U.S. TAX GUIDE IN INDIA

Why must Americans living in India include their retirement earnings on a US return?

If you are a US citizen or Green Card holder residing in India, you must report any retirement income on a US tax return. This rule applies to Social Security benefits, pension payments, and withdrawals from accounts like 401(k)s or IRAs.

Table of Contents

The United States taxes worldwide income, which means you must disclose these amounts even if you have already paid tax in India. 

Not reporting can result in penalties, so many people rely on the Foreign Tax Credit to reduce overlapping obligations.

Which treaty articles address government and private pensions?

The US-India tax treaty contains specific articles that set out how to tax certain retirement payments. 

Article 19 deals with government pensions, and Article 20 covers private pensions. 

These provisions help assign taxing rights between India and the United States, preventing both countries from taxing the same payment in full. 

You can also qualify for credits or exemptions, depending on which article applies to your specific pension arrangement.

How does Article 19 treat government pension payments?

Article 19 typically says that government pensions are taxed by the country that issues them. 

For instance, if you receive a public-sector pension from India while living in India, that pension remains taxable in India. If you receive an Indian government pension but move to the US, the United States usually has the primary right to tax it. 

The same principle works the other way around: US government pensions remain taxable in the United States, and India generally should not impose tax on them as long as they fall under the scope of Article 19.

Are private pensions handled differently under Article 20?

Article 20 usually assigns taxation of private pensions to the country where the individual resides. If you live in India and receive a pension from a non-government employer in India, it is generally taxed locally, though the US may still consider it part of your worldwide income. 

If both nations try to tax the same pension, you can often claim a Foreign Tax Credit (FTC) on your US return for the Indian taxes paid. 

If you move to the United States and continue receiving a private Indian pension, the US generally taxes it, and you might seek credits for any tax withheld in India.

Should Indian pensions always appear on a US tax filing?

Yes. Because the US taxes you on global income, any Indian pension or annuity must go on your US return.

Can Foreign Tax Credits prevent you from being taxed twice?

The FTC subtracts taxes paid abroad from the tax you owe in the US on the same income. It cannot exceed the US tax liability on that income, but in many cases it covers the entire amount. 

For example, if your Indian pension triggers INR 100,000 in local tax and you convert that into USD for your US return, the same figure can offset your US tax liability for that pension. 

This system exists so that a single income stream is not taxed fully by both India and the US.

Do different tax years in India and the US create filing problems?

Yes, India’s fiscal year runs from April through March, while the US uses January through December. 

Many American expats file their Indian tax return first so they know how much Indian tax they have paid. Then they prepare their US return, applying the foreign tax credits as needed. 

The IRS offers automatic filing extensions for taxpayers living abroad, which makes it easier to align your returns.

Are IRA or 401(k) withdrawals treated differently if you live in India?

The IRS generally taxes distributions from Traditional IRAs and 401(k) plans as ordinary income, regardless of your location. Roth IRA distributions might be tax-free in the US if you meet holding requirements, but India may treat those withdrawals differently. 

You should verify whether India imposes taxes on those sums. If it does, you may still claim a Foreign Tax Credit on your US return. The important thing to do is to confirm how local rules define those payments so you do not miss out on treaty provisions or credits.