For families who have stayed back in the USA for a considerable time and obtained a US citizenship (USC) or a green card (GC), and now returning back to India for a better career opportunity, or taking care of parents or with an intent to retire back in India, a top of the mind question is whether to retain or surrender the USC/GC. In this article, I am examining both sides of the coin to help you take a more informed decision.
Also see my post on USA tax compliances & implications for surrendering US Citizenship/Green Card – USA Tax Compliances & Implications for surrender of US Citizenship/Green Card
Points in favour of retaining US citizenship for returning Indian:
#1: Ease of travel:
Ease of travel is touted as one of the most preferred reasons for people to retain US citizenship. Unlike a GC, once you have a USC, you can live and roam freely anywhere in the world without any restrictions on coming back to the USA. Even when you travel, the dominant status and power of USA helps make travel far easier on a US passport than on an Indian one. Unlike an Indian citizen who has to apply many weeks in advance and pay the fees etc. to travel to the USA or any other developed nation, in case of USC, you’re forever done with US Citizenship and Immigration Service (USCIS) no wait time after applying for visa every time.
Now, this is a useful feature only for certain people like expats who travel very frequently between countries or senior people who have children based out of USA and who look forward to visiting twice every year to meet them as in that case, you’re saved from the visa hassles and can stay back any length of time. However, if you’re not belonging to above categories, ease of travel does not mean much.
Also note that if you possess a GC, then if you plan to remain absent from USA for more than one year requires you to get a re-entry permit. If you return back after 2 years, since the re-entry permit is expired, you need to get a returning visa. If you surrender GC, you are saved from all these formalities.
#2: You can sponsor immediate relatives for a GC or obtain USC for children born abroad:
As per US immigration rules, a USC or a GC can sponsor immediate relative for a USC/GC. This is one more advantage of retaining a USC/GC. If you surrender USC/GC, you deny yourself of this opportunity. Also, if a child is born in US, by default, he becomes a USC but if you are a USC, you can also obtain USC for a child born outside the USA.
#3: You can apply as Overseas Citizen of India (OCI):
Even if you retain your USC, you can apply for an Indian OCI which promises to put you on par with Indians in almost all matters. Except having right to vote or hold public office, or purchase agricultural land, an OCI in every way is treated as an Indian. Note that while this may be the intent, if you look at the fine print of the laws, you can find instances of discrimination – Indian Tax Residency Rules for Persons of Indian Origin (PIO)/ Overseas Citizens of India (OCI)
#4: Getting financial aid for higher education:
It is easier to get federal aid for your higher education if you are a USC. Also, the fees for USC is far less (sometimes 2 to 3 times less) than the applicable fees for non-USC. So, this is a big plus. For further details on free federal student aid, check out the official website https://fafsa.ed.gov/
Points in favour of surrendering US citizenship for returning Indian:
#1: You’re saved from the IRS compliances:
As per the IRS rules, a USC or a GC holder qualifies as a US person is subject to all IRS rules and regulations, which include declaring worldwide income in tax return and paying tax on it. Also, a complex web of reporting requirements exists for undertaking any transaction or having overseas assets. For example, making a gift to any non-US person requires you to fill form 709.
Similarly, PFIC rules completely dis-incentivise investments in non-US locations by by taxing even the unrealised portion of income. It is very difficult to meet the return filing & reporting requirements to comply with IRS rules and require a good professional fee to hire a CPA and close these issues. If you surrender your USC/GC, you are saved from these obligations and you can freely invest and do financial transactions in India without worrying about IRS compliances.
See my detailed post on USA tax compliances & implications for surrendering US Citizenship/Green Card – USA Tax Compliances & Implications for surrender of US Citizenship/Green Card
#2: You are on par with an Indian citizen resident for all investment related facilities:
If you re-obtain Indian citizenship on return to India, certain Indian investment avenues which were henceforth restricted to Indian citizens only open up for you:Indian mutual funds (very few Indian AMCs currently accept money from USC), Sukanya Samriddhi Yojana (SSY), National Pension Scheme (NPS), PPF or a small savings account, purchase agricultural land etc.
Some additional pointers on relinquishment of USC/GC
- Nothing adverse will happen to your social security and medicare benefits on relinquishment of US citizenship. As long as you have got minimum 40 SS credits, even if you relinquish US citizenship it does not impact. As regards medicare, you will be able to claim only if you visit the USA.
- Surrendering USC or green card is irrevocable. You’ll have to apply for a visa if travelling again to the USA (unless you become a citizen of a country whose nationals US allows to enter on a visa free basis)
My take on relinquishment of USC/GC for Returning Indians
Apart from the points discussed above, some important thought pointers for a person taking this decision are as follows:
- Why did you come to USA in the first place? Have you achieved your goal? If not, how does keeping a US citizenship further it?
- Relinquishing US citizenship is somewhat like burning a bridge on Return to India, are you prepared for it?
- Are you clear on Return to India? Visiting India on vacations to participate in functions & festivities is very different from living here all your life. Are you prepared for this change?
In my view, a lot depends on a person’s mindset, expectations etc. and there is no single answer to the question. Since relinquishment of USC is an irrevocable decision, I will suggest Returning NRIs who have made up their mind to retire back in India to wait for a few years after returning to India before deciding on relinquishment of citizenship so that you can see whether your family are able to adjust to the lifestyle here.
However, I feel that the overreach of IRS rules on US citizens has become a pain enough to think ten times before retaining USC/Green Card. Only in case you are planning to pursue college education in USA and will get some very good benefits/savings from retaining your citizenship that there is a case for retaining it, else it is a high time to chuck this status symbol and simplify your financial life. Also, after FATCA and other provisions were introduced, there has been a trend of people relinquishing their citizenship – google and you’ll find many articles on this topic.
As regards India taxation, even if you retain USC for few years after return to India, you will still qualify as RNOR (refer this post – How to calculate Residential Status for Tax Purposes in India) so the dual taxation will not kick in for first 2-3 years on your return to India so that hassle is out of the way. Even if it does, the India USA DTAA will negate any double taxation impact. Once you finally decide on relinquish US citizenship, you can take the action. One final point, nothing is perfect in this world: Be prepared for some mismatch in your expectations on return to India, as everything is changing and not exactly at the same pace as in your mind!
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