCITS ETFs carry only 15% dividend withholding in the U.S. to avoid U.S. estate tax exposure above $60,000.
NRI returning to India for tax reporting carries serious penalties
Once you achieve ROR status, India demands complete disclosure of foreign assets. Schedule FA in your income tax return requires you to report all foreign bank accounts, brokerage accounts, ETF holdings, and other investments, with no minimum value threshold. A U.S. bank account holding $1 must still be reported on Schedule FA.
Schedule FA follows the calendar year from January to December, not the Indian financial year. You must file ITR-2 or ITR-3 to include these schedules. Using ITR-1 when you hold foreign assets is a compliance violation.
Form 67 must be filed electronically to claim DTAA benefits. Following the 2022 amendment, the deadline extends to the end of the assessment year. For FY 2025-26, this means March 31, 20—KeepU.S.roofof of U.S. tax withholding, your foreign tax return, and a Tax Residency Certificate ready.
The Black Money Act 2015 makes non-disclosure of foreign assets a criminal offence. Penalties include ₹10 lakh per assessment year, plus a potential term of imprisonment of 6 months to 7 years. Budget 2026 offered partial relief by raising the prosecution threshold to ₹20 lakh for non-immovable foreign assets and introducing a one-time FAST-DS amnesty scheme.
If you are a U.S. person with a green card, FBAR filing obligations continue until you formally surrender the card through USCIS. Simply living in India does not include the U.S. and this U.S. reporting requirement.
Your accounts need to be restructured within 30 days.
FEMA requires NRE account conversion to either a resident savings account or an RFC (Resident Foreign Currency) account upon returning. The RFC account preserves your foreign currency exposure and offers tax-free interest during RNOR years. NRE fixed deposits can continue until maturity at their contracted rate. NRO accounts must be redesignated as resident accounts.
Best practice is to notify your Indian bank within 30 days of return. FEMA violations for delayed conversion attract penalties of up to 300% of the amount involved.
Your U.S. brokerage account can legally continue under Section 6(4) of FEMA. Resident Indians may hold and trade foreign securities acquired while non-resident. For new investments after returning, the Liberalised Remittance Scheme allows up to $250,000 per financial year.
Our complete beginner's guide to US ETF investing from India covers the LRS process, platform choices, and W-8BEN filing in detail.
Broker policies differ sharply. Interactive Brokers actively serves Indian residents. Charles Schwab has restrictions on new Indian resident accounts. Fidelity generally does not accept Indian residents and may limit existing accounts to liquidation only. Contact your broker before relocating.
Build a 12-month action plan before your move.
Start planning at least 12 months before your return date. In months 12 to 6, consult a cross-border tax advisor who understands both U.S. and Indian tax law. Review your US ETF portfolio for unrealised gains and identify holdings to sell during RNOR years.
From months 3 to 6, update your U.S.8BEN with your U.S. broker. Open an RFC account with your Indian bank. Gather documentation for all foreign assets you will need to report in Schedule FA.
In the final 3 months, strategically schedule your travel date to maximise your RNOR window. Notify your Indian bank about the upcoming status update. Confirm that your U.S. broker will continue to service your account from an Indian address.
After landing, convert NRE accounts within 30 days. Begin liquidating or repositioning US ETF holdings while RNOR status protects you from Indian capital gains tax. File Form 67 and ITR-2 diligently each year. Missing one disclosure deadline can trigger severe penalties under the Black Money Act.
A cross-border chartered accountant who specialises in NRI retto oto India and US ETF tax matters is not optional — it is essential. The interaction among U.S. FEMA, the Income Tax Act, U.S. tax obligations, and DTAA provisions creates complexity that generic tax software cannot handle. The cost of professional advice is a fraction of what a compliance mistake could cost you.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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Table of Contents
Moving back to India after years in the U.S. is exciting. Your US ETF portfolio, however, needs careful planning before you board that flight. The change in residential status from NRI to Indian resident rewrites how every dollar of capital gains, dividends, and foreign assets is taxed.
This guide breaks down the tax impact of NRI on the resident transition. It covers capital gains rules, DTAA benefits, reporting deadlines, and account restructuring steps you must take in 2026.
Your residential status drives every tax outcome.
Indian tax law does not care when you land at the airport. It counts the days you spend in the country during a financial year. Under Section 6(1) of the Income Tax Act, you become a resident if you stay 182 days or more in India during a financial year. A second test also applies: 60 days in the current year plus 365 days in the preceding four years.
For Indian citizens returning from abroad, the 60-day rule gets relaxed to 182 days if your Indian income stays below ₹15 lakh. This means returning before October in any financial year almost guarantees resident status for that entire year.
The impact of a change in residential status goes beyond a label. It determines whether India can tax your worldwide income or only Indian-sourced earnings. As an NRI, India taxes only your Indian income. As a Resident and Ordinarily Resident (ROR), India taxes everything you earn globally — including US ETF gains.
The RNOR window is your biggest tax planning advantage
Between NRI and full resident status lies a powerful transitional category. Resident but Not Ordinarily Resident (RNOR) status applies if you were NRI in 9 out of the 10 preceding financial years. It also applies if you spent 729 days or fewer in India during the 7 preceding years.
For someone who lived abroad a decade or more, RNOR status typically lasts 2 to 3 financial years after returning. During this period, your foreign income — including capital gains from selling U.S. ETFs — remains entirely exempt from Indian tax. This is the single most valuable tool for tax planning NRI return strategies.
Time your return wisely. Arriving after October extends your effective RNOR window because you likely remain NRI for that partial financial year. Every additional year of RNOR status gives you more room to sell US ETF holdings without paying Indian capital gains tax.
How India taxes U.S. ETFs after you become a full resident
Once RNOR expires and you become ROR, any US ETF held upon your return to India is taxed under a specific framework. Indian tax law classifies U.S. ETFs as unlisted foreign securities rather than equity-oriented funds. This classification applies even to equity-heavy ETFs, such as VOO and QQQ, which do not meet the 65% domestic Indian equity requirement.
For FY 2025-26 onwards, the rates are clear. Short-term capital gains on holdings sold within 24 months get taxed at your income tax slab rate. Long-term capital gains on holdings sold after 24 months attract a flat 12.5% tax under Section 112. The ₹1.25 lakh LTCG exemption under Section 112A does not apply. Indexation benefits were removed by the Finance Act 2024.
Budget 2025 brought one positive change. It narrowed Section 50AA to apply only to funds investing over 65% in debt instruments. This released foreign equity ETFs from the harsh slab-rate-only taxation that had applied since 2023. The LTCG tax NRI-to-resident framework now offers a reasonable 12.5% flat rate for long-term capital gains.
Understanding how these rates interact with your RNOR window is essential.
For a detailed breakdown of current capital gains and dividend tax rates, read our guide on tax implications for Indian residents investing in the U.S. stock market.
Selling appreciated U.S. ETFs during RNOR years results in no Indian tax on those gains. Selling after RNOR expiry results in 12.5% LTCG or slab-rate STCG, depending on the holding period.
DTAA stops double taxation on dividends, but creates inefficiency
The India-US Double Taxation Avoidance Agreement prevents you from paying full tax twice. Capital U.S. gains on US ETFU.S.face no U.S. tax for non-resident aliens. India is the only country that taxes your gains. This makes the DTAA irrelevant for capital gains in most cases.
Dividends are a different sU.S.ry. The U.S. withholds 25% tax at source on dividends paid to Indian residents who file Form W-8BEN. Without this form, withholding jumps to 30%. India simultaneously taxes dividends as income from other sources at your slab rate.
The Foreign Tax Credit mechanism under Section 90 allows you to offset U.S. withholding taxes against your Indian tax liability. You claim this credit by filing Form 67 before or alongside your income tax return. The credit equals the lower of the U.S. tax paid or the Indian tax on that income. If your Indian slab rate falls below 25%, you permanently lose the U.S. excess U.S. withholding.
This creates a real cost for investors in lower tax brackets. Consider switching to growth-oriented U.S. ETFs that pay minimal dividends. Alternatively, Ireland-domiciled UCITS ETFs carry only 15% dividend withholding in the U.S. to avoid U.S. estate tax exposure above $60,000.
NRI returning to India for tax reporting carries serious penalties
Once you achieve ROR status, India demands complete disclosure of foreign assets. Schedule FA in your income tax return requires you to report all foreign bank accounts, brokerage accounts, ETF holdings, and other investments, with no minimum value threshold. A U.S. bank account holding $1 must still be reported on Schedule FA.
Schedule FA follows the calendar year from January to December, not the Indian financial year. You must file ITR-2 or ITR-3 to include these schedules. Using ITR-1 when you hold foreign assets is a compliance violation.
Form 67 must be filed electronically to claim DTAA benefits. Following the 2022 amendment, the deadline extends to the end of the assessment year. For FY 2025-26, this means March 31, 20—KeepU.S.roofof of U.S. tax withholding, your foreign tax return, and a Tax Residency Certificate ready.
The Black Money Act 2015 makes non-disclosure of foreign assets a criminal offence. Penalties include ₹10 lakh per assessment year, plus a potential term of imprisonment of 6 months to 7 years. Budget 2026 offered partial relief by raising the prosecution threshold to ₹20 lakh for non-immovable foreign assets and introducing a one-time FAST-DS amnesty scheme.
If you are a U.S. person with a green card, FBAR filing obligations continue until you formally surrender the card through USCIS. Simply living in India does not include the U.S. and this U.S. reporting requirement.
Your accounts need to be restructured within 30 days.
FEMA requires NRE account conversion to either a resident savings account or an RFC (Resident Foreign Currency) account upon returning. The RFC account preserves your foreign currency exposure and offers tax-free interest during RNOR years. NRE fixed deposits can continue until maturity at their contracted rate. NRO accounts must be redesignated as resident accounts.
Best practice is to notify your Indian bank within 30 days of return. FEMA violations for delayed conversion attract penalties of up to 300% of the amount involved.
Your U.S. brokerage account can legally continue under Section 6(4) of FEMA. Resident Indians may hold and trade foreign securities acquired while non-resident. For new investments after returning, the Liberalised Remittance Scheme allows up to $250,000 per financial year.
Our complete beginner's guide to US ETF investing from India covers the LRS process, platform choices, and W-8BEN filing in detail.
Broker policies differ sharply. Interactive Brokers actively serves Indian residents. Charles Schwab has restrictions on new Indian resident accounts. Fidelity generally does not accept Indian residents and may limit existing accounts to liquidation only. Contact your broker before relocating.
Build a 12-month action plan before your move.
Start planning at least 12 months before your return date. In months 12 to 6, consult a cross-border tax advisor who understands both U.S. and Indian tax law. Review your US ETF portfolio for unrealised gains and identify holdings to sell during RNOR years.
From months 3 to 6, update your U.S.8BEN with your U.S. broker. Open an RFC account with your Indian bank. Gather documentation for all foreign assets you will need to report in Schedule FA.
In the final 3 months, strategically schedule your travel date to maximise your RNOR window. Notify your Indian bank about the upcoming status update. Confirm that your U.S. broker will continue to service your account from an Indian address.
After landing, convert NRE accounts within 30 days. Begin liquidating or repositioning US ETF holdings while RNOR status protects you from Indian capital gains tax. File Form 67 and ITR-2 diligently each year. Missing one disclosure deadline can trigger severe penalties under the Black Money Act.
A cross-border chartered accountant who specialises in NRI retto oto India and US ETF tax matters is not optional — it is essential. The interaction among U.S. FEMA, the Income Tax Act, U.S. tax obligations, and DTAA provisions creates complexity that generic tax software cannot handle. The cost of professional advice is a fraction of what a compliance mistake could cost you.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs
