The Trump administration‘s latest immigration policy could have far-reaching consequences for thousands of Indians pursuing permanent residency in the United States. Under the new rule announced by US Citizenship and Immigration Services (USCIS), most immigrants seeking a green card will no longer be allowed to complete the process while remaining in the US. Instead, they will have to leave the country and undergo consular processing at a US embassy or consulate abroad, except in extraordinary circumstances.
This recent change closes a pathway that previously allowed many visa holders, including H-1B, L-1 and F-1 holders, to apply for adjustment of status while staying in the US. The administration argues the change will make the system “fairer and more efficient,”but it could separate families and create uncertainty for applicants waiting years for green cards.
For Indians, who make up one of the largest groups stuck in the US green card backlog, the policy could have significant tax and financial planning implications. To understand the impact, FinancialExpress.com spoke with CA Amarnath Ambati, Founder of Asacglobal.in, who has spent over two decades advising NRIs and tracking India-US financial and tax developments.
A move back to India could alter tax residency
One of the biggest concerns for visa holders who may be required to leave the US is the potential change in their tax residency status.
“India’s residential status predominantly depends on the number of days of stay during the year. India also goes back to 4 yrs, 7 yrs and past 10 yrs stay. If an individual who has left India within a period of past 5 years, may have high chances of becoming a ‘resident and ordinarily resident’ and consequently liable to tax on global income,” Ambati told FinancialExpress.com
He noted that in the US, taxpayers may qualify as non-residents after moving out and may consequently be taxable only on US-source income.
NOR status may offer temporary relief
For NRIs who spend an extended period in India while waiting for consular processing, tax treatment will largely depend on whether they qualify as Resident but Not Ordinarily Resident (RNOR) or Resident and Ordinarily Resident (ROR).
“RNOR status gives them an advantage by taxing only India source income. However, during the ROR period they may face many complex scenarios of double taxation due to global income taxation. Foreign Tax credit is generally available for taxes paid in the US in case of such double taxation,” Ambati explained.
However, he explained that practical challenges can arise when individuals continue working remotely for a US employer while residing in India.
He also added, “Practically, in case of an individual working in India for a US company (on US payroll), the income may be regarded as India source income though he is employed by a US entity and salary is credited to US bank account. In such cases irrespective of whether such an individual is an RNOR or ROR, such salary income would be considered as India source and taxable in India.”
Global income could become taxable in India
A prolonged stay in India may also result in individuals becoming RORs, exposing their worldwide income to Indian taxation.
“Yes, depending on the number of days of stay in the past 7 or 10 years, individuals may qualify to be RORs. In such cases global income would be taxable in India,” Ambati said.
He added that the India-US Double Taxation Avoidance Agreement (DTAA) can provide relief through foreign tax credits.
“India-US DTAA provides for double taxation relief under various scenarios and most popularly in the form of foreign tax credit for the taxes paid in the US. If US source income is taxable in India, credit can be claimed for such taxes in India tax return. However, such credit is limited to the lower of India or US taxes.”
US investments could trigger additional reporting obligations
Returning to India may also complicate tax compliance for those holding US retirement accounts, stock compensation and investment portfolios.
“In case of returning NRIs, all these assets would qualify as foreign assets for the purpose of India taxation. These assets would require separate reporting under Sch-FA. This is an important reporting and any mis-reporting or inaccurate reporting may attract a penalty of Rs.10 lakhs,” Ambati said.
The reporting requirement extends to assets such as 401(k)s, IRAs, brokerage accounts, RSUs, ESPPs and US real estate.
He pointed out that 401(k) and IRA holders may need to file specific forms in India to defer taxation until withdrawal. Meanwhile, employees with stock-based compensation may face overlapping tax obligations.
“RSUs may have trailing tax liabilities in US and India if there are any RSUs which are granted while on the US payroll and got vested while on India payroll.”
Green card holders living in India face ongoing US tax obligations
Even if applicants eventually secure a green card through consular processing, tax complexities do not necessarily end there.
“This poses a major challenge with respect to double taxation. Since, GC holders are always considered as residents for US tax purposes, global income may get taxed in the US,” Ambati said.
If such individuals also qualify as RORs in India, both countries could seek to tax their global income. While relief mechanisms exist under the DTAA and US tax laws, compliance requirements remain extensive.
“From a reporting perspective, from US standpoint – filing of FBARs, 8938 etc. should be complied with. Further, in India, Sch-FA, Form 44 for claiming FTC (Form 67 as per old Act), Form 40 for deferring the taxation of US retirement benefits (Form 10EE as per old Act) etc. should not be missed.”
Common mistakes NRIs make during the transition
According to Ambati, one of the most common mistakes made by returning NRIs involves failing to update their tax status with US financial institutions.
“Amongst other things, common mistakes would include non-submission of Form W-8 BEN to the brokers resulting in issue of Form 1099s by them.”
He explained that brokers may continue treating individuals as US residents if the form is not submitted, resulting in incorrect tax reporting and potential notices from the Internal Revenue Service (IRS).
“If a non-resident alien does not file tax return in the US for such passive income, IRS may send a notice based on the income reported in 1099. This can be avoided by submitting Form W-8 BEN to the broker.”
The new USCIS policy is aimed at tightening immigration procedures, its impact is likely to extend well beyond visa processing. For Indians dealing with the already lengthy green card queue, a forced relocation during the application process could trigger changes in tax residency, global income taxation, compliance obligations and long-term financial planning.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.