Recently, when I posted a blog about planning India return for the US (United States) based NRI, I got multiple requests to write about planning India return for US-based OCI (Overseas Citizen of India). This is an interesting ask. Historically, the majority of the Indians have settled in the US after getting Green Card and US Citizenship while continuing to keep the connection with the family, relatives and friends back at home in India. The first few trips to India post-shift to the US is typically with the whole family. With the passage of time and multiple dependencies, family trips become difficult and are replaced with solo trips. With working couples and kids’ education, the frequency of travel further reduces. While the heart yearns for more visits to the motherland, it becomes difficult in practice.
For the generation which travelled to the US for the first time in the 1990s, kids are now getting into college and are becoming independent while parents back in India have aged and need support. There appears to be a window of opportunity where kids may just be able to manage on their own in the US and they can spend some quality time with parents back in India or best just move to India for good.
Listing a few commonly asked queries and perspectives which can help them plan for the transition.
1. How easy it is for OCI / PIO to settle back in India?
With OCI, the government of India has extended the red carpet to the Person of Indian Origin. Except for purchasing agricultural land, voting rights and holding public offices, an OCI can do pretty much what an Indian Citizen can do. An OCI can inherit agricultural land as well.
2. How shall I plan my contribution to the retirement schemes in the US if I finally want to settle in India?
It would be ideal for you to invest in qualified retirement plans including 401 K, IRA, 403b as the tax is differed when you have a high income and you can control the withdrawal post 59 ½ to pay optimal tax. For your withdrawal post your move to India you can use DTAA (Double Tax Avoidance Agreement) to pay the appropriate tax between the US and India.
3. Should I relinquish US Citizenship before moving to India for good?
There is no need for you to relinquish your Citizenship. US Citizenship makes it easy for you to own assets and operate accounts in the US. It also makes it easy for you to travel to the US and other countries where the visa is not required for US Citizens. As an OCI, you can do pretty much everything in India.
4. How should I plan the investment of my financial assets between the US and India?
The US taxation on PFIC (Passive Foreign Investment Companies) investments including mutual funds in India is punitive. Also, there is a wide range of investment options available for US Citizens from the US market across the globe including investment in emerging economies such as India and it is highly cost-effective.
Hence it would be ideal for you to leave those investments back in the US. Just make sure that you keep the accounts with the financial institutions which will allow you to keep the account active when you move abroad and are easy to manage remotely.
Use local financial institutions in India to manage your short term cash flow needs for 3-6 months.
5. How shall I plan for my health care expenses?
Ideally, if you are planning to settle in India, you should purchase health insurance in India at an early age. You can purchase the same remotely from the US.
If you are not able to purchase health insurance in India, you can explore the health insurance provided by some of the US insurers for abroad coverage including India.
The US provides Medicare for US Citizens aged 65 but that will not cover treatment outside the US. If you intend to go back to the US, you should continue to pay the premium for Medicare Part A.
6. Do I need to worry about the US state taxes when I move abroad?
Some states in the US may continue to tax your income when you have moved abroad considering you as a domicile of the state before leaving abroad. You need to terminate the domicile status of the state or become a tax resident of a state with no income tax such as Florida before moving to India.
7. What are the tax implications for a US Citizen residing in India?
India taxes on global income for residents. The US Citizen will pay taxes in India as a resident and can take credit for those taxes in the US as part of DTAA.
The US is only one of the two countries which tax global income not only based on residency but also on the basis of Citizenship. US Citizens while residing in India are required to file US taxes. For US taxes, the US Citizen may qualify to exclude foreign earnings ($107,600 for 2020), so depending on their income, they may as well not have to pay US taxes.
8. What is the tax filing requirement for a US Citizen residing in India?
A US Citizen residing abroad is required to do the following key compliance reporting:
- If the US Citizen has a financial interest in or has signature authority over foreign financial accounts, he needs to file an FBAR (FinCEN Report 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
- IRS requires the US Citizen to declare citizenship details with all financial institutions in India so that they can comply with FATCA (Foreign Account Tax Compliance Act) reporting requirement. As US citizens, they need to file Form 8938 if they satisfy the specified foreign financial assets reporting threshold requirement.
The views shared in this article is on the best effort basis and the author does not take any guarantee of its validity and correctness. Please take the help of the subject matter experts before taking any decision.
You may also like to read Investing for the US based NRI.
The writer is a SEBI Registered Investment Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. He has helped many NRI Clients across the globe. To know more about him, click on https://finmyn.com/about/