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I am 71 years old and have worked abroad as a full-time director in a bank and maintained my non-resident status till FY20. For financial years 2021 and 2022, I am maintaining a not ordinarily resident status as due to covid-19 restrictions, I was held up in India and could not travel to the country where I worked. I have kept my Indian income tax (I-T) filing up to date declaring all income received in India.
After my retirement, I receive two pensions abroad every month and keep them in foreign currency abroad. I intend to become a resident in India starting FY23. After the change of status, is my pension earned abroad taxable in India? Am I allowed to keep the foreign currency account abroad, as the pension disbursing authorities require a local account?
— Name withheld on request
If you qualify as ‘resident and ordinarily resident’ (ROR) in India for the FY23 (i.e., for the period April 1 2022 to March 31 2023), you would be taxable on worldwide income in India and will be required to report all foreign assets in the Indian ITR. Also, the income earned from such foreign assets during the relevant FY along with the nature of income and head of income under which such income has been offered to tax in the Indian ITR needs to be reported in relation to each foreign asset.
As a ROR, pension income earned abroad will be taxable in India. However, benefit may be claimed under the relevant Double Taxation Avoidance Agreement (DTAA) between India and other country. The benefit under the DTAA will depend on your residential status in the other country, residential status under the DTAA between India and the other country and relevant clause / article for pension income in the DTAA.
Under the exchange control law, a person resident in India may hold, own, transfer invest in foreign currency, foreign security or any immovable property outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. Accordingly, you may continue to maintain a foreign currency account abroad to receive the foreign pension income. However, you will be required to repatriate the pension income to an Indian bank account within 180 days from the date of receipt of the same.
Sonu Iyer is tax partner and people advisory services leader, EY India.
