Your 401(k) stays in the US when you move back to India. From that point, two tax systems apply to it. This post covers what the US withholds, what India taxes and when, and what your family owes if you die holding the account. The practical steps to take before you leave, such as finding old accounts, rolling them over and keeping your login, are in Old 401(k)? Move it before you move.
The short version
Nonresidents lose 30% of every distribution. The plan withholds it from the first dollar unless you have a Form W-8BEN on file, and the plan will not remind you. You get the excess back a year later on Form 1040-NR.
If you take the money in one transfer, you lose the treaty. Article 20 of the India-US treaty covers pensions paid in installments. A lump sum falls outside it.
Above $60,000, your heirs pay US estate tax. The IRS treats a 401(k) as a US asset. If you die as a nonresident alien, your exemption is $60,000, compared with the millions a US resident gets. India has no estate tax treaty with the US to raise it.
1. US tax after you leave
Once you become a nonresident alien for US tax purposes, the plan withholds 30% of every distribution, starting from the first dollar.
Form W-8BEN cuts that rate. It claims treaty benefits and provides your tax ID. It is free and takes less than an hour. The plan will not ask you for it. Most people learn about it when a distribution arrives 30% short.
Article 20 of the India-US treaty covers pensions paid in installments and gives the taxing right to the country where you live. Monthly or quarterly payments qualify, and a lump sum does not. If you take it all at once, both countries tax it. You will spend the next year claiming foreign tax credits to undo the overlap. Set up installments instead.
W-8BEN alone does not guarantee zero withholding. The plan's classification of the payment, the type of distribution and the treaty's savings clause all affect the result. The 10% penalty for withdrawals before 59½ still applies after you move.
If the plan withheld too much, file Form 1040-NR after year-end. Your refund arrives about a year later, with no interest.
2. Indian tax after you return
India taxes your 401(k) based on your residential status, which changes on a set schedule.
Most returning NRIs start as Resident but Not Ordinarily Resident (RNOR). You qualify if you were non-resident in nine of the 10 years before you came back. This status usually lasts two to three years. During RNOR, India does not tax income earned outside India. Use those years, because they are the cheapest time to take money out. The RNOR calculator shows how long your own window runs.
After RNOR, you become Resident and Ordinarily Resident (ROR), and India taxes your worldwide income. India used to tax the yearly growth inside a 401(k), even though the US taxes nothing until you withdraw. Section 158 of the Income Tax Act, 2025, the old Section 89A, fixes this mismatch. You pay Indian tax in the year you withdraw, the same year the US taxes you. You have to ask for it. File Form 40, the old Form 10-EE, before the return due date for the first year it applies. If you miss that date, you lose the option.
If both countries tax the same withdrawal, claim India's foreign tax credit on Form 44, the old Form 67.
Once you are ROR, list the 401(k) in Schedule FA of your Indian return. If you leave it out, Section 43 of the Black Money Act allows a ₹10 lakh penalty for every year, even if you owe no tax. The penalty does not apply if your foreign assets, other than real estate, total ₹20 lakh or less, about $20,800. Almost every 401(k) exceeds that.
Compliance Alert: India has never clarified how it taxes a Roth IRA. Section 158 shifts Indian tax to the year the US taxes the withdrawal, and the US never taxes a qualified Roth withdrawal. Some chartered accountants file Form 40 for a Roth anyway. Others tax the yearly growth once you are ROR. The CBDT has issued no guidance. Until it does, do not treat your Roth as tax-free in India.
3. The $60,000 estate tax limit
For estate tax, the IRS counts your 401(k), your IRA, your US-listed shares and your US-registered ETFs as US assets. Where your brokerage account is located makes no difference.
If you die while domiciled in the US, your exemption runs to several million dollars. If you die as a nonresident alien, it is $60,000. Congress set that number in 1976 and has never raised it. Your executor files Form 706-NA, and the estate pays up to 40% on everything above $60,000.
Domicile depends on where you intend to live, not on how many days you spend there. If you buy a flat in Bengaluru and tell your colleagues you are not coming back, you have probably given up US domicile, even if you still have a US bank account open. India has no estate tax treaty with the US. Nothing raises the limit, and nothing offsets the tax.
On a $400,000 401(k), $340,000 is exposed. Your family receives that bill while also trying to persuade a US firm to wire money to an Indian address.
Playbook Move: Check the beneficiary on every US retirement account you own. Naming one costs nothing, and it overrides your will. Your family in India can claim an account with a named beneficiary without going through US probate.
4. One account, two countries
This table shows how the same 401(k) works while you live here and after you return to India.
| While you live in the US | After you return to India | |
|---|---|---|
| US withholding on a distribution | 20% if the plan writes the check to you | 30% from the first dollar, less with Form W-8BEN |
| Penalty before 59½ | 10% | 10%, it still applies |
| Indian tax | None while you are a non-resident of India | None on foreign income during RNOR; worldwide income once ROR |
| Indian reporting | None | Schedule FA once ROR |
| US estate tax exemption | Several million dollars | $60,000, then up to 40% |
Summary of the points in this post. Your own result depends on your residential status in each country in the year of the withdrawal.
What to do, in order
- Before you leave, name a beneficiary on every US retirement account.
- When you become a nonresident alien, give the plan or IRA provider a Form W-8BEN before the first distribution.
- During RNOR, plan your withdrawals for these years, and take them as monthly or quarterly installments.
- In your first ROR year, file Form 40 before the return due date, and list the account in Schedule FA every year from then on.
- Each year you withdraw, claim the foreign tax credit on Form 44 in India, and file Form 1040-NR in the US if the plan withheld too much.
The foreign tax credit works in the other direction too. For how it applies to Indian bank interest while you still live in the US, see NRE vs NRO interest and the DTAA. For the estate tax exposure, see our estate planning service.
From Edition 15 of the NRI Playbook newsletter. For informational purposes only; not financial, tax, or legal advice. For decisions about your specific situation, consult a qualified cross-border tax professional.