Are income from foreign PF accounts subject to tax in India?

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I worked for a Singaporean company from 2001 to 2020 and returned to India permanently in 2020. However, since I left Singapore permanently, I decided to withdraw the accumulated balance in my PF account. Due to a recent change in their rules, they closed my provident fund account in Singapore and I received the balance in my account in India in August 2024.

– Name withheld upon request

Since you have been residing in India since 2020, you qualify as resident and ordinary resident under Indian tax laws for this financial year. As a resident, your worldwide income is taxable in India unless it is expressly exempt under Indian tax laws.

We assume that the accumulated balance in your Singapore Provident Fund account includes contributions from you (the employee) and the Singapore company (the employer) as well as accrued interest. Your overseas provident fund account will be treated as a non-recognized provident fund under Indian internal tax regulations and, therefore, the payments you receive in respect of employer contributions and any accrued interest thereon will be taxable under the head “Income” in India. Payroll is calculated as applicable flat rate (plus surcharges and taxes).

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In addition, payments received in connection with your donation will be considered a return of your donation and therefore will not be taxed. However, accrued interest related to your donation will be taxed under the heading “Income from other sources” at your applicable fixed rate (plus surcharges and taxes).

If these amounts are not taxable in Singapore, you will not be able to claim tax credit in India against the tax payable in India. However, if these amounts are taxable in Singapore, you will be able to avail tax credits to the extent permitted under the India-Singapore DTAA.

Non-government retirement benefits are governed by Section 19 of the India-Singapore DTAA. According to the article, pensions and annuities paid from Singapore to Indian residents are taxable in India only. However, a one-time withdrawal of the accumulated balance in a provident fund account does not qualify as a “pension” as it is defined as a periodic payment taking into account past service. As this amount is not covered by Section 19, the provisions of the remaining provision, i.e. Section 23 of the India-Singapore DTAA, apply, allowing Singapore to tax the amount in accordance with its domestic tax laws, if applicable.

An alternative view is that the lump sum payment can be included within the term “other similar remuneration” appearing in Article 15, which deals with the taxation of employment income. In the context of retirement benefits, this phrase is interpreted in the Commentary to the OECD Model Tax Convention to include a lump sum payment in lieu of a periodic pension. Under Section 15, Singapore is entitled to tax this amount (if applicable).

Harshal Bhuta is a Partner at PR Bhuta CAs.

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