I am an Indian citizen currently working in the USA for more than 10 years and have contributed to a 401(k) retirement plan offered by my employer. I plan to leave my employment soon and will roll over the accumulated balance into a Traditional Individual Retirement Account (IRA). I am exploring to relocate permanently to India in November/December 2026 but intend to continue holding the IRA for another 5-6 years at least without making any withdrawals. Will the appreciation in my IRA be taxable in India after my return, even if I do not make any withdrawals during the relevant tax year?
– Name withheld on request
Since your return to India is proposed in 2026 calendar year end, the tax implications will be governed by the provisions of the Income-tax Act, 2025, which came into effect on 1 April 2026.
Depending upon your period of stay in India, you may qualify as a Non-Resident (NR) and initially.
For an NR, only income received or deemed to be received in India, or income that accrues or arises (or is deemed to accrue or arise) in India, is taxable, whereas foreign income is not taxable in India.
For an RNOR, foreign-source income is taxable when it is derived from a business controlled from India or a profession set up in India.
Accordingly, the appreciation in your IRA, being foreign-source income, would not be taxable in India while you qualify as an NR/RNOR.
ROR changes things
Once you become a Resident and Ordinarily Resident (ROR), your global income, including income accruing in your IRA, would become taxable in India on an accrual basis.
However, as the USA taxes such income only upon withdrawal, the permits eligible taxpayers to defer taxation in India until the year in which such income is taxed in the USA.
To avail of this benefit, you are required to furnish Form 40 on or before filing your Indian income-tax return for the corresponding year.
Tax on withdrawal
Upon withdrawal, the amount would also become taxable in India. However, you can claim a foreign tax credit in India for the taxes paid in the USA by furnishing Form 44 while filing your Indian income-tax return.
Further, during the period in which you qualify as an ROR, you would also be required to disclose your IRA in of your income-tax return.
It is pertinent to note that if you subsequently become a non-resident after availing the income deferral benefit, the entire deferred income would be taxable in the year of the change in your residential status.
Harshal Bhuta is a partner at P. R. Bhuta Chartered Accountants