Indian expatriates with US retirement accounts face new tax complexities as India’s 2026 law shifts the taxation landscape, particularly around residence status and global income reporting.
For an Indian citizen who has spent more than a decade working in the US and plans to return to India in late 2026, the tax treatment of a rolled-over traditional IRA depends heavily on residential status in India. According to Mint, the key question is not whether the account continues to grow, but whether that growth falls within India’s taxable scope after the move.
Under the Income-tax Act, 2025, which took effect on 1 April 2026, a person who is non-resident or resident but not ordinarily resident is generally taxed in India only on Indian income and certain India-linked receipts. Mint reported that foreign-source income, including appreciation inside a US IRA, is not taxed in India while the individual remains in either of those categories. The IRS, for its part, says traditional IRA earnings in the US are generally tax-deferred until distribution.
The position changes once the individual becomes resident and ordinarily resident in India. At that stage, global income can fall into the Indian tax net on an accrual basis, which would ordinarily include the growth inside the IRA. Mint said the new law also allows eligible taxpayers to defer Indian tax until the year the same income is taxed in the US, provided Form 40 is filed on time with the Indian return.
When the money is eventually withdrawn, the amount will again be taxable in India, but relief may be available for US tax already paid. Mint reported that the foreign tax credit can be claimed by filing Form 44 with the Indian return. During the period of resident and ordinarily resident status, the IRA must also be disclosed in Schedule FA, India’s foreign assets schedule.
There is one important catch: if the taxpayer later becomes non-resident again after using the deferral option, the deferred income becomes taxable in the year the residential status changes. In practical terms, that means the timing of the move back to India, and later changes in status, can matter as much as the eventual withdrawal.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
