How are US retirement funds taxed in India?

—Name withheld on request

Assuming that you had a limited physical presence in India in the last 10 years, you can qualify as a “Resident and Ordinary Resident (ROR)” of India after 2 to 3 years of your return. A person who qualifies as ROR is taxable on his/her worldwide income. It is necessary to report all foreign assets in India and in India ITR.

The taxability of retirement funds will depend on the nature of the fund and the benefits available under the Double Taxation Avoidance Agreement (DTAA) between India and the US.

For example, if you qualify as a “resident” of the U.S. under the DTAA, increases in retirement funds (such as interest, dividends, etc.) may be exempt from income tax. However, a tax residency certificate from the US would be required to prove this to the tax authorities. You may also be required to file Form 10F electronically with the Indian tax authorities, enclosing a copy of the Tax Residency Certificate. If you qualify as a “resident” of India under the DTAA, exemption from income-tax may not be available. Capital gains from retirement funds will be taxable in India. Income in the form of pension may also be taxable in India. However, foreign tax credit can be claimed in India or the US to avoid double taxation under DTAA, depending on the residential status.

A recently introduced beneficial provision that allows taxation of retirement funds up to the year of withdrawal to reduce the mismatch of taxation of income in India and the US and to claim foreign tax credit of US taxes in India subject to specified conditions. Allows to postpone. You are advised to seek advice based on the type of retirement fund, the type of retirement fund income and the taxability of retirement funds identified in the US.

Sonu Iyer is Tax Partner and People Advisory Services Leader, EY India