US exit tax for green card holders only applies if you held your card in at least 8 of the last 15 tax years. If you did, you're a "long-term resident," and you then check whether you're a "covered expatriate." Many people returning to India never hit either test, so the exit tax may not apply to you at all.

Here's the quick version, then we'll walk through it step by step.

The Short Answer

You're a long-term resident if you held a green card in 8 of the last 15 tax years. Any part of a year counts as a full year.

If you are a long-term resident, you're a covered expatriate when any one of these is true:

• Your net worth is $2 million or more.
• Your average annual US income tax for the last five years is above $211,000 (2026).
• You can't certify on Form 8854 that you followed all US tax rules for the last five years.

Covered expatriates are taxed as if they sold everything the day before giving up the card. The first $910,000 of gain is excluded.

One more thing matters a lot. Moving to India doesn't end your US tax residency. Until you surrender the card (usually with Form I-407), the US still taxes your worldwide income, even while you live in India.

Who This Guide Is For?

This guide is for Indians who hold a green card, have moved back to India (or plan to), and aren't sure what to do with the card. If that's you, there are two questions to ask. First, can the exit tax apply to me at all? Second, how do I end my US tax residency cleanly?

The second one trips up a lot of people. They leave with the card in a drawer and are still US taxpayers years later without knowing it. If you're a US citizen instead, see our guide to renouncing US citizenship from India.

Step 1: Are You a Long-Term Resident? The 8-Of-15-Year Test

You're a long-term resident if you held a green card in at least 8 of the 15 tax years ending with the year your residency ends. The exit tax under Section 877A applies only to citizens and long-term residents, so this test comes first.

Two counting rules decide most cases:

• Any Part Of A Year Counts As A Full Year. Say you got your card in December 2019 and gave it up in January 2026. That counts as 2019 through 2026, which is eight years, even though you held it for just over six.
• Treaty-Resident Years Don't Count. If you were treated as a resident of India under the India-US tax treaty and claimed that position with the IRS, those years are left out.

Here's how it plays out:

If you're not a long-term resident, there's no exit tax and no Form 8854. You still need to end your residency properly and file a final dual-status return, but the big risk is gone.

If you're close to eight years, the timing of your surrender can decide everything. Giving up the card in December instead of the following January might keep you under the line.

Step 2: How Do You End US Tax Residency Properly?

You end it by formally giving up your permanent resident status, most often with Form I-407. Leaving the country doesn't do it. Let's look at why, and what your options are.

Does Leaving The US End Green Card Tax Residency?

No. A green card makes you a US tax resident whether or not you live in the US. Moving to Bengaluru, letting the card expire, or never using it again changes nothing.

Until your status is formally given up or taken away, you must:

• File a full US return on your worldwide income
• Report Indian accounts on FBAR and Form 8938
• File Form 8621 for Indian mutual funds

An expired card is just an expired document. Your status as a permanent resident continues.

Form I-407: The Usual Way To Surrender The Card

Most people file Form I-407 (Record of Abandonment of Lawful Permanent Resident Status) with US Citizenship and Immigration Services. Follow the current filing instructions on the form.

For tax purposes, your residency generally ends on the date you file. If you're a long-term resident, that date is your expatriation date. Keep the USCIS acknowledgement, because it's your proof for the IRS.

Not ready to decide yet? A re-entry permit (Form I-131) lets you stay outside the US for up to two years without the card being treated as abandoned. You're still a US tax resident during that time, though.

The Treaty Tie-Breaker Trap

Some green card holders in India try to stop paying US tax by claiming Indian residency under Article 4 of the India-US tax treaty. They file Form 8833 with a non-resident return.

If you're under the 8-year mark, this can be a fair position. If you're a long-term resident, it's a different story. The IRS treats a new claim of treaty residence in another country as ending your long-term residency. That's an expatriation in its own right, so Form 8854 is due and the covered expatriate tests apply.

Plenty of people make this claim just to cut their yearly US tax, with no idea they've set off the exit tax.

Holding A Green Card While Living In India? We'll count your years under the 8-of-15 test, check whether you're still a US tax resident, and plan the date and method of giving up the card. Depending on that date, the exit tax may not apply to you at all. Book a green card exit review.

Step 3: Are You a Covered Expatriate?

You're a covered expatriate if you're a long-term resident and meet any one of three tests on your expatriation date. Here they are:

A few details help here:

• The net worth test counts assets worldwide. That includes your Indian flat, family property interests, Indian mutual funds, EPF, NPS and gold, plus any US accounts.
• The tax test looks at your US tax after foreign tax credits, not your income.
• Green card holders can't use the "dual citizen at birth" or "under 18½" exceptions. Those are for citizens only.

The certification test catches more returning Indians than the other two combined. An unfiled Form 8621 for an Indian mutual fund, a missed FBAR, or a missing Form 3520 for a gift or inheritance from family in India can make you covered at any net worth. Fix those years before you surrender the card.

Step 4: How Does the US Exit Tax Work?

If you're a covered expatriate, the US treats you as if you sold everything the day before you gave up the card. Let's break down the pieces.

The Deemed Sale And The $910,000 Exclusion

Every asset is treated as sold at market value on the day before your expatriation date, and the gain is taxed that year. For 2026, the first $910,000 of net gain is excluded.

You can choose to defer the tax on particular assets until you actually sell them. But you have to give the IRS security, pay interest, and you can't undo the election later.

The Basis Step-Up Only Long-Term Residents Get

This is the most valuable rule for returning Indians, and it's often missed. A long-term resident can treat assets owned on the day they first became a US resident as if they cost the market value on that day.

Say you bought a flat in Pune in 2010 and got your green card in 2015. The US deemed-sale gain is measured from the flat's 2015 value, not your 2010 purchase price.

You can skip this rule for individual assets, but most people want it. A solid valuation for the date you became a US resident is worth the effort.

What Happens To Retirement Accounts?

Each type of account has its own rules:

Does India Tax The Exit Tax Deemed Sale?

No. India doesn't recognise the US deemed sale. Giving up a green card isn't a transfer under Indian law, so there's no Indian tax at expatriation and your Indian cost stays the same.

When you later sell, India taxes the actual gain from your original cost. If the US already taxed a deemed gain on your Indian property, getting credit for that US tax in India is uncertain.

That's why selling certain assets before expatriation is sometimes the smarter route. Both countries then tax the same gain in the same year. Our DTAA advisory team models this case by case.

Worked Example: Meera Surrenders Her Green Card From Bengaluru

Meera got her green card in 2015 and moved back to Bengaluru in 2025, keeping the card. She files Form I-407 in 2026. Her years run from 2015 to 2026, which is 12, so she's a long-term resident. Her US filings are up to date, including Form 8621.

The day before her expatriation date, she holds:

Her deemed gains total $650,000, which is under the $910,000 exclusion. So the deemed sale itself costs her nothing.

Without the step-up, the flat's gain would have been $420,000 and her total $820,000. That's still under the exclusion, but with far less room to spare.

Her real costs are the $40,000 of Roth earnings taxed in 2026 and 30% withholding on every 401(k) payment for life. Both come from being just $20,000 over the net worth line. A gift to family before filing Form I-407 would have kept her out of covered status entirely.

Close To The $2 Million Line Or The Eight-Year Mark? Small moves made before you surrender the card, like timing, a gift or a sale, can decide whether the exit tax applies at all. Get your exit plan modelled.

What Follows You After You Give Up The Card?

Giving up the card doesn't cut every US tie. A few things stay with you:

• Section 2801 Tax On Gifts To US Family. If you're a covered expatriate, gifts or bequests to a US citizen or resident (a child working in the US, for example) are taxed at the top US gift or estate tax rate above the annual exclusion ($19,000 in 2026). The recipient pays and files Form 708.
• US Estate Tax On US Assets. As a non-resident non-citizen, any US shares or assets you keep face US estate tax, with only a $60,000 exemption. See US estate tax for returning Indians.
• US-Source Income. US dividends, rent and retirement payments are still taxed in the US, usually through withholding.
• Future US Visits. You'll need a US visa to visit after giving up the card.

What Do You File In The Year You Give Up The Card?

Here's your checklist for the final year:

• A dual-status return, covering resident months on Form 1040 and non-resident months on Form 1040-NR
• Form 8854, if you're a long-term resident (covered or not), filed with the final return. Skipping it carries a $10,000 penalty and can make you a covered expatriate
• Form 8833, if you're relying on a treaty position
• The final FBAR and Form 8938 for the year
• Your Indian ITR for the same period, with residential status set correctly. Our guide to moving back to India from the USA covers the overlap year

Common Exit Tax Mistakes We See

The biggest one is leaving the US with the card and assuming US tax duties have stopped. They haven't, and those unfiled years then cause trouble with the certification test.

Others we see often:

• Miscounting the 8-of-15 years by ignoring the any-part-of-a-year rule
• Claiming the treaty tie-breaker as a long-term resident without realising it counts as expatriation
• Not using the basis step-up for assets owned before moving to the US
• Treating an IRA like a 401(k)
• Forgetting that Indian property and EPF count toward the $2 million
• Making gifts to US children after surrendering the card instead of before

Need Help Giving Up Your Green Card?

The cost of giving up a green card depends mostly on when and how you do it. Dinesh Aarjav & Associates prepares US and Indian returns for returning Indians together, so your US exit and your Indian residential status are planned as one.

Our green card exit review covers:

• Your 8-of-15-year count, and the best date to surrender the card
• Whether you're still a US tax resident, and any catch-up filings needed for certification
• Worldwide net worth and covered expatriate testing
• The basis step-up for assets you owned before moving to the US
• A plan for the 401(k), IRA, EPF and NPS
• Your final dual-status return, Form 8854, FBAR and Indian ITR

Book your green card exit review or message us on WhatsApp. Also see our US tax return services for NRIs and our guide to returning to India.

*This article is for general information and reflects the law as of November 2026. It is not tax or immigration advice for your specific situation.*