Is my Indian pension taxed in India or where I now live?
Both countries generally have a claim, and which one yields is decided by the pension article of the specific treaty rather than by any general principle. India may deduct at source on the payment as it is made, while the country you live in taxes the same income and gives credit for Indian tax properly payable. The article itself distinguishes between types of pension, so the answer for one retiree is not the answer for another drawing a similar sum. Reading the pension article that applies to your treaty, against the actual source of your pension, is the first piece of work rather than the last.
Why is tax deducted in India on a pension paid to me abroad?
Because deduction at source attaches to the payment at the point it is made, by the payer, under Indian rules. It happens before any treaty position has been considered and before your country of residence has taxed anything. The payer is not deciding your liability; it is collecting an advance against it. Where the treaty limits or removes India's claim, the correction comes through the Indian return, or prospectively through an application to have deduction made at a lower rate. Until one of those is in place the deduction continues, which is why retirees often see the same shortfall in payment after payment.
Does it matter whether mine is a government pension?
It matters a great deal. Most treaties treat pensions paid in respect of government service differently from pensions arising out of private employment, and lump sums differently again. So the character of the pension, not just its amount, decides which country has the primary claim and what relief the other must give. That makes the source of the entitlement the thing to establish first: which employer or authority the pension arises from, and under what service. Two retirees living on the same street with the same monthly income can have opposite answers for that reason alone.
Can I claim credit for the Indian tax deducted from my pension?
Where your country of residence taxes the pension and the treaty leaves India with a claim, relief generally comes by credit. Two things limit it. Credit follows the tax properly payable under the treaty, not necessarily the amount the payer deducted, so a deduction made without the treaty in view can exceed what is creditable. And credit is given in the period the income falls in, which can differ from the period the deduction was made in, because the two countries measure the year differently. The Indian return is what fixes the creditable figure, so it is worth filing even where the sums are modest.
Is a lump sum from an Indian pension treated differently?
Usually, yes. Treaties commonly deal with periodic pension payments in one way and lump sums in another, and the country of residence may characterise a commuted sum differently again, sometimes as income of the single year it was received in. That combination can produce a much larger claim in one year than the underlying entitlement would suggest, and can push the credit position out of line. A decision to commute is therefore a cross-border decision as much as a retirement one, and it is far easier to model before the election is made than to unwind afterwards.
Will the Indian payer stop deducting if I give them my treaty details?
Not on the strength of a letter. The payer deducts under Indian rules and needs a proper basis before it can deduct less, which means an application supported by the treaty position and by evidence of your residence, rather than an instruction from you. Until that basis is in place the deduction continues and the correction is made through the Indian return. If your pension is paid regularly, dealing with the deduction rate prospectively is usually worth more than repeated refund claims, because each claim ties up money for the time it takes to be processed.
What happens if the two countries disagree about which of them can tax me?
The treaty has a procedure for exactly that. You apply to the competent authority in your residence country, which takes the case up with its counterpart, and the two negotiate a position that removes the double taxation. Some treaties add binding arbitration if they cannot agree. It is slow and it runs on documents, so the practical work is preserving the record and filing protective claims while the clock runs. See our treaty work.
How do I claim a tax treaty benefit?
Three things usually have to line up: proof you are resident of the treaty country, a declaration to whoever is paying you so they withhold at the treaty rate rather than the statutory one, and the claim itself on the return of the country giving relief. Do it before the payment where a reduced rate is available — claimed afterwards it becomes a refund exercise instead, which takes far longer. See certificates of residency.
