In this video, Abhinav is sharing finer provisions of Indian tax law on Taxation of US Social Security benefits in India
Video transcript below (note that auto-transcription may cause some errors):
Hi. This is Abhinav, and I welcome you. In this video, I’m sharing, the India tax on Social Security benefits that, you receive from US. So, in US, there is the system of receiving Social Security benefits if you have completed a certain number of years of service and all those things, those criteria there. So once the person completes that, then even if he or she moves back to any other country, he continues to receive Social Security benefit, by the US government.
So what would be for example, a person comes back to India, so what would be the Indian taxation on the Social Security money that one gets? Right? So let us discuss on that. Now first of all, important to understand that if the person’s residential status in India is nonresident or resident and not ordinary resident as per section 6 of the income tax act, of India, then that there is no tax implication to that person in India on that money. Right?
So you’ve returned back to India. You still qualify as a nonresident for the particular financial year. Right? In India, we have the financial year concept. April to March, you have to see what is your residential status.
So if the residential status is nonresident or resident and not ordinary resident, then there is no tax in India on that money that you receive from US. Right? Even if you receive that money in US bank account, there is no tax implication to you in India because the fundamental principle is that for these statuses, the foreign incomes are not taxable. Right? And there is also no disclosure or reporting requirement in India.
Right? Now exception to that there is an exception to that is that if the amount is received directly into an Indian bank account, right, now you it can be any bank account. It can be a NRE account. It can be a NRO account. It can be a resident account, whichever account.
But if it is received directly in Indian bank account, then the amount is taxable to you in India irrespective of your residential status in India. Right? Because as per the Indian tax provisions, if the income is directly received in a is directly received in India, it is taxable in India. There is an exception for seafarers whose salary gets credited, in NRE Bank account. There is a circular number 3/2017 by CBDT.
That’s a separate thing, but this money will be taxable to you in India. In this case, if there is a double taxation, right, that is the amount is getting taxed in US also, The amount is taxed in India also. Then you have to see the available relief under the India US DTAA. Right? DTAA is double tax avoidance agreement.
Now you have to see that document, the treaty, what relief the treaty gives you. Right? But for checking the relief, to be eligible to qualify for the relief, you need to be a resident of at least one country. Either you need to as per their internal tax law, either you need to be a resident of India or you need to be resident of US. If you are a dual resident, then you have to check as per article 4 of the DTAA as to what which country you tiebreak into.
Right? So but at least you have to be a resident of both one country. If you are a resident of no country, you’re a nonresident of US, you are nonresident of India, then you cannot claim the DTA benefits. Right? And then in that case, there is no question of India taxation because for a nonresident, the amount is not taxable in India.
Right? So okay. Now so that’s why it is very, very highly recommended that if you have US incomes, like US investments or US incomes, always have a US bank account. Right? Indian FEMALE allows you to keep a bank account in US, keep your investments from your earnings in US.
You need not to be to bring it back to India. Right? So keep a bank account in US, take the credit in the US bank account, and then remit the money to India. Remittance is not taxable. Direct credit into an Indian bank account is always taxable irrespective of your residential status.
Right? Okay. Now if you are a so nonresident and RNOR, you which is not taxable. No reporting requirement in India. But if you are a ROR, resident and ordinary resident, in that case, it is taxable to this money is taxable to you as per Indian tax law.
So India’s internal tax law totally ignores whatever the US tax law says on this. So US has certain provisions that up to a certain amount is taxable and rest is tax free and all that. India will totally ignore it. For India, it is taxable. It is taxable generally as other sources income, not salary income because there is no employer relationship that exists.
It’s basically in the other sources income, and it is taxable as per the Indian tax law. And here, since it is taxable, you need to check whether there is a DTA benefit. Right? Okay. Now if you see the India US DTA, there is a article 20(2).
Right? And I’m reproducing that article here. Right? And I’m adding the respective, the context in terms of the name of the country. Right?
So if you read the article 20(2), it says, notwithstanding paragraph 1 and subject to the provisions of article 19, remuneration and pension in respect of government service, social service so there is a specific provision for Social Security benefits in 22. So you did not check article 23, which is the other income. Right? In 22 itself, there is a provision, Social Security benefits and other public pensions paid by a contracting state, which is in this case US, to a resident of the other contracting state, which is India because the person is a r o r as per the Indian tax law, or a citizen of the United States shall be taxable only in the first mentioned state. What is the first mentioned state?
US. Right? So now what is the implication? Right? The implication for this is that if you are a resident, an only resident as per Indian tax law, or you are a US citizen.
Right? Now if so in both these cases, the income is not taxable to you in India. It is taxable only to you in the US. Right? So there is no India tax in tax implication.
Right? Now what happens in case of a dual in case of a dual residency, the person is a resident of India as per as the person is a resident of US. In that case in that case, you have to check if the person tie breaks to India as per article 4, then the income is not taxable to you in India. Right? Now question arises that the specific mention is there of citizen of United States.
It doesn’t mention anything on the green card holders. Right? So what happens to green card holders? Now here, again, the person, the green card holder, has to be an ROR as per the Indian tax law to claim the DTA benefit in India. If that g GC holder is an ROR till n r and r naught, there is no tax implication.
But if the person is in ROR, then the person can claim the DTA benefits in India. Right? Now whether form 10 f is required because, generally, what happens is, if India allows credit of, the assessee to take a DTA benefit, but says that you need to provide form 10 f electronically, you’ll prefer furnish, right, in the in the income tax department website. So now that requirement is only if you are a nonresident. Right?
So here, the question of a nonresident getting taxed on Social Security does not arise because it is only taxable once you are a if you are a resident. Right? So in that case, since you are a resident, the this requirement of form 10 f does not arise. Right? Okay.
Now for filing at the time of filing the tax returns, you need to ITR 1 won’t work. Right? Because what is happening is this is a foreign source income. Right? So you need to fill schedule FSI.
Right? So you need to use either ITR 2 or if you have business income in India, you can use ITR 3, and you can disclose. This is just a suggestion from my end. This is just a recommendation how you can disclose. Definitely one is you’re going to schedule OS.
And in schedule OS, there is a section whereby you disclose the amounts charged with special rates as per DTA. Right? Even in that section, there is a, there you can also add nil if there is a if the income is not chargeable to tax in India, you can enter nil. So you can enter nil there and quote the DTA article reference 19 subsection 2. Right?
I’m sorry if I’m I’ve just entered 90. Sorry. It’s 20 subsection 2. It’s my mistake. So just enter here 20 subsection 2 maintaining the tax rate as nil, then go in schedule FSI.
Schedule FSI, you need to fill. So, basically, you mentioned here when you mentioned the income, tax payable in US, whatever tax that you have pay payable in US you need to mention. In India, you only mentioned tax as per normal provisions in India as 0. Right? There will be no tax relief that you’ll get, right, because the system automatically will capture the lower of the tax taxation as per US and India.
So, anyways, the result will come to 0. So since there is no foreign tax credit that you are claiming on this income, you can write it as 0. No need to file form 67 as no tax relief is claimed, right, on this tax that is paid in US. Right? So you no need to file form 67.
And schedule I would also suggest that you go in schedule e I, which is scheduled for exempt income and mention the amount of income there because it is exempt to you in India because of the DTA. So safe side, you can also go in schedule e I and fill that income. Right? So this is a bit about the India taxation of Social Security benefits. If you have any feedback, any comments, do share in the, comment section.
Thank you so much for watching.