How are US retirement funds taxed in India?

I’m an NRI and maintain an Overseas Citizenship of India card. I’m planning to return to India after retirement this yr. Will my American retirement funds be tax-free in India if I resolve to grow to be an Indian tax resident? 

—Name withheld on request

Assuming you had restricted bodily presence in India up to now 10 years, chances are you’ll qualify as a “Resident and Ordinarily Resident (ROR)” of India after 2 to 3 years of your return. An individual qualifying as ROR is taxable on his worldwide income in India and is required to report all foreign assets in the India ITR. 

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

 For example, accretions to the retirement funds (such as interest, dividends, etc) may be exempt from Income-tax if you qualify as a “Resident” of the US underneath the DTAA. However, Tax Residency Certificate might be required from the US tax authorities to show the identical. You may be required to file Form 10F electronically attaching a duplicate of the Tax Residency Certificate with the Indian tax authorities. If you qualify as a “Resident” of India underneath the DTAA, the exemption from Income-tax might not be accessible. The capital positive factors from the retirement funds might be taxable in India. The revenue in type of pension may be taxable in India. However, the overseas tax credit score could also be claimed in India or within the US to keep away from double taxation underneath DTAA relying upon the residential standing.

 There is a lately launched useful provision which permits to defer the taxation of retirement funds to the yr of withdrawal to mitigate the mismatch of taxation of revenue in India and the US and declare overseas tax credit score of US taxes in India topic to specified circumstances. You are really useful to take recommendation primarily based on the kind of retirement funds, kind of revenue from retirement funds and taxability of recognized retirement funds within the US. 

 Sonu Iyer is tax associate and other people advisory companies chief, EY India

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