Person’s residential status can determine taxability of US govt pension in India

  • Place of receipt of pension income and DTAA provisions between India and the US will also play a role
  • Rental income from property situated in India is considered as income accrued in India and taxable in India

My sister used to work for a government organisation in Washington. However, she retired four years ago and now lives in India. Her salary back then was tax free. Now that she lives permanently in India, will her pension also be tax-free?

—Pratik Kashyap

The taxability of the US government pension in India will depend on the residential status of your sister in India, place of receipt of pension income and as per the provisions of the DTAA between India and the US.

Assuming your sister has been living in India permanently post retirement four years ago, she will qualify as resident and ordinarily resident (ROR) in India. Accordingly, under the India Income-tax law, her global income will be taxable in India which includes pension received from the US government.

As per Article 19 of the DTAA between India and the US, which deals with remuneration and pension in respect of government service, pension received from the US government in respect of services rendered to the US government will be taxable only in the US. However, if the individual is a resident and national of India, such pension income will be taxable only in India and not in the US. Thus, if your sister is a resident and national of India, the US government pension will be taxable only in India. In any other case, US government pension will be taxable only in the US (in accordance with the US domestic tax laws) and not in India.

I am an NRI in Singapore and have a property in Mumbai. I earn a monthly rental of 60,000 and I don’t have any other source of income in India. Are there any tax saving options for me?

—Aparajita Mukund

Rental income from property situated in India is considered as income accrued in India and taxable in India. The taxable value of rental income will be calculated after considering the following deductions: municipal taxes actually paid during the year to the local authority; standard deduction at 30% of the net annual value (i.e. rental income less municipal taxes); interest paid on a loan taken for construction, repairs, acquisition, renewal or reconstruction of the property; pre-construction period interest deduction (available as deduction in five instalments from the year in which the construction is completed).

Additionally, any repayment of principal amount against housing loan taken for such a property is also eligible for deduction under Section 80C (maximum deduction of 1.5 lakh). You can also make other investments like National Savings Certificates, qualifying life insurance policies, equity-linked savings schemes etc. to avail deduction under Section 80C. You can also invest in New Pension Scheme (NPS) which provides an additional deduction benefit up to 50,000 (over and above a maximum deduction of 1.5 lakh under Section 80C). In case of double taxation, the applicable benefit may be explored as per the provisions of the Double Taxation Avoidance Agreement between India and Singapore.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries and views at mintmoney@livemint.com

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