Q595. Tax on Pension income

under Double Tax Avoidance

Agreement. . .

Question: I receive a LIC annuity in a local bank Account . I took Australian Citizenship few years ago. I am currently residing in India and planning to migrate back to Australia soon (Max by April 2014). Once I become NRI (Australian resident), a) Can I retain the local bank account to continue to receive the Annuity and ask the bank to repatriate the amount. The reason being LIC does not do NEFT to NRI accounts. b) Do I pay Indian Tax on the Annuity paid to me. Do I need to even submit tax returns. c) The DTAA between India and Australia says the following, ARTICLE XVIII - Pensions and annuities - 1. Pensions (not including pensions referred to in Article 19) and annuities paid to a resident of one of the Contracting States shall be taxable only in that State. Does this mean that if I am Australian Resident receiving Annuity from India I pay Tax on it only in India. Answer: Regarding your questions: 1. Once you become a non-resident of India you cannot continue to have a resident bank account. You must switch over to a NRO account. According to *RBI guidelines: ‘NEFT can be used to transfer funds from or to NRE and NRO accounts in the country.’ NRO accounts are always kept in India regardless of which country they are opened in. However, NEFT cannot be used to transfer funds abroad. When you move, open a NRO account and have your annuity/pension sent to your NRO account. Then make arrangements to have the funds sent to you in Australia from your NRO account. Your bank where you open the NRO account should be able to guide you on the procedure. 2. You need to submit tax returns in India only if you have taxable income. Generally, non- residents have to pay taxes in India on income that is earned in India. However, when it comes to pension income, the DTAA does provide relief. (see #3) 3. Regarding item ‘c’ of your email, where you state: “Does this mean that if I am Australian Resident receiving Annuity from India I pay Tax on it only in India.” My understanding is that: o Regardless of which state is the source of the pension income, the right to tax pension income is of the state where the individual is considered to be a resident. o If income is from pension, then the state where the pension is received (India in your case) does not have the right to tax this pension under DTAA. Australia, where you would be a resident, can tax your pension. When you read ARTICLE XVIII - Pensions and annuities - 1. Pensions (not including pensions referred to in Article 19) and annuities paid to a resident of one of the Contracting States shall be taxable only in that State. My opinion would be the the words ‘shall be taxable only in that State’ refer to the State where the person is resident (as defined under Article 4 of DTAA). You should speak to a Chartered Account in India and get clarification of the rules and plan accordingly.