UK Pension Income: how is it taxed for NRIs in India?
I am a retired Non-Resident Indian (NRI) living in the UK for over four decades and plan to relocate permanently to India. I currently receive a monthly pension in my UK bank account under the Nest Pensions scheme, to which I contributed through my employer during my working years. Will this pension be taxable in India after I relocate, even if it continues to be received in the UK?
—Name withheld on request
Based on the facts you provided, it is assumed that upon your return to India, you would initially qualify as a Resident but Not Ordinarily Resident (RNOR) and subsequently become a Resident and Ordinarily Resident (ROR).
As an RNOR, you would be taxable in India only on income which is received or deemed to be received in India, or accrues or arises, or is deemed to accrue or arise, in India. Accordingly, during the period you qualify as an RNOR, the pension payout received under the UK workplace pension scheme in your UK bank account would not be taxable in India, considering that it is neither received nor deemed to be received in India nor accrues or arises, or is deemed to accrue or arise, in India. This is based on the principle that pension income accrues in the jurisdiction where the underlying past employment services were rendered.
Once you become a ROR in subsequent years, your global income will be taxable in India. Accordingly, the UK pension income would become taxable in India even if it continues to be received in your UK bank account.
This pension income would be taxable as salary income and should be converted into rupees using the State Bank of India (SBI) Telegraphic Transfer (TT) buying rate prevailing on the last day of the month immediately preceding the month in which the pension is due or received. You would also be eligible to claim the standard deduction against such pension income.
Even under the India-UK Double Taxation Avoidance Agreement (DTAA), pension income received by a resident of India from the UK would be taxable only in the country of residence, i.e., India in your case.
From the perspective of India’s foreign exchange law, you would become a resident upon your permanent return to India. The UK pension received after your return would not be required to be brought into India, as it relates to your employment services and contributions rendered while resident in the UK.
Harshal Bhuta is a Mumbai-based chartered accountant
