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Business News/ Money / Personal Finance/  How is foreign retirement fund taxed in India?
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How is foreign retirement fund taxed in India?

How much of your income shall be taxable in India also depends on your residential status in India. Your residential status must be determined as per the Income Tax Act for each financial year.

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Photo: iStock

I have been living in Canada since 2001. I will retire next year and plan to return to India soon after. I will get my retirement corpus and other benefits later next year. How will this money be taxed in India, if I am a resident in India?

-Name withheld on request

How your income shall be taxed depends upon your residential status and the source of such income. If an income has been earned in India, it is likely that it shall be taxed in India. How much of your income shall be taxable in India also depends on your residential status in India. Your residential status must be determined as per the Income Tax Act for each financial year.

There is also a rule of deemed residency. An individual who is a citizen of India who is not liable to tax in any other country or territory has total income, other than from foreign sources, exceeding 15 lakh during the said FY, shall be a deemed resident of India.

In case you are determined to be a non-resident or resident but not ordinarily resident in India, you will have to pay tax on income that accrues or arises in India or incomes that are received or deemed to be received in India. However, if you qualify as a resident taxpayer, you shall have to pay tax in India on your global income including any incomes from outside India.

The ITR form also requires residents to report any income earned by them from foreign assets in their ITR filed in India and pay tax on it.

Therefore, in case you are a non-resident or resident but not ordinarily resident in India, any retirement money received by you in Canada, shall not be taxed in India. However, in case you qualify as a resident the situation may be different. In order to avoid paying tax on the same income twice, you will have to refer to the DTAA (Double Taxation Avoidance Agreements) between the two countries.

The government has recently introduced a provision that allows returning NRIs to defer taxation of retirement funds to the year of withdrawal to avoid mismatch of taxation of income in India versus taxation of income outside India due to mismatch in the period related to tax filing. It is advisable to consult an expert to fully understand how your corpus shall be taxed.

Archit Gupta is founder and chief executive officer, Clear.in.

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Published: 30 Jan 2023, 10:47 PM IST
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