U.S. EXPAT TAX GUIDE โ INDIA
Do US expats in India need to file taxes on retirement income?
Yes, US citizens and Green Card holders living in India must report their retirement income to the IRS. This includes income from pensions, social security, and any retirement account distributions.ย
Even if taxes are paid in India, the income must still be declared on a US tax return.
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What role does the US-India tax treaty play in taxing retirement income?
The US-India tax treaty helps decide which country can tax certain types of retirement income. The treaty also ensures that individuals are not taxed twice on the same income.
Articles in the treaty related to retirement income include:
- Article 19: This covers government pensions, which are usually taxed in the country where the pension is paid.
- Article 20: This applies to private pensions and typically taxes them in the country where the recipient resides.
How are government pensions treated under the tax treaty?
Under the treaty, government pensions are taxed based on their origin. If you receive a government pension from India while living in India, it is taxable in India.ย
However, if you receive an Indian government pension while living in the US, the US has the right to tax it.
How is taxation handled for private pensions?
Private pensions, such as those from Indian companies, are generally taxed in the country where you reside. If you live in the US and receive a private pension from India, both countries may have the right to tax it.ย
In this case, you can use the Foreign Tax Credit (FTC) to offset taxes paid in India.
Do expats need to report US social security benefits in India?
Social security benefits from the US are typically only taxable in the US, even if you live in India. You must include these benefits on your US tax return, but they are generally not taxed again in India due to the treaty.
How do Foreign Tax Credits help with retirement income taxes?
The FTC helps prevent double taxation by allowing you to claim a credit for taxes paid in India on your retirement income. This credit often covers taxes paid abroad, reducing or eliminating any additional US taxes on the same income.
How can expats handle the differences in tax years between the US and India?
Indiaโs tax year runs from April to March, while the US tax year runs from January to December. Most expats file their Indian tax return first and then use the documents, like the Notice of Assessment, to prepare their US return and claim the FTC.
What are the US tax rules for IRA distributions while living in India?
Distributions from Traditional IRAs are taxed as ordinary income, while Roth IRA distributions may be tax-free if conditions are met.ย
Regardless of the type, these distributions must be reported on your US tax return. For Indian taxes, treatment may vary, so consulting a professional is recommended.
Do Indian pensions need to be included on a US tax return?
Yes, if you receive an Indian pension, it must be reported on your US tax return. Since the US taxes worldwide income, any pension incomeโwhether from India or elsewhereโneeds to be declared.ย
However, taxes paid in India on this income can usually be credited against US taxes using the FTC.
Why is professional tax advice important for expats managing retirement income?
Managing taxes on retirement income can be complex, especially with overlapping rules from the US and India. A tax advisor can:
- Help you apply foreign tax credits to avoid double taxation.
- Ensure you meet filing requirements in both countries.
- Find ways to reduce taxes using available deductions and credits.
With professional guidance, you can stay compliant and optimize your taxes to keep more of your retirement income.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.