HSA for US NRIs: The Triple Tax Advantage and What Happens When You Leave

You are enrolled in your employer's High-Deductible Health Plan, you contribute the maximum to your HSA each year, and you have accumulated $60,000 sitting in a money-market account inside the account earning almost nothing. Meanwhile, you are planning to return to India in four years and assume you will simply close the account before you go. That assumption is costing you, in both present growth and future optionality, in ways that compound over decades.

The HSA is the only account in the US tax code with a triple tax advantage: contributions reduce your taxable income today, growth inside the account is never taxed, and withdrawals for qualified medical expenses are tax-free. For an NRI who plans to return to India, the account has a fourth layer: it does not close when you leave, the balance can compound untouched for decades, and qualified medical bills anywhere in the world, including in India, count as qualifying distributions. The tax planning opportunity here is not small.

The 30-second answer: An HSA requires a qualifying High-Deductible Health Plan (HDHP). The 2025 contribution limits are $4,300 (self-only) and $8,550 (family), plus a $1,000 catch-up for those aged 55 or over. All three legs of the tax advantage apply simultaneously: contributions are pre-tax (via payroll, also saving FICA), growth is never taxed inside the account, and withdrawals for qualified medical expenses under IRC Section 213(d) are completely tax-free. Before age 65, non-medical withdrawals incur ordinary income tax plus a 20% penalty. After age 65, the penalty disappears and the HSA acts like a Traditional IRA. When you leave the US, you cannot contribute further but the account stays open, keeps compounding, and you can use it for qualified medical expenses anywhere in the world, including India. From India, qualified medical withdrawals are generally treated as capital receipts; non-medical post-65 withdrawals are taxable as foreign income. The RNOR window after return is the optimal time to take non-medical distributions.

This guide covers who qualifies and on what terms, all three legs of the tax advantage and their mechanics, 2025 contribution limits and the pro-rate rules, how to invest the HSA rather than hold it in cash, the penalty structure for non-qualified withdrawals, what actually happens to the account when you leave the US, the India tax treatment of different kinds of HSA withdrawals, reporting obligations in both countries, and a worked example following a returning NRI through 25 years of HSA compounding.

What is an HSA and who qualifies

A Health Savings Account is a tax-advantaged account created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. It is only available to individuals enrolled in a qualifying High-Deductible Health Plan. No HDHP, no HSA. That is the single gate that everything else depends on.

The IRS defines a qualifying HDHP by two thresholds: a minimum annual deductible and an annual out-of-pocket maximum. For 2025, the minimum deductible is $1,650 for self-only coverage and $3,300 for family coverage. The out-of-pocket maximum cannot exceed $8,300 for self-only and $16,600 for family. If your employer's health plan has a deductible below these floors or an OOP cap above the ceilings, it does not qualify and you cannot contribute to an HSA.

Three additional disqualifiers that catch people off guard. First, if you are enrolled in Medicare (typically at age 65), you are ineligible to contribute, even if you are technically still on an HDHP as a supplement. Second, if someone else claims you as a dependent on their tax return, you cannot contribute. Third, if you are also enrolled in a general-purpose Flexible Spending Account, you are disqualified from HSA contributions. There is an important carve-out here: a Limited-Purpose FSA (restricted to dental and vision expenses only) is compatible with an HSA and does not disqualify you. If your employer offers both and you want to maximise HSA contributions, elect the Limited-Purpose FSA, not the general-purpose one.

The triple tax advantage, each leg separately

The term "triple tax-free" is used loosely in financial media, sometimes covering only two legs. Let me be precise about all three, because each works differently and each is valuable independently.

Leg 1: Pre-tax contributions

When you contribute through payroll deduction, the amount is excluded from your gross wages before federal income tax, state income tax (in most states), and FICA (Social Security and Medicare taxes). That FICA saving is meaningful and is not available to any other retirement account: contributing $8,550 to an HSA via payroll reduces your FICA liability by roughly $654 (at the 7.65% employee rate), which is money that goes to neither the IRS nor the Social Security Administration. An equivalent contribution to a 401(k) saves income tax but not FICA.

If you contribute directly to your HSA rather than through payroll (for example, depositing money yourself to an HSA at a provider other than your employer's default), the contribution is still deductible as an above-the-line deduction on Form 8889, reducing your adjusted gross income. This is less efficient than the payroll route because you do not recover the FICA, but it is still a full federal income tax deduction.

Leg 2: Tax-free growth

All investment income inside an HSA, whether interest, dividends, or capital gains, is never subject to federal income tax. The account is not tax-deferred in the way a Traditional IRA is (where you eventually pay); it is tax-exempt on growth. A US equity index fund inside an HSA that doubles in value over ten years creates no taxable event at any point, provided the funds stay inside the account. The equivalent holding in a taxable brokerage account would generate taxable dividends and, on sale, capital gains tax.

Leg 3: Tax-free withdrawals for qualified medical expenses

Withdrawals to pay for qualified medical expenses as defined under IRC Section 213(d) are completely tax-free, with no dollar limit. Section 213(d) is broad. It covers doctor and hospital fees, prescription drugs, dental work (including orthodontics), vision expenses and corrective lenses, LASIK surgery, hearing aids and batteries, mental health treatment, long-term care premiums (subject to age-based limits), and a substantial list of other medical and health-related expenses. It does not cover cosmetic procedures that are not medically necessary, gym memberships, or non-prescription vitamins.

Critically, Section 213(d) does not restrict where the medical expense is incurred. A hospital bill from Apollo Hospitals in Delhi qualifies exactly as a hospital bill from Mass General in Boston. For an NRI who eventually returns to India, this means the HSA balance accumulated during US employment can fund Indian medical costs, tax-free, for the rest of life.

One practical note on record-keeping: you do not need to submit receipts to your HSA provider to make a withdrawal. The IRS requires you to be able to substantiate that a withdrawal corresponded to a qualified medical expense if ever audited. Keep records, whether paper or digital, of every medical bill you pay. This is especially important if you use the strategy of paying medical expenses out-of-pocket now and reimbursing yourself from the HSA years later (more on this in the worked example).

2025 contribution limits and the pro-rate rule

The annual limits for 2025: $4,300 for self-only HDHP coverage, $8,550 for family HDHP coverage. Both figures are indexed to inflation and increase modestly most years. The age 55 or older catch-up contribution is $1,000 additional per person, and this one does not change with inflation; it is fixed by statute.

The catch-up has a nuance that trips up dual-earner households. If both spouses are 55 or older and want to take advantage of the catch-up, each must have their own separate HSA. The $1,000 catch-up cannot be stacked into one account. If you are 55+ and your spouse is 55+, the maximum combined contribution to two separate HSAs under family coverage is $8,550 (family limit, split however you choose between the two accounts) plus $1,000 into each account for a total of $10,550.

The pro-rate rule matters for anyone who enrolls in an HDHP partway through the calendar year, which is common for NRIs who switch jobs or switch plans during the year. Under the standard rule, your maximum HSA contribution for the year equals the statutory maximum multiplied by the fraction of the year (number of months) you were enrolled in an HDHP, where a month counts if you are enrolled on the first day of that month.

There is an exception: the last-month rule. If you are HDHP-enrolled on December 1, you are allowed to contribute the full annual limit regardless of how many months you were covered. The price is a testing period that runs from December 1 through the end of the following calendar year. If you do not remain HDHP-enrolled throughout the entire testing period, the excess contribution (the amount above what the pro-rated limit would have allowed) is included in your gross income and hit with a 10% additional tax. For an NRI planning to leave US employment mid-year, using the last-month rule to maximise contributions then losing HDHP coverage before December 31 of the following year would trigger this recapture. Plan carefully.

Investing your HSA: why most people are leaving money behind

The default option at most employer-sponsored HSA providers is a cash deposit account earning near-zero interest, or at best a savings rate fractionally above the Fed Funds floor. The account is called a Health Savings Account, but the word "savings" should not imply cash. The tax-free growth feature is only valuable if the account is actually invested.

Not all HSA providers allow investment of contributions from day one. Some impose a cash minimum that must sit uninvested before the excess can be moved to the investment platform. Fidelity HSA is the standout exception: contributions can be invested immediately with no minimum cash balance, with access to the full Fidelity fund and ETF universe. Lively, HealthEquity, and HSA Bank all have investment options but impose varying cash thresholds and fund-universe restrictions. If you have flexibility in provider choice (because you are contributing directly rather than through an employer-designated plan, or you can roll over a prior employer's HSA), Fidelity is the most investment-friendly option for someone who intends to treat the HSA as a long-term wealth-building account.

Asset location strategy. Because HSA growth is never taxed, the HSA is, by definition, the highest after-tax-return container in your portfolio. Standard asset location theory says you should hold your highest-yielding and highest-tax-burden assets inside the most tax-efficient account. For most NRI investors that means US equity index funds (which generate dividends and would be subject to withholding tax in taxable accounts), REITs (which have high ordinary dividend distributions), and any international index funds you hold. The HSA is not the right place for municipal bonds (which are already tax-exempt and waste the HSA wrapper).

The PFIC note. Some self-directed HSA providers technically permit investment in foreign-domiciled funds, including some non-US ETFs. If you hold a non-US domiciled fund inside an HSA, the Passive Foreign Investment Company rules could technically apply to the holding inside the account. The practical guidance is straightforward: hold only US-domiciled funds inside your HSA. VTI (Vanguard Total Stock Market ETF), VXUS (Vanguard Total International ETF in its US-domiciled form), and similar products are all US-domiciled and completely clear of PFIC rules. There is no reason to use non-US fund structures inside an HSA, and doing so creates unnecessary complexity. The PFIC rules and the Indian mutual funds trap are covered in detail in US NRI: Indian mutual funds and the PFIC trap.

Non-qualified withdrawals: the 20% penalty and the age-65 flip

The penalty for taking an HSA withdrawal that does not correspond to a qualified medical expense is severe before age 65: the amount is included in your gross income plus a 20% additional tax (penalty). This is steeper than the 10% early withdrawal penalty on an IRA or 401(k). It exists to discourage using the HSA as a general savings account for non-medical spending.

After age 65 (or upon disability or death), the penalty disappears. A non-qualified withdrawal after 65 is included in gross income and taxed at ordinary income rates, with no additional penalty. This means the HSA after 65 behaves exactly like a Traditional IRA: taxable on withdrawal but with no early withdrawal penalty, and the account grows tax-deferred in the interim. This equivalence is why the HSA is sometimes described as a "super-IRA": it has all the tax deferred growth of a Traditional IRA, plus the ability to take qualified medical expense withdrawals completely tax-free at any age, which a Traditional IRA does not offer.

The implication for long-term planning: if you maximise HSA contributions during your working years, invest the balance aggressively, and pay medical expenses out-of-pocket (preserving receipts), you accumulate a large tax-deferred balance that after age 65 gives you two options simultaneously: tax-free for anything medical, and IRA-equivalent for everything else. The flexibility is unusual and valuable.

What happens to your HSA when you leave the US

This is where the NRI-specific questions start.

The account does not expire. There is no US law requiring you to close or transfer an HSA when you leave the country. The account remains open at the US provider, the investments stay invested, and the balance continues to compound. The provider does not care where you live.

You cannot contribute once you lose HDHP coverage. Eligibility to contribute requires active HDHP coverage. When you leave US employment and your US health insurance terminates, your HDHP coverage ends and you become ineligible to contribute. This is typically the day your employment ends or your COBRA period (if you elect it) expires. After that point, the account is frozen from the contribution side but entirely open from the distribution and investment side. Contributing to an HSA without HDHP eligibility creates an excess contribution that is subject to a 6% excise tax for each year it remains in the account. Do not contribute in any month you are not HDHP-covered.

Qualified medical expenses anywhere in the world. IRC Section 213(d) does not contain a geography restriction. A hospital in Chennai, a dental clinic in Mumbai, a prescription filled in Bengaluru, all qualify as medical expenses for HSA distribution purposes, the same as if they were incurred in Houston. You will need to retain documentation (itemised receipts, bills in local currency with clear description of services) in case of an IRS audit, but the geographic scope is unrestricted.

You can let the account compound for decades. Many returning NRIs have a large HSA balance, no further contributions, no immediate medical need, and decades until age 65. The right answer for most of them is to simply leave the account invested, let it compound, and think of it as a foreign-currency medical reserve and post-65 retirement account. There is no "use it or lose it" rule for HSAs, unlike for FSAs. The balance is permanent.

You can use the HSA to reimburse yourself for past medical expenses. The IRS does not require you to use HSA funds in the same year the medical expense is incurred. If you incurred and paid out-of-pocket a dental bill in 2022, held the receipt, and want to withdraw the equivalent amount from your HSA in 2035, that is a fully qualified distribution. The only requirement is that the expense was incurred after the HSA was established and the receipt can be produced if audited. For NRIs who return to India and begin incurring substantial medical costs, this retrospective reimbursement strategy is legitimate and sometimes very useful.

India tax treatment of HSA withdrawals

This is the most complex part of the guide and the area where the law has meaningful uncertainty. The structure below separates cases cleanly because the applicable rules differ significantly.

While you are Non-Resident or RNOR. When you are an Indian Non-Resident, India taxes only your Indian-source income. When you are Resident but Not Ordinarily Resident (RNOR, typically the first two to three financial years after returning to India), India still does not tax your foreign income. An HSA withdrawal, whether medical or non-medical, received during your NR or RNOR years is foreign-source income received from a US institution and is outside the Indian tax net entirely. Only the US-side tax treatment applies: tax-free for qualified medical, ordinary income for non-medical post-65. The RNOR window mechanics are in NRI residency and RNOR rules and the broader RNOR planning strategy is in RNOR window: reset your foreign investments.

Qualified medical withdrawals once you are Resident and Ordinarily Resident. Once you are ROR, India taxes your worldwide income, so the question of how India characterises an HSA medical withdrawal becomes live. The honest position: there is no explicit CBDT ruling or court decision on this specific point. In the US, the withdrawal is tax-free because it is a reimbursement of medical expenses from a purpose-built account. In India, general domestic law treats reimbursement for actual expenditure as a capital receipt rather than income, and most NRI tax practitioners take the view that a qualified HSA medical withdrawal is a capital receipt in India and should not appear in taxable income. This view is reasonable and aligns with the economic substance, but it is not backed by a binding ruling. Get specific advice before taking a position on your ITR. If the amounts are material, a ruling application is worth considering.

Non-medical withdrawals post-65 once you are ROR. After age 65, a non-medical HSA withdrawal is taxable as ordinary income in the US. In India, as an ROR, this would be taxable as foreign income and added to your income at applicable slab rates. Whether Article 20 of the India-US DTAA (the pension article, which covers pensions and similar remuneration paid in consideration of past employment) applies to give exclusive taxation rights to India (and relieve the US charge through treaty claim) is a genuinely debated point. An HSA is funded by employee and employer contributions connected to employment, which supports an Article 20 argument. But an HSA is not a traditional defined-benefit pension, and the IRS and CBDT have not jointly addressed this. Many cross-border advisers treat post-65 non-medical HSA distributions as falling under the Other Income article rather than Article 20, meaning both countries can tax the distribution with foreign tax credit resolving the overlap. The FBAR and FATCA reporting mechanics are in FBAR, FATCA, and US reporting for NRIs.

The RNOR window as a planning opportunity. The same logic that makes RNOR valuable for 401(k) drawdowns applies here. If you have a material non-medical HSA balance, you are past age 65, and you are in your RNOR years after returning to India, any non-medical distributions you take during RNOR are outside the Indian net entirely. Only the US ordinary income tax applies. Once you become ROR, India's slab rates (potentially up to 30% plus surcharge) also apply. If you have flexibility, RNOR is the window.

FBAR and Schedule FA: your reporting obligations in both countries

FBAR (FinCEN 114) from the US perspective. An HSA held at a US institution is a domestic US account, not a foreign financial account. You do not file an FBAR for your HSA while you are a US person (citizen or Green Card holder) living in the US. If you move to India and are no longer a US tax resident, the FBAR obligation similarly does not apply. An HSA held at Fidelity, HealthEquity, or any other US-based provider is simply not in scope for FBAR reporting from any angle.

Form 8938 (FATCA) requires US persons to report foreign financial assets. The HSA is a domestic US account from your perspective; it does not appear on Form 8938.

Schedule FA in the Indian ITR. From an Indian perspective, once you are a Resident (including RNOR), you are required to disclose foreign assets in Schedule FA of ITR-2. An HSA held at a US institution is a financial account in a foreign country from India's point of view. Indian residents with a financial interest in or signing authority over a foreign account must disclose it in Schedule FA, regardless of whether any income from that account is taxable in India. The disclosure requirement exists independently of taxability. Failure to disclose foreign assets on Schedule FA attracts significant penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Report the HSA in Schedule FA with the account balance as of December 31 of the relevant year (the US calendar year that corresponds to the Indian financial year you are reporting).

An additional nuance: even while RNOR, the obligation to file Schedule FA applies to residents (RNOR is a resident status in India). Do not confuse "foreign income not taxable" with "foreign assets not reportable."

HSA vs FSA: why the comparison matters for NRIs

An FSA (Flexible Spending Account) is a use-it-or-lose-it account. Funds that are not used for qualified medical expenses by the end of the plan year (with a small grace period or limited rollover depending on employer elections) are forfeited. An FSA cannot be invested. An FSA does not survive job changes. It has no long-term wealth accumulation value.

For an NRI who is in the US for a defined period and plans to return to India, the FSA is appropriate only for predictable, current-year medical spending: glasses, dental cleanings, planned procedures. It should not displace HSA contributions. If your employer requires you to choose between a general-purpose FSA and an HSA, choose the HSA every time you are enrolled in an HDHP and are planning long-term. If your employer offers both, elect only the Limited-Purpose FSA (dental and vision only) to preserve HSA eligibility. An FSA balance goes to zero when you leave your employer; an HSA balance follows you permanently.

Worked example: Arjun and Kavita, Austin to Bengaluru

Arjun is 38, a software engineer in Austin, enrolled in his employer's HDHP family plan together with his wife Kavita. It is January 2025.

The accumulation phase, 7 years (age 38 to 45).

Arjun opens a Fidelity HSA and invests all contributions immediately into VTI (Vanguard Total Stock Market ETF, US-domiciled). The 2025 family contribution limit is $8,550. He assumes this increases modestly each year; for simplicity, use $8,550 consistently.

Annual contribution: $8,550. Annual FICA saving on payroll contributions (at 7.65%): approximately $654. Over 7 years at $654 per year, that is roughly $4,578 in FICA savings alone, before considering the income tax deduction.

Arjun and Kavita incur approximately $2,400 per year in dental and vision expenses. They pay these out-of-pocket and save every receipt in a dedicated folder (digital copies). The HSA balance compounds fully without withdrawals.

Assuming an 8% average annual return on VTI, the HSA balance after 7 years with $8,550 contributed at the start of each year and no withdrawals:

Year 1: $9,234. Year 2: $18,837. Year 3: $28,837. Year 4: $39,268. Year 5: $50,157. Year 6: $61,539. Year 7: approximately $73,453.

In practice, contributions will increase slightly with inflation, so a realistic 7-year balance is in the range of $75,000 to $80,000. Take $75,000 as the working figure.

He also has accumulated $16,800 in documented out-of-pocket medical expenses across 7 years ($2,400 per year), all eligible for HSA reimbursement at any future date.

The departure, age 45. Arjun moves back to Bengaluru. His US employment ends. HDHP coverage terminates. He makes no further contributions. The HSA stays open and invested at Fidelity.

The RNOR window, ages 45 to 47 (roughly 2 years). Having been continuously non-resident in India since 2017, Arjun easily meets the Section 6 condition of non-residency in nine of the ten preceding financial years. He is RNOR for FY 2026-27 and FY 2027-28.

In year 2 of RNOR, he has hip surgery in Bengaluru. The total hospital and surgeon bill is Rs 4,80,000. At the prevailing rate (assume USD 1 = Rs 84), that is approximately $5,715.

He withdraws $5,715 from his Fidelity HSA. US tax: zero (qualified medical expense under Section 213(d), no geography restriction). India tax: zero (RNOR, foreign income outside the Indian net).

He also elects to reimburse himself for the $16,800 in documented historical medical expenses accumulated during the accumulation phase. He withdraws $16,800. US tax: zero (qualified medical expense). India tax: zero (RNOR).

His HSA balance after these withdrawals: approximately $75,000 minus $22,515, equals roughly $52,485, still invested in VTI.

The compounding phase, ages 47 to 70 (23 years, no contributions, no withdrawals).

Starting balance: $52,485. Annual return: 8%. After 23 years: $52,485 x (1.08)^23 = $52,485 x 5.871 = approximately $308,000.

At a rate of Rs 84 (held constant for illustration; the actual rate will move), that is approximately Rs 2.59 crore.

Arjun is now 70. He takes periodic distributions from the HSA of $20,000 per year, structured as a regular draw. He applies a treaty analysis with a cross-border adviser. He files Schedule FA every year. He has built Rs 2+ crore in a US account earning tax-deferred returns for 32 years, available tax-free for any medical expense and at ordinary income rates for non-medical spending.

The key leverage point in the example is that by paying medical costs out-of-pocket during the accumulation phase and preserving receipts, Arjun preserved 7 years of HSA compounding. The $16,800 in medical receipts he held for 7 years, compounding at 8% inside the HSA during that period, is worth approximately $28,400 by the time he withdrew it. The difference ($11,600) is the value of deferring the reimbursement.

Edge cases

The last-month rule when departure is near. If you enrol in an HDHP on December 1 and use the last-month rule to contribute the full annual amount, you must remain HDHP-enrolled through all of the following December 31 for the testing period. An NRI who uses this rule in December 2025 and then leaves US employment and loses HDHP coverage in June 2026 will trigger a recapture of the excess contribution. Do not use the last-month rule if you know you are leaving before the testing period ends.

Both spouses contributing catch-up amounts. If both spouses are 55 or older and both want the $1,000 catch-up, each must open their own HSA. The $8,550 family limit is an aggregate cap on new money going in for medical coverage purposes, but the $1,000 catch-up is per-person and requires a separate account for each.

Green Card holders and US exit tax. If you hold a Green Card and are surrendering it, or are a US citizen renouncing citizenship, you need to consider the US exit tax (expatriation tax) under IRC Section 877A. An HSA balance is a US financial asset that could be relevant in the mark-to-market calculation on the expatriation date. Published guidance on the specific interaction between HSA assets and the exit tax regime is limited. Consult a cross-border tax specialist before expatriating with a material HSA balance. The exit tax mechanics for NRIs are in US exit tax for NRIs: covered expatriates explained.

Investing HSA in non-US funds. Some self-directed HSA platforms allow purchase of non-US-domiciled ETFs or mutual funds. Doing so creates a PFIC exposure for each such holding. The annual PFIC compliance burden (Form 8621 per fund per year) plus the punitive tax regime on PFIC excess distributions makes this entirely uneconomical. Hold only US-domiciled funds inside the HSA: VTI, VXUS, BND, and any Vanguard, iShares, or Schwab ETF domiciled in the United States.

RNOR and the account destination of withdrawals. If you arrange for an HSA distribution to be paid directly into an Indian bank account, you create an argument that the income was received in India, which could affect taxability even during RNOR. The cleaner practice is to withdraw into your US bank account and then remit to India as a separate transfer of funds already received. A remittance of already-earned foreign income does not itself become Indian taxable income.

The FSA-to-HSA transition. If you are enrolled in a general-purpose FSA and switch to an HDHP partway through the year, ensure the FSA has no remaining balance before you begin making HSA contributions. Contributing to an HSA while you still have a general-purpose FSA balance creates an excess contribution that is subject to the 6% excise tax.

The closing read

The HSA is the most tax-efficient account structure in the US tax code for anyone who combines HDHP eligibility with a long time horizon. The triple advantage is not marginal: it saves FICA on contributions (which no other retirement account does), eliminates tax on all growth permanently, and provides tax-free liquidity for every qualified medical expense for the rest of your life, wherever in the world that expense is incurred.

For an NRI returning to India, the instinct to close the account before departure is the wrong instinct. The account is permanently open, the compounding never stops, and Indian hospital bills qualify under the same Section 213(d) rules as American ones. A $75,000 HSA balance left invested for twenty years at 8% reaches approximately $350,000 without a single contribution after departure. That is Rs 2.9 crore at today's rate, available tax-free for any qualified medical expense in India, or as ordinary income after 65 for anything else.

Two decisions matter more than anything else. First, invest the balance properly. Cash inside an HSA is compounding at near-zero while the tax-free wrapper does nothing useful. Fidelity's HSA removes every practical barrier to immediate investment. Second, start keeping medical receipts systematically from the day you open the account, because the retrospective reimbursement strategy is where a large part of the long-term value is captured.

The India tax treatment of HSA withdrawals is an area without complete CBDT guidance. The qualified medical withdrawal position (capital receipt in India) is the mainstream practitioner view but is not backed by a binding ruling. The DTAA Article 20 question for post-65 non-medical distributions is genuinely unsettled. Get a cross-border adviser, a US CPA and an Indian CA who both understand the treaty, before taking material distributions once you are ROR. And use the RNOR window, typically the first two to three financial years after returning, when the planning is cleanest and the Indian tax clock has not yet started.

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Related guides

• Roth IRA for US NRIs: India tax treatment and DTAA -- Roth IRA mechanics and how the RNOR window applies to Roth distributions
• US NRI 401(k) planning guide: the pre-departure strategy -- 401(k) pre-departure strategy and RNOR drawdown
• How India taxes your 401(k), IRA, and foreign pension after you move back -- the full DTAA analysis, Section 89A, and the Article 20 versus Other Income question
• NRI residency and RNOR rules -- Section 6 tests, day-counting, and how long the RNOR window lasts
• RNOR window: reset your foreign investments -- how to use the RNOR years across all foreign accounts simultaneously
• US NRI: Indian mutual funds and the PFIC trap -- why non-US funds inside a US account create PFIC exposure
• FBAR, FATCA, and US reporting for NRIs -- FinCEN 114, Form 8938, and the Schedule FA obligation for India residents
• NRE and NRO accounts: the complete guide -- where to remit HSA proceeds and how repatriated funds are treated
• US exit tax for NRIs: covered expatriates explained -- mark-to-market rules if you are surrendering a Green Card or renouncing citizenship
• US 529 plan for NRIs: education savings across borders -- the other US tax-advantaged account with cross-border implications for NRIs

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Disclaimer. This guide is general information and does not constitute tax advice or financial advice. It reflects US tax law and IRS guidance as understood at the time of publication. IRS guidance specifically addressing the India tax treatment of HSA withdrawals for returning NRIs is limited, and the CBDT has not issued a ruling on how to characterise HSA distributions in India. Tax rules and HSA contribution limits change annually; the figures in this guide apply to the 2025 tax year only. Cross-border tax positions involving the India-US DTAA should be confirmed with a US-qualified CPA who specialises in non-resident taxation and an Indian CA with DTAA and foreign asset reporting experience. Nothing in this guide creates a client relationship or constitutes a representation that any position described is applicable to your specific facts and circumstances.