10 FAQs about HSA (Health Savings Account) from returning US NRIs

1. How will India tax my HSA once I am a resident (ROR)?

Once you become ROR, India treats the HSA as a regular investment account. All internal growth is taxed at slab rates every year (even without a withdrawal). Withdrawals themselves are taxed as regular income, including medical ones. And unlike 401ks and IRAs, HSAs do not qualify for Section 89A relief, and DTAA doesn’t provide any relief, as the US does not tax internal growth in an HSA, so no foreign tax credits (FTC) to adjust against.

2. If we plan to move to India, is it still worthwhile to continue adding money to the HSA account?

From my experience, not really. Your money gets locked into a structure India does not recognise, and you will need an India health insurance plan for actual medical cover anyway. Also, HSA contributions must stop the moment your US high-deductible health insurance ends (typically the day you leave your US job).

3. Will my HSA custodian let me keep the account from India?

Most allow it, but many require a US address, charge higher fees for foreign addresses, and some restrict trading once they know you are overseas. Check with your custodian before you move. 

4. What do I need to report in India for my HSA?

The obligation kicks in the year you become ROR, not during RNOR. From that year on, you have to disclose the HSA in Schedule FA of your Indian tax return, reporting both the highest balance during the calendar year and the balance on 31 December. You also have to pay Indian tax each year on any interest, dividends, or capital gains the account earned, even if you did not withdraw anything. Missing this can attract penalties up to Rs.10 lakhs under the Black Money Act (source). 

*Note - Schedule FA runs on the calendar year (1 Jan to 31 Dec).

5. Can we use the account to pay for health expenses in India? (most popular question)

Technically, this is possible as per policy, but I haven't come across any case where an individual was able to make a successful claim for Indian medical expenses from their HSA. Documentation will also be quite heavy, as you would need the itemised bills plus a rupee-to-dollar conversion at the date-of-service exchange rate. 

6. What is the general advice for funds already in the account?

If it's not a significant balance, it might be a good idea to withdraw during RNOR with a 20% penalty (US tax slabs should be lower). Once RNOR ends, withdrawal will attract a 20% penalty + ~30% India tax for withdrawal before 60. 

7. What about just waiting until age 65 and using it then?

For an Indian tax resident, the logic to keep HSA until 65 breaks. You skip the 20% US penalty at 65 but still pay Indian slab tax, and you have been paying Indian tax on the internal growth every year in the meantime as a resident (ROR). 

Practical Exception: if you are already 62 or 63, sitting out a couple of years for a large balance can still make sense.

8. Should I move my HSA to cash before I leave the US?

Worth considering. Every rebalance, or fund switch, becomes a taxable event in India once you are ROR. Locking in a stable allocation before you become an Indian tax resident saves you from ongoing capital gains 

9. What happens to the HSA if something happens to me after I move?

If your beneficiary is your spouse, the account transfers to them and continues as an HSA. If it is anyone else, including your children, the account ceases to be an HSA on the date of death and the full value becomes taxable income to that beneficiary in the year you pass (IRS Publication 969). For a child who is an Indian tax resident, this creates a double hit: US tax on the deemed distribution plus Indian tax on foreign income received. 

10. Will my HSA be subject to US estate tax when I pass?

An HSA held with a US custodian is a US-situs asset, so it is exposed to US estate tax regardless of your citizenship. US citizens and Green Card holders get a lifetime exemption of $15 million (2026), but non-resident aliens get only $60,000 before estate tax kicks in (rates go up to 40%).