Relocating to the United States from India is a major life event—personally, professionally, and financially. Amidst all the visa paperwork, travel planning, and job transition, pre-immigration tax planning often takes a backseat. However, if ignored, it can result in significant tax complications under US tax laws and India's foreign asset regulations.

At Dinesh Aarjav & Associates, we’ve advised thousands of individuals transitioning from Indian residency to US residency, and we’ve compiled a checklist of smart pre-immigration tax moves to help you avoid financial pitfalls and reduce future tax burdens.

1. Close All Resident Demat Accounts & Update FATCA Status

Before moving abroad, it's critical to:

• Close any existing resident demat accounts.
• Open a Non-Resident Ordinary (NRO) demat account or Non-Resident External (NRE) account if required.
• Update your KYC and FATCA/CRS declarations across all financial institutions—mutual funds, banks, and brokers.

Failing to update your FATCA (Foreign Account Tax Compliance Act) status could lead to withholding of funds or even account freezing.

2. Exit PFIC-Type Investments in India

Under US tax laws, certain Indian investments are categorized as PFICs (Passive Foreign Investment Companies). These include:

• Mutual Funds (Equity & Debt)
• Exchange Traded Funds (ETFs)
• ULIPs
• LIC and other life insurance policies

Holding PFICs as a US tax resident triggers punitive taxation and extensive reporting under Form 8621.

Tip: Exit PFICs before becoming a US resident—even if it means paying some tax in India. The future compliance and tax burden under US laws could be far worse.

3. Get a Step-Up in Cost Basis for Investments

Before leaving India:

• Sell and repurchase listed shares, ETFs, and mutual funds.
• This allows you to "step-up" the cost base of your assets under US tax laws (since the US taxes on worldwide income post-residency).

Be careful about capital gains tax in India during this rebalancing.

This strategy helps reduce your capital gains tax liability in the US when you eventually sell those investments.

4. Update PAN Address to US & Change AO to International Ward

To stay compliant with Indian tax authorities:

• Update your PAN card with your US residential address.
• File a request to change your Assessing Officer (AO) to the International Taxation Ward under the Income Tax Department.

This is a crucial step that many NRIs overlook and can simplify your future tax correspondence.

5. Shift to Growth-Oriented Investments

Once you become a US tax resident, global interest and dividends are taxable in the US—irrespective of whether the income is received in India or abroad.

So, before you move:

• Reduce allocation to fixed deposits, dividend-paying funds, and bonds.
• Increase exposure to capital appreciation instruments like growth stocks or capital-gain-oriented mutual funds (preferably direct stocks to avoid PFIC classification).

This minimizes recurring taxable income in the US.

6. Exit or Liquidate Tax-Deferred Indian Investment

Some long-term Indian financial products may not be tax-deferred under US laws:

• ULIPs
• LIC Traditional Policies
• PPF
• EPF
• NPS

It’s important to consider liquidating or closing these accounts before your US move. If not, the growth may be taxed in the US, and withdrawal could lead to complex cross-border taxation.

Note: Always evaluate the tax impact in India before liquidating.

7. Review Your Roles in Indian Entities – LLPs, Trusts, Companies

If you're a:

• Trustee in an Indian trust
• Partner in an Indian LLP
• Director in an Indian private limited company

...these roles come with intensive reporting requirements in the US—Forms 5471, 8865, 3520-A, etc.

It’s advisable to resign or transfer ownership where possible before becoming a US tax resident. This can significantly reduce your compliance burden and avoid potential penalties.

Why Pre-Immigration Tax Planning Matters?

The US tax system taxes its residents on worldwide income, and the reporting obligations for foreign accounts and assets are strict. Non-compliance can attract hefty penalties ranging from $10,000 to $100,000 or more.

By planning ahead, you:

• Save on future US taxes
• Avoid double taxation
• Stay compliant with both Indian and US tax regimes
• Protect your financial peace of mind

Final Word: Consult an Expert Before You Move

Each individual’s financial situation is unique. Pre-immigration tax planning should be personalized, taking into account your income, assets, visa category, and long-term goals.

At Dinesh Aarjav & Associates, we offer end-to-end NRI tax advisory services, including:

• FATCA/CRS compliance
• Foreign account reporting
• Investment restructuring
• DTAA-based tax planning
• Estate and succession planning for NRIs