I have accruals on Indian Employee Provident Fund. Can I claim tax treaty on Form 8833?

[pk]

@anjanr73 , I need some clarification on this  --

(a) are you US citizen/Resident( GreenCard)/Resident for tax purposes ( H1 or J visa or ? ); 

(b) are you referring to the "growth" in the PF or your contribution in 2019 or what when you say "accrual" ?

(c) I will have to research more on the PF scheme in India , but  my understanding is that it is a scheme where  in the employee and /or employer contribute  for retirement ( can be  withdrawn under certain circumstances -- this is in lieu of US retirement & tax advantaged schemes like 401/403 etc. and/or employer established retirement schemes.  Is this what you are talking about?  Is the contribution also include your US income based  income for 2019?

Namaste

pk

[anjanr73]

Hello,

I am a US resident person for tax purposes. I am not contributing to PF as I am working here and I meant the interest earned.

Thanks,

Anjan

[pk]

@anjanr73  The best I can gather on EPF scheme is that  it behaves very much like a retirement account in the USA, in that  there is no taxation till retirement eligibility or five years whichever is  longer.  Also , while you can borrow against the balance in the account, you are not allowed to withdraw except in special  situations.  Thus I would deem that the account contents are not available to you  ( constructive receipt ) and therefore  you do not report growth in the fund till distribution ( and if you are still a resident in the USA).  Also note that US may not recognize  the tax advantaged treatment given to EPF contributions nor the employer's contribution thus  when you take distribution it may be treated like a  pension distribution with zero employee basis  ( will need to read-up on  US-India tax treaty).    For 2019 tax year you do not report the growth ( the interest on your and employer's  contributions).

Namaste

pk

[dgee]

Hello, I am a resident alien staying in USA. My status in India is a Non-Resident Indian.

I have recently received some money from my previous Indian employer- Employee Provident Fund, Gratuity, Superannuation & Leave encashment. They are all tax exempt in India. I am not really sure how to account them individually in US tax filing?

As a tax resident in US, Can i consider them tax exempt as social security benefits under India  US Tax treaty? And how do i report them under tax filing, if so needed (Form 8833 seem not applicable for tax residents, and instructions says that its not to be filed social security benefits).

Would appreciate any guidance on this matter.

[pk]

@dgee , first my apologies for such a delay in my response -- maafi kor do

1. EPF --as understand this scheme is similar to  tax advantaged  retirement savings plans ( like 401s)  in the USA  in the sense  that (a) employee  & employer contributes ( a fixed contribution plan ) as tax advantaged  contribution; (b) there is loan facility available ; (c) distribution is available after retirement / age .  But unlike the US version, India's  EPF can be terminated ( don't know the exact conditions/ terms but probably transportable  like US pensions), i.e. total distribution without tax penalty because the growth is not taxed  -- like Roth.  Thus for US tax purposes you have an account  where there is basis  for the in the transaction.  It is unregulated retirement plan for US purposes.  So at distribution, you enter the details as if it is from a US retirement plan -- gross distribution,  Basis  the amount you have contributed ( total accumulated amount ), call it total distribution. That should work.  The only issue you may face is that if you are under 55, TurboTax  would compute  the 10% penalty, you probably can use one of the applicable dispensations  ( I don't know  your situation )

2. Gratuity, superannuation,  leave / vaca encashment--- (a)  these are based on earlier years of  foreign employment and before you became tax resident and probably taxed  at source; (b) at least some of these would have showed up on your W-2  had this been in the USA;  (c) these are one off.  Thus my opinion would be to recognize  as "Other" income.  This does mean that you will pay taxes on these as ordinary income but will not attract  FICA ( and you US employer  will not recognize  and/or contribute ).  If these are not taxed at source  ( India ) then you will be taxed only once  and sort of clean the books.

US-India tax treaty does not address this issue directly.

Does this make sense?

Is there more I can do for you ?

Namaste ji

pk

[dgee]

Hi pk,

Thanks a lot for your response.🙏

EPF/superannuation/pension may be non- taxable in USA for Indian citizens in the US. Though there are multiple opinions circulating on the internet, i feel that analysis at below website is quite rational and convincing in the light of US India tax treaty. Would appreciate your candid opinion on the same.

https://www.castroandco.com/blog/2019/december/u-s-tax-treatment-of-indian-employee-provident-f/  

Gratuity and leave encashment are not directly addressed in US India tax treaty, and i am also of the opinion that they will be taxed in US.

Namaste

[pk]

@dgee , thank you for the article. Having gone over the treaty again and  more readings from a number legal  pubs plus GoI, my conclusion is this :

(a) if one can sustain that EPF is equivalent  at least  mostly to US Social Security;

(b) one follows the same rules as for SSA

and 

(c) agrees with the language of the treaty 

then ONLY the payor ( in this case India ) has the right  to tax this.  Thus you should be immune from US taxation.

Then comes my problem --if your monies are not coming from EPF but the amounts  held  by your employer ( before transferring to the EPF management org., then this is not EPF. It is basically your own contribution.   If that is case  then I would argue that this return of your own money  and not new income and therefore is not taxable or recognizable ( reportable ).

So you need to tell me either I am correct or give me more details about the source of this monies . 

I  can answer till Sunday morning  ( my time  as I am out-of-pocket  from Sunday after noon through Monday late  ( PDT ).

Namaste

pk