I worked with a Singapore company 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 left 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 was closed in Singapore by them and I received the balance in my account in India in August 2024. Am I required to pay any taxes in India on receipt of these sums?
– Name withheld on request
Since you have been residing 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 global income is subject to tax in India unless it is specifically exempt under the Indian tax law.
We assume that the accumulated balance in your Singapore PF account consists of contributions made by you (employee) and the Singapore company (employer), as well as the interest accrued thereon. As per the Indian domestic tax provisions, your overseas PF account would be considered an unrecognized provident fund, and accordingly, the payments that you have received with respect to your employer’s contribution and any accrued interest thereon will become taxable in India under the head ‘income from salaries’ at your applicable slab rate (plus surcharge and cess).
Further, the payment received concerning your contribution would be considered a return of your contribution, and hence, they would not be taxed. However, accrued interest with respect to your contribution will become taxable under the heading ‘income from other sources’ at your applicable slab rate (plus surcharge and cess).
If these amounts are not taxable in Singapore, you won’t be able to claim tax credit in India against taxes payable in India. However, if these amounts are taxable in Singapore, you will be able to avail of tax credit to the extent permitted under the India-Singapore DTAA.
Non-government retirement benefits are governed by Article 19 of the India-Singapore DTAA. As per the article, pension and annuities paid to Indian residents from Singapore are only taxable in India. However, a one-time withdrawal of accumulated balance in the provident fund account would not qualify as a ‘pension’ since it is defined as periodic payments made in consideration of past services. Since it would not be covered under Article 19, the provisions of residual article i.e. Article 23 of the India-Singapore DTAA, applies which allows Singapore to tax this amount under its domestic tax law, if applicable.
An alternate view is that one-time payments could be covered under the phrase ‘other similar remuneration’ as appearing in Article 15, which deals with taxation of employment income. In the context of retirement benefits, this phrase has been interpreted in the OECD Model Tax Convention Commentary to include lump-sum payments in lieu of periodic pensions. Under Article 15, Singapore has the right to tax this amount, if applicable.
Harshal Bhuta is partner at P. R. Bhuta CAs.
