Retirement fund payout for work in India taxable here: AAR

BANGALORE: The Authority for Advance Rulings (AAR) has recently held that the amount received from a superannuation fund for employment exercised in India, would be taxable in India, as per the Indo-US tax treaty. The Indian tax laws stipulate that the proceeds paid from an approved superannuation fund will be exempt from taxes consequent only to retirement and not resignation or on having attained a certain age. With job-hopping now so common, proceeds from superannuation funds are doled out to former employees prior to their actual retirement. If this ruling prompts tax officers to view tax assessments in a new light, several expats may suddenly find themselves taxable in India. Global tax planning for expats may also have to be restructured. In general, salary is taxable in the country in which the employment is exercised. The only concession available under tax treaties is a short-stay exemption. Let us take the Indo-US treaty as an example. If a person exercises employment in India for 183 days or less in a financial year, then subject to certain other conditions, he is taxed only in the United States, which is his home country. In the matter decided upon by the AAR, a former employee of Morgan Stanley, India, had received Rs 5.87 lakh from the staff superannuation fund, during the year â€˜02-03. This sum was paid to him after deducting tax at source. He had resigned from Morgan Stanley in 1998 and had proceeded to the US on another job assignment. Since the financial year ended 1999, he was a non-resident for Indian tax purposes. He applied to the AAR seeking an advance ruling on two issues. First, whether the sum received from the superannunation fund would be taxable in India in view of the Indo-US tax treaty. Second, whether such a sum would be exempt under section 10(13) of the Income Tax Act. The AAR agreed in toto with the comments of the Commissioner of Income Tax (international taxation), Bangalore. It was held that the payment received from former employment in India, would be taxable in India as salary income, in the year of receipt. Further, no exemption would be available under the Income Tax Act, as section 10(13) provided for exemption only if sums were received from an approved superannuation fund on retirement or after attaining a specified age. The AAR noted that the former employee of Morgan Stanley had not claimed that he had resigned after the age specified for voluntary retirement.

Retirement fund payout for work in India taxable here: AAR

The Authority for Advance Rulings (AAR) has recently held that the amount received from a superannuation fund for employment exercised in India, would be taxable in India, as per the Indo-US tax treaty.

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