I worked for a company in Singapore from 2001 to 2020 before returning to India permanently in 2020. During my employment with that company, my employer and I contributed to their provident fund. However, since I was leaving Singapore permanently, I decided to withdraw the accumulated balance in my PF account. Due to a recent change in their rules, my Provident Fund account in Singapore was closed by them and I received the balance in my account in India in August 2024. Do I have to pay tax in India on receipt of these amounts?
– Name hidden on request
Since you have been living in India since 2020, you qualify as a resident and ordinary resident under Indian tax laws for the current financial year. As a resident, your worldwide income is subject to tax in India unless specifically exempt under Indian tax law.
We assume that the accrued balance in your Singapore PF account consists of contributions from you (employee) and the Singapore company (employer), as well as the interest accrued on it. As per the Indian domestic tax provisions, your foreign PF account is considered to be an unrecognized provident fund and accordingly, the payments received by you in respect of your employer’s contribution and any accrued interest thereon become taxable in India under the head ‘income’ . of salaries’ at the applicable rate (plus surcharges and taxes).
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In addition, the payment received in respect of your contribution will be considered a refund of your contribution and will therefore not be taxed. However, the accrued interest on your contribution becomes taxable under the heading ‘income from other sources’ at the applicable rate (plus surcharge and tax).
If these amounts are not taxable in Singapore, you will not be able to claim tax credit in India for the taxes due in India. However, if these amounts are taxable in Singapore, you can avail tax credit to the extent permitted under the India-Singapore DTAA.
Non-governmental pension benefits are governed by Article 19 of the India-Singapore DTAA. According to the article, pensions and annuities paid to Indian residents of Singapore are taxable only in India. However, a one-time withdrawal of the accumulated balance in the provident fund account would not qualify as a ‘pension’ as it is defined as periodic payments made in consideration for past services. Since this does not fall under Article 19, the provisions of the remaining Article, i.e. Article 23 of the India-Singapore DTAA, will apply, allowing Singapore to tax this amount under its domestic tax laws, if applicable.
An alternative view is that one-off payments could fall under the term ‘other similar remuneration’ as contained in Article 15, which deals with taxation of employment income. In the context of pension benefits, this phrase has been interpreted in the Commentary on the OECD Model Tax Convention to include lump sum payments instead of periodic pensions. Under Article 15, Singapore has the right to tax this amount, if applicable.
Harshal Bhuta is a partner at PR Bhuta CAs.
