Renewing my Indian passport and updating my name to remove FNU. Latest I797 has FNU (valid till 2023 and not stamped yet). Does anything need to done to update the name in i797?

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No, you don’t need to update current I-797. When you apply for an extension or go for stamping, provide the new passport (with the new name), so that your get the new I-797 or visa stamp with the new name.

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